As filed with the Securities and Exchange Commission on May 21,November 12, 2004
Registration No. 333-112589
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 12 TO
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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iSHARES(R) COMEX(R) GOLD TRUST
SPONSORED BY BARCLAYS GLOBAL INVESTORS, N.A.
(Exact name of Registrant as specified in its charter)
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New York 6189 [.]
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
c/o Barclays Global Investors, N.A.
45 Fremont Street
San Francisco, CA 94105
(415) 597-2000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Barclays Global Investors, N.A.
45 Fremont Street
San Francisco, CA 94105
(415) 597-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
David Yeres, Esq. S. Paul Sacks, Esq. Sara Hanks
Clifford Chance US LLP Barclays Global Clifford Chance US LLP
200 Park Avenue31 West 52nd Street Investors, N.A. 2001 K Street, NW
New York, NY 1016610019 45 Fremont Street Washington, DC 20006
San Francisco, CA 94105
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Calculation of Registration Fee
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Proposed Proposed
Title of each maximum maximum Amount of
class of securities Amount to be offering price aggregate registration
to be registered registered per iShare/(1)/ offering price/(1)/ fee/(2)/
- ---------------------------------------------------------------------------------
iShares...... 50,000,000 $39.87 $1,993,500,000.00 $252,576.45
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(1)Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(d) under the Securities Act of 1933. The initial
Baskets (a Basket consists of 50,000 iShares) will be offered at a per
iShare price equal to the value of one-tenth (1/10) of an ounce of gold as
measured by the settlement price for spot month gold futures announced by
the COMEX on the date of formation of the iShares COMEX Gold Trust. The
price of gold used to calculate the proposed maximum offering price per
share is based upon the settlement price for spot month gold futures
announced by the COMEX on February 2, 2004. (Spot month is the COMEX-traded
gold futures contract closest to maturity on a given day).
(2)Previously paid.
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said section 8(a), may determine.
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The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and we are not
soliciting an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
PRELIMINARY Subject to Completion ., 2004
[.] iShares(R)
iShares COMEX(R) Gold Trust
The iShares COMEX Gold Trust will issue shares representing fractional
undivided beneficial interests in its net assets. The assets of the trust will
consist primarily of gold held by the custodian on behalf of the trust. The
objective of the trust is for the shares of the trust, called "iShares(R)", willto
reflect the price of gold less the trust's expenses and liabilities. The
iShares will be listed and traded on the American Stock Exchange under the
symbol "IAU". Market prices for the iShares may be different from the net asset
value per iShare. Barclays Global Investors, N.A. is the sponsor of the trust,
The Bank of New York is the trustee of the trust, and The Bank of Nova Scotia
is the custodian of the trust. The trust is not an investment company
registered under the Investment Company Act of 1940. The trust is not a
commodity pool for purposes of the Commodity Exchange Act, and its sponsor is
not subject to regulation by the Commodity Futures Trading Commission as a
commodity pool operator, or a commodity trading advisor.
The trust intends to issue additional iShares on a continuous basis. The
trust will issue and redeem iShares only in blocks of 50,000 or integral
multiples thereof. A block of 50,000 iShares is called a "Basket". These
transactions will be in exchange for gold. Only institutions and large
investors that become authorized participants by entering into a contract with
the sponsor and the trustee may purchase or redeem Baskets.
On [ ], 2004, the settlement price announced by COMEX for the spot month
gold futures contract was $[ ]. (On any day, the spot month gold futures
contract is the COMEX-traded gold futures contract closest to maturity.)
Except when aggregated in Baskets, iShares are not redeemable securities.
Investing in the iShares involves significant risks. See "Risk Factors"
starting on page 6.8.
Neither the Securities and Exchange Commission (SEC) nor any state
securities commission has approved or disapproved of the securities offered in
this prospectus, or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The iShares are not interests in nor obligations of either the sponsor, the
trustee, or the initial purchaser. The iShares are not insured by the Federal
Deposit Insurance Corporation or any other governmental agency. The iShares
COMEX Gold Trust is not sponsored, endorsed, sold or promoted by Commodity
Exchange, Inc., nor does Commodity Exchange, Inc., make any representation
regarding the advisability of investing in the trust.
"iShares" [insert logo] is a service mark of Barclays Global Investors, N.A.
"COMEX" [insert logo] is a registered service mark of Commodity Exchange,
Inc.
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On , 2004, Barclays Capital Inc., also called the Initial
Purchaser, subject to conditions, agreed to purchase 150,000 iShares, which
comprise the initial Baskets, as described in "Plan of Distribution." Delivery
of the initial Baskets is expected to be made on or about [.], 2004. The trust
will receive all proceeds from the offering of the initial Baskets in gold in
an amount equal to the full initial price for the initial Baskets.
Per iShare/(1)/ Per Basket
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Initial public offering price for the initial Baskets/(2)/ $ [.] $ [.]
- --------
(1)The initial Baskets will be created at a per Share price equal to the value
of one-tenth (1/10) of an ounce of gold on the date of formation of the
iShares COMEX Gold Trust.
(2)The Initial Purchaser may receive commissions/fees from investors who
purchase iShares from the initial Baskets through their commission/fee-based
brokerage accounts.
Barclays Capital
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The date of this prospectus is [.], 2004.
TABLE OF CONTENTS
Page
----
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................. iii
GLOSSARY....................................................... iii
PROSPECTUS SUMMARY............................................. 1
Trust Structure, the Sponsor, the Trustee and the Custodian. 1
Trust Objective............................................. 2
Principal Offices........................................... 23
THE OFFERING................................................... 34
SUMMARY FINANCIAL CONDITION.................................... 57
RISK FACTORS................................................... 68
USE OF PROCEEDS................................................ 1012
THE GOLD INDUSTRY.............................................. 1113
Introduction................................................ 1113
Market Participants......................................... 1113
World Gold Supply and Demand (1993 - 2002).................. 1214
Historical Chart of the Price of Gold....................... 1314
OPERATION OF THE GOLD MARKET................................... 1416
Futures Exchanges........................................... 1416
Other Exchanges............................................. 1516
Exchange Regulation......................................... 1517
Over-the-Counter Market..................................... 1517
London Market Regulation.................................... 1618
Not a Regulated Commodity Pool.............................. 1618
BUSINESS OF THE TRUST.......................................... 1719
Trust Objective............................................. 1719
Secondary Market Trading.................................... 1719
Valuation of Gold; Computation of Net Asset Value........... 1820
Trust Expenses.............................................. 1921
Impact of Trust Expenses on the Trust's Net Asset Value..... 1921
DESCRIPTION OF THE iSHARES AND THE TRUST AGREEMENT............. 2022
Deposit of Gold; Issuance of Baskets of iShares............. 2022
Redemption of Baskets of iShares; Withdrawal of Gold........ 2123
Certificates Evidencing the iShares......................... 2123
Cash and Other Distributions................................ 2224
Voting Rights............................................... 2224
Fees and Expenses of the Trustee............................ 2224
Trust Expenses and Gold Sales............................... 2224
Payment of Taxes............................................ 2325
Evaluation of Gold and the Trust Assets..................... 2325
Amendment and Termination................................... 2325
Limitations on Obligations and Liability.................... 2426
Requirements for Trustee Actions............................ 2426
i
TABLE OF CONTENTS
(continued)
Page
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THE SECURITIES DEPOSITORY; BOOK-ENTRY-ONLY SYSTEM; GLOBAL SECURITY........................ 2527
THE SPONSOR............................................................................... 2628
The Sponsor's Role..................................................................... 2628
The Sponsor's Fee...................................................................... 2628
THE TRUSTEE............................................................................... 2729
The Trustee's Role..................................................................... 2729
THE CUSTODIAN............................................................................. 2729
The Custodian's Role................................................................... 27
CUSTODY OF THE TRUST'S GOLD............................................................... 29
Custody of the Trust's Gold............................................................ 30
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES............................................. 3031
Taxation of the Trust.................................................................. 3031
Taxation of U.S. Shareholders.......................................................... 3132
Maximum 28% Long-Term Capital Gains Tax Rate for U.S. Shareholders Who Are Individuals. 3233
Brokerage Fees and Trust Expenses...................................................... 3233
Investment by Regulated Investment Companies........................................... 3233
Investment by Certain Retirement Plans................................................. 3233
Taxation of Non-U.S. Shareholders...................................................... 3334
United States Information Reporting and Backup Withholding............................. 3334
Taxation in Jurisdictions Other Than the United States................................. 3334
ERISA AND RELATED CONSIDERATIONS.......................................................... 3334
PLAN OF DISTRIBUTION...................................................................... 3536
LEGAL MATTERS............................................................................. 3839
License Agreements..................................................................... 38Agreement...................................................................... 39
EXPERTS................................................................................... 3839
WHERE YOU CAN FIND MORE INFORMATION....................................................... 3839
REPORT OF THE INDEPENDENT AUDITORS........................................................ 3940
FORM OF STATEMENT OF FINANCIAL CONDITION.................................................. 3940
ii
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes statements which relate to future events or future
performance. In some cases, you can identify such forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or the negative of these terms or other
comparable terminology. All statements (other than statements of historical
fact) included in this prospectus that address activities, events or
developments that will or may occur in the future, including such matters as changes in
commodity prices and market conditions (for gold and the iShares), the trust's
operations, the sponsor's plans and references to the trust's future success
and other similar matters are forward-looking statements. These statements are
only predictions. Actual events or results may differ materially. These
statements are based upon certain assumptions and analyses made by the sponsor
on the basis of its perception of historical trends, current conditions and
expected future developments, as well as other factors it believes are
appropriate in the circumstances. Whether or not actual results and
developments will conform to the sponsor's expectations and predictions,
however, is subject to a number of risks and uncertainties, including the
special considerations discussed in this prospectus, general economic, market
and business conditions, changes in laws or regulations, including those
concerning taxes, made by governmental authorities or regulatory bodies, and
other world economic and political developments. See "Risk Factors."
Consequently, all the forward-looking statements made in this prospectus are
qualified by these cautionary statements, and there can be no assurance that
the actual results or developments the sponsor anticipates will be realized or,
even if substantially realized, that they will result in the expected
consequences to, or have the expected effects on, the trust's operations or the
value of the iShares. Moreover, neither the sponsor, the initial purchaser, nor
any other person assumes responsibility for the accuracy or completeness of the
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.
GLOSSARY
In this prospectus, each of the following terms has the meaning set forth
below:
"AMEX" -- The American Stock Exchange LLC.
"Authorized Participant" -- A person who, at the time of submitting to the
trustee an order to create or redeem one or more Baskets (1) is a registered
broker-dealer, (2) is a DTC Participant or an Indirect Participant, and (3) has
in effect a valid Authorized Participant Agreement.
"Authorized Participant Agreement" -- An agreement entered into by each
Authorized Participant, the sponsor and the trustee which provides the
procedures for the creation and redemption of Baskets.
"Basket" -- A block of 50,000 iShares or such number of iShares as the
trustee, in consultation with the sponsor, may from time to time determine.
"Basket Gold Amount" -- The amount of gold (measured in Fine Ounces),
determined on each Business Day by the trustee, which Authorized Participants
must transfer to the trust in exchange for a Basket, or will receive in
exchange for each Basket surrendered for redemption.
"Business Day" -- Any day other than (i) a Saturday or a Sunday, or (ii) a
day on which the AMEX is closed for regular trading.
"CFTC" -- Commodity Futures Trading Commission, an independent agency with
the mandate to regulate commodity futures and option markets in the United
States.
"Code" -- The United States Internal Revenue Code of 1986, as amended.
"COMEX" -- The exchange market on gold futures contracts operated by
Commodity Exchange, Inc., a subsidiary of New York Mercantile Exchange, Inc.
iii
"Commodity Exchange Act" -- The United States Commodity Exchange Act of
1936, as amended.
"Custodian" -- The Bank of Nova Scotia, a bank organized under the laws of
Canada.
"Custody Agreement" -- The agreement between the trustee and the custodian
governing the custody of the trust's gold.
"DTC" -- The Depository Trust Company, a limited purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the United States Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934.
"DTC Participant" -- An entity which, pursuant to DTC's governing documents,
is entitled to deposit securities with DTC in its capacity as a "participant".
"ERISA" -- The Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" -- The United States Securities Exchange Act of 1934, as
amended.
"FSA" -- The Financial Services Authority, an independent non-governmental
body which exercises statutory regulatory power under the FSM Act.
"FSM Act" -- The United Kingdom Financial Services and Markets Act 2000.
"Fine Ounce" -- An Ounce of 100% pure gold. The number of Fine Ounces in a
gold bar may be calculated by multiplying the gross weight in Ounces by the
fineness, expressed as a fraction of the fine metal content in parts per 1000.
"Indirect Participant" -- An entity which has access to the DTC clearing
system by clearing securities through, or maintaining a custodial relationship
with, a DTC Participant.
"Initial Purchaser" -- Barclays Capital Inc.
"IRA" -- Individual retirement account.
"IRS" -- Internal Revenue Service.
"iShares" -- Units of fractional undivided beneficial interest in the net
assets of the trust which are issued by the trust.
"LBMA" -- The London Bullion Market Association, a trade association that
acts as the coordinator for activities conducted on behalf of its members and
other participants in the London bullion market.
"London Good Delivery Bar" -- A bar of gold meeting the London Good Delivery
Standards.
"London Good Delivery Standards" -- The specifications for weight,
dimensions, fineness (or purity), identifying marks and appearance of gold bars
as set forth in "The Good Delivery Rules for Gold and Silver Bars" published by
the LBMA.
"NASD" -- National Association of Securities Dealers.
iv
"NAV" -- Net asset value per iShare. See "Business of the Trust -- Valuation
of Gold; Computation of Net Asset Value" for a description of how the net asset
value of the trust and the NAV are calculated.
"Non-U.S. Shareholder" -- A shareholder that is not a U.S. Shareholder.
"NYMEX" -- New York Mercantile Exchange, Inc.
"OTC" -- The global Over-the-Counter market for the trading of gold which
consists of transactions in spot, forwards, and options and other derivatives.
"Ounce" -- A troy ounce, equal to 1.0971428 ounces avoirdupois.
"Avoirdupois" is the system of weights used in the U.S. and Great Britain for
goods other than precious metals, gems and drugs. In that system, a pound has
16 ounces and an ounce has 16 drams.
"Plans" -- Employee benefit plans and certain other plans and arrangements,
including individual retirement accounts and annuities, Keogh plans, and
certain collective investment funds or insurance company general or separate
accounts in which such plans or arrangements are invested, that are subject to
ERISA and/or section 4975 of the Code.
"SEC" -- The Securities and Exchange Commission.
"Securities Act" -- The United States Securities Act of 1933, as amended.
"Shareholders" -- Owners of beneficial interests in the iShares.
"Sponsor" -- Barclays Global Investors, N.A., an indirect subsidiary of
Barclays Bank PLC.
"TOCOM" -- The Tokyo Commodity Exchange.
"Tonne" -- One metric tonne which is equivalent to 1,000 kilograms or
32,150.7465 troy ounces.
"Trust" -- The iShares COMEX Gold Trust, a New York trust formed pursuant to
the Trust Agreement.
"Trust Agreement" -- The Depositary Trust Agreement among the sponsor, the
trustee, the registered and beneficial owners from time to time of iShares and
all persons that deposit gold for creation of iShares under which the trust is
formed.
"Trustee" -- The Bank of New York, a banking corporation organized under the
laws of the State of New York with trust powers.
"Unallocated" -- Gold is said to be held in unallocated form at a custodian
when the person in whose name gold is so held is entitled to receive delivery
of gold in the amount standing to the credit of that person's account, but that
person has no ownership interest in any particular gold that the custodian
maintaining the account owns or holds. In contrast, gold is held in "allocated"
form when specific bars of gold held by the custodian are identified as the
property of the person holding the "allocated" account.
"U.S. Shareholder" -- A Shareholder that is (1) an individual who is treated
as a citizen or resident of the United States for United States federal income
tax purposes; (2) a corporation or partnership created or organized in or under
the laws of the United States or any political subdivision thereof; (3) an
estate, the income of which is includible in gross income for United States
federal income tax purposes regardless of its source; or (4) a trust, if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, or a trust that
has made a valid election under applicable Treasury Regulations to be treated
as a domestic trust.
v
PROSPECTUS SUMMARY
This section does not contain or summarize allAlthough the information about the
trust and the iShares contained insponsor believes that this prospectus whichsummary is material or may be
important to you. Youmaterially complete, you
should read the entire prospectus, including "Risk Factors" beginning on page
6,8, before making an investment decision about the iShares.
Trust Structure, the Sponsor, the Trustee and the Custodian
The trust was formed on [.], 2004 when the sponsor and the trustee signed
the Depositary Trust Agreement ("Trust Agreement") and the Initial Purchaser
made the initial deposit for issuance of three Baskets. 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 will 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 will issue iShares only in Baskets of 50,000 or integral multiples
thereof. Baskets of iShares will be redeemed by the trust in exchange for the
amount of gold corresponding to their redemption value. Individual iShares will
not be redeemed by the trust, but will be listed and traded on the American
Stock Exchange under the symbol "IAU". 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 material
terms of the trust are discussed in greater detail under the section
"Description of the iShares and the Trust Agreement". The trust is not a
registered investment company under the Investment Company Act of 1940 and is
not required to register under such act.
The trust's sponsor is Barclays Global Investors, N.A., a national banking
association chartered in the United States and a wholly-owned subsidiary of
Barclays Bank PLC. The sponsor operates as a limited purpose trust company. Its
primary regulator is the Office of the Comptroller of the Currency, the agency
of the U.S. Treasury Department that regulates United States national banks.
The iShares are not deposits or other obligations of Barclays Global Investors,
N.A. or any of its subsidiaries or affiliates or any other bank, are not
guaranteed by Barclays Global Investors, N.A. or any of its subsidiaries or
affiliates or any other bank and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency.
The sponsor will arrange for the creation of the trust, the registration of
the iShares for their public offering in the United States and the listing of
the iShares on the AMEX. 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 will also pay the costs of the
trust's organization and the initial sale of the iShares, including the
applicable SEC registration fees.
The sponsor will not exercise day-to-day oversight over the trustee or the
custodian. The sponsor may remove the trustee and appoint a successor trustee
if the trustee ceases to meet certain objective requirements (including the
requirement that it have capital, surplus and undivided profits of at least
$150 million) or if, having received written notice of a material breach of its
obligations under the Trust Agreement, the trustee has not cured the breach
within thirty days. The sponsor also has the right to replace the trustee
during the ninety days following any merger, consolidation or conversion in
which the trustee is not the surviving entity or, in its discretion, on the
fifth anniversary of the creation of the trust or on any subsequent third
anniversary thereafter. The sponsor also has the right to approve any new or
additional custodian that the trustee may wish to appoint.
The trustee is The Bank of New York and the custodian is The Bank of Nova
Scotia.
The trustee is responsible for the day-to-day administration of the trust.
The responsibilities of the trustee include (1) processing orders for the
creation and redemption of Baskets; (2) coordinating with the custodian the
receipt and delivery of gold transferred to, or by, the trust in connection
with each issuance and redemption of Baskets; (3) calculating the net asset
value and the adjusted net asset value of the trust on each business day; and
(4) selling the trust's gold as needed to cover the trust's expenses. For a
more detailed description of the role and responsibilities of the trustee see
"Description of the iShares and the Trust Agreement" and "The Trustee."
The custodian is responsible for safekeeping the gold owned by the trust.
The custodian is appointed by the trustee and is responsible to the trustee
only. The general role and responsibilities of the custodian are further
described in "The Custodian" and "Custody of the Trust's Gold." The custodian
has no obligation to accept any additional delivery on behalf of the trust if,
after giving effect to such delivery, the total value of the trust's gold held
by the custodian exceeds $2 billion. If this limit is exceeded, it is
anticipated that the trustee, with the consent of the sponsor, will retain an
additional custodian. TheIf an additional custodian becomes necessary, the trustee
will seek to hire the additional custodian under terms and conditions
of the agreement with an
additional custodian will be negotiated at the time the additional custodian is
retained, and may differ significantly fromsubstantially similar to those in the agreement with The Bank of Nova Scotia.
However, because the agreement with the additional custodian will only be
negotiated when the need for the additional custodian arises, it may not be
possible for the trustee to locate at that time an additional custodian that
agrees to exactly the same terms of the agreement with The Bank of Nova Scotia.
As a result, the new agreement may differ from the current one with The Bank of
Nova Scotia with respect to issues like duration, fees, maximum amount of gold
that the additional custodian will hold on behalf of the trust, scope of the
additional custodian's liability and the additional custodian's standard of
care.
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 trust will not be actively managed. It
will not engage in any activities designed to obtain a profit from, or to
ameliorate losses caused by, changes in the price of gold. The trust will
receive gold deposited with it in exchange for the creation of Baskets of
iShares, will sell gold as necessary to cover the trust expenses and other
liabilities and will deliver gold in exchange for Baskets of iShares
surrendered to it for redemption.
The iShares are intended to constitute a simple and cost-effective means of
making an investment similar to an investment in gold. Although the iShares
will not be 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 will be backed 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.
As accessible and easy to handle as any other investment in shares.
Retail investors may purchase and sell iShares through traditional
brokerage accounts at prices expected to be less than the amount required
for currently existing means of investing in physical gold. iShares will be
eligible for margin accounts.
Listed.
Although there can be no assurance that an actively traded market in the
iShares will develop, the iShares will be listed and traded on the American
Stock Exchange under the symbol "IAU".
2
Relatively cost efficient.
Because the expenses involved in an investment in physical gold will be
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. See "Business of the Trust--Trust Objective".
Principal Offices
The sponsor's office is located at 45 Fremont Street, San Francisco, CA
94105. The trustee has a trust office at 101 Barclay Street, Floor 6E, New
York, New York 10286. The custodian is located at One Liberty Plaza, New York,
New York, 10006.
23
THE OFFERING
Offering...................... The iShares represent units of fractional undivided beneficial interest in
the net assets of the trust.
Use of proceeds............... Proceeds received by the trust from the issuance and sale of Baskets will
consist of gold deposits. Such deposits will be held by the custodian on
behalf of the trust until (i) distributed to Authorized Participants in
connection with a redemption of Baskets or (ii) sold to pay the fee due to
the sponsor and trust expenses not assumed by the sponsor.
American Stock Exchange symbol IAU
CUSIP......................... [.]
Creation and redemption....... The trust will issue and redeem Baskets of iShares on a continuous basis (a
Basket equals 50,000 iShares). Baskets of iShares will only be issued or
redeemed in exchange for an amount of gold equal todetermined by the aggregate NAV
of the number of iShares in the Baskets being created or redeemed.trustee on
each day that COMEX gold futures contracts are traded. No iShares will
be issued unless the custodian has allocated the corresponding
amount of gold to the trust's account (except
for an unallocated amount of gold not in excess of 430 ounces)., the
corresponding amount of gold. Initially, a Basket will require delivery of
5,000 fine ounces of gold. The amount of gold necessary for the creation
of a Basket, or to be received upon redemption of a Basket, will decrease
over the life of the trust, due to the payment or accrual of fees and other
expenses payable by the trust. Baskets may be created or redeemed only
by Authorized Participants, who will pay the trustee a transaction fee for
each order to create or redeem Baskets. See "Description of the iShares
and the Trust Agreement" for more details.
Net Asset Value............... 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 iShare, or NAV, is obtained by
dividing the net asset value of the trust on a given day by the number of
iShares outstanding on that date. On each day on which the AMEX is open
for regular trading, as promptly as practicable after the closing of trading
of COMEX gold futures, the trustee will determine the NAV. The trustee
will value the trust's gold on the basis of that day's announced COMEX
settlement price for the spot month gold futures contract (the futures
contract closest to maturity on that day). If there is no COMEX settlement
price for spot month gold futures on that day, the trustee will use the most
recently announced COMEX settlement price for spot month gold futures
unless the trustee, in consultation with the sponsor, determines that such
price is inappropriate as a basis for evaluation. See "Business of the
Trust--Valuation of Gold; Computation of Net Asset Value."
Trust expenses................ The trust's only ordinary recurring expense is expected to be the
remuneration due to the sponsor (the "sponsor's fee"). In exchange for
the sponsor's fee, the sponsor has agreed to assume the ordinaryfollowing
administrative and marketing expenses that the trust is expected to incur.incur:
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 will
4
also pay the costs of the trust's organization and the initial sale of the
iShares, including the applicable SEC registration fees.
3
The sponsor's fee will be accrued daily at an annualized rate equal to
0.40% of the adjusted net asset value of the trust and will be payable
monthly in arrears. The trustee will from time to time sell gold in such
quantity as may be necessary to permit payment of the sponsor's fee and
of trust expenses 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 to be sold will vary from time to time depending on the
level of the trust's expenses and the market price of gold. See "Business
of the Trust--Trust Expenses" and "Description of the iShares and the
Trust Agreement--Trust Expenses and Gold Sales."
EachTax Considerations............... Owners of iShares will be treated, for U.S. federal income tax purposes,
as if they owned a corresponding share of the assets of the trust. They
will also be viewed as if they directly received a corresponding share of
any income of the trust, or as if they had incurred a corresponding share
of the expenses of the trust. Consequently, each sale of gold by the trust
will be a taxable event to Shareholders. See "United States Federal Tax
Consequences--Taxation of U.S. Shareholders.Shareholders" and "ERISA and
Related Considerations."
Voting Rights.................... Owners of iShares will not have any voting rights. See "Description of
the iShares and the Trust Agreement--Voting Rights."
Suspension of Issuance, Transfers The trustee may suspend the delivery of iShares, registration of transfers
and Redemptions................ of iShares and surrenders of iShares for the purpose of withdrawing trust
property generally, or may refuse a particular deposit, transit or
withdrawal at any time, if the trustee or the sponsor think it advisable for
any reason. See "Description of the iShares and the Trust Agreement--
Requirements for Trustee Actions."
Limitation on Liability.......... The sponsor and the trustee:
. are responsible only for taking the actions specifically set forth
in the Trust Agreement involving such party's negligence or
bad faith;
. are not liable for the exercise of discretion permitted under the
Trust Agreement; and
. have no obligation to prosecute any lawsuit or other proceeding
on behalf of the trust or any other person.
See "Description of the iShares and the Trust Agreement--Limitations
on Obligations and Liability."
Termination eventsevents............... The trustee will terminate the Trust Agreement if:
. the trustee is notified that the iShares are delisted from the
AMEX and are not approved for listing on another national
securities exchange within five business days of their delisting;
5
. holders of at least 75% of the outstanding iShares notify the
trustee that they elect to terminate the trust;
. 60 days have elapsed since the trustee notified the sponsor of
the trustee's election to resign and a successor trustee has not
been appointed and accepted its appointment;
. the SEC determines that the trust is an investment company
under the Investment Company Act of 1940, as amended, and
the trustee has actual knowledge of that determination;
. the aggregate market capitalization of the trust, based on the
closing price for the iShares, was less than $350 million for five
consecutive trading days and the trustee receives, within six
months from the last of those trading days, notice that the
sponsor has decided to terminate the trust;
. the CFTC determines that the trust is a commodity pool under
the Commodity Exchange Act and the trustee has actual
knowledge of that determination; or
. the trust fails to qualify for treatment, or ceases to be treated, as
a grantor trust for United States federal income tax purposes
and the trustee receives notice that the sponsor has determined
that the termination of the trust is advisable.
If not terminated earlier by the trustee, the trust will terminate on [.], 2044.
See "Description of the iShares and the Trust Agreement--Amendment
and Termination." After termination of the trust, the trustee will deliver
trust property upon surrender and cancellation of iShares and, ninety days
4
after termination, may sell any remaining trust property in a private or
public sale, and hold the proceeds, uninvested and in a non-interest bearing
account, for the benefit of the holders who have not surrounded their
iShares for cancellation. See "Description of the iShares and the Trust
Agreement--Amendment and Termination."
Authorized Participants. Baskets may be created or redeemed only by Authorized Participants.
Each Authorized Participant must be a registered broker-dealer, a
participant in DTC, have entered into an agreement with the trustee (the
Authorized Participant Agreement) and be in a position to transfer gold
to, and take delivery of gold from, the custodian through one or more
gold accounts. The Authorized Participant Agreement provides the
procedures for the creation and redemption of Baskets and for the
delivery of gold in connection with such creations or redemptions. A list
of the current Authorized Participants can be obtained from the trustee or
the sponsor.
Clearance and settlement The iShares will be issued in book-entry form only. Transactions in
iShares will clear through the facilities of DTC. Investors may hold their
iShares through DTC, if they are participants in DTC, or indirectly
through entities that are participants in DTC.
6
SUMMARY FINANCIAL CONDITION
As of the opening of business on [.], 2004, the net asset value of the trust
was $[.] and the NAV was $[.]. See "Form of Statement of Financial Condition"
elsewhere in this prospectus.
57
RISK FACTORS
Before making an investment decision, you should consider carefully the
risks described below, as well as the other information included in this
prospectus.
Because the iShares are created to reflect the price of the gold held by the
trust, the market price of the iShares will be as unpredictable as the price of
gold has historically been. 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 will be 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 widely 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:
. Large sales 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 decides to
sell in amounts large enough to cause a decline in world gold prices, the
price of the iShares will be adversely affected.
. 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.
. 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.
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.
Paradoxically, one of the causes for a temporary increase of this type would be
a very enthusiastic reception of the iShares by the market. If a rush to
acquire iShares results in large purchases of gold to be deposited in the
trust, the price of gold may see an increase that will subside after the
initial rush comes to an end.
The amount of gold represented by the iShares will decrease over 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
that decrease, 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 be
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.
68
Because the trust will not have any income, it will need 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, will not reverse this trend.
A decrease in the amount of gold represented by each iShare will result 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 will have 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.
Even without an increase in the expenses or liabilities owed by the
trust, a reduction in the price of gold will require the trustee to sell higher
amounts of gold to cover the sponsor fee, also resulting 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 will not actively manage the gold held by the trust. This means
that the trustee will 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 will 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 thatthan 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, or 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 at 1:30 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. See "Description of the iShares and
the Trust Agreement--Amendment and Termination" for more information about the
termination of the trust, including when events outside the control of the
sponsor, the trustee or the Shareholders may prompt the trust's termination.
79
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.
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.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.
The trustee has not participated in a product like this before. 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 take the risk that, as a result of those
difficulties, they 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. You will only have the limited rights described under
"Description of the iShares and the Trust Agreement".
810
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 will 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 will not apply to the trust.
The trust will 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 will not have the regulatory protections provided to investors
in CEA-regulated instruments or commodity pools. Consequently, the trustee will
not be subject to registration as a commodity pool operator and the owners of
iShares will not receive the disclosure document and certified annual report
required to be delivered by a commodity pool operator.
Neither the sponsor nor the trustee has experience with a trust the only assets
of which are expected to be gold. Their experience may be inadequate or
unsuitable to manage the trust.
None of the sponsor, the trustee, or their respective management, have
experience handling an investment vehicle designed to reflect, at any given
time, the value of the gold that is its only asset. If this lack of experience
adversely affects the operations of the trust, the value of the iShares may
also be adversely affected.
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. In addition, eachAccordingly, 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.
911
The value of the iShares will be adversely affected if the trust is required to
indemnify the trustee as contemplated in the Trust 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.
USE OF PROCEEDS
Proceeds received by the trust from the issuance and sale of Baskets will
consist of gold deposits. Such deposits will be held by the custodian on behalf
of the trust until (i) distributed to Authorized Participants in connection
with redemptions of Baskets or (ii) sold to pay fees due to the sponsor and
trust expenses not assumed by the sponsor. See "Business of the Trust--Trust
Expenses".
1012
THE GOLD INDUSTRY
Introduction
This section provides a brief introduction to the gold industry by looking
at some of the key participants, detailing the primary sources of demand and
supply and outlining the role of the "official" sector (i.e., central banks) in
the market.
Market Participants
The participants in the world gold market may be classified in the following
sectors: the mining and producer sector, the banking sector, the official
sector, the investment sector; and the manufacturing sector. A brief
description of each follows.
Mining and Producer Sector
This group includes mining companies that specialize in gold and silver
production; mining companies that produce gold as a by-product of other
production (such as a copper or silver producer); scrap merchants and recyclers.
Banking Sector
Bullion banks provide a variety of services to the gold market and its
participants, thereby facilitating interactions between other parties. Services
provided by the bullion banking community include traditional banking products
as well as mine financing, physical gold purchases and sales, hedging and risk
management, inventory management for industrial users and consumers, and gold
deposit and loan instruments.
The Official Sector
The official sector encompasses the activities of the various central
banking operations of gold-holding countries. According to statistics released
by the World Gold Council, central banks are estimated to hold approximately
32,000 tonnes of gold reserves, or approximately 20% of existing above-ground
stocks. In September 1999 a group of 15 central banks acting to clarify their
intentions with respect to their gold holdings signed the Central Bank Gold
Agreement commonly called the "Washington Accord on Gold". The signatories
included the European Central Bank and the central banks of Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, Sweden, Switzerland, and England. ThisThe original agreement
limited incremental sales by the 15 signatories to 400 tonnes per annum over
the ensuing five-year period. The currentoriginal Washington Accord on Gold is due to
expireexpired in
September 2004.2004, and was renewed by the original signatories for a second
five-year period. The current per annum limit on gold sales is 500 tonnes, with
total sales not to exceed 2,500 tonnes in the five-year period.
The Investment Sector
This sector includes the investment and trading activities of both
professional &and private investors and speculators. These participants range
from large hedge and mutual funds to day-traders on futures exchanges and
retail-level coin collectors.
The Manufacturing Sector
The fabrication and manufacturing sector represents all the commercial and
industrial users of gold for whom gold is a daily part of their business. The
jewelry industry is a large user of gold. Other industrial users of gold
include the electronics and dental industries.
1113
World Gold Supply and Demand (1993 - 2002)2003)
The following table sets forth a summary of the world gold supply and demand
from 1993 to 2002:2003:
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Tonnes)/(1)/
Supply
Mine production.............production........ 2,291 2,285 2,291 2,375 2,493 2,542 2,574 2,591 2,623 2,587
Old gold scrap.............. 577 621 631 644 626 1,099 608 609 708 8352,621 2,590 2,593
Official sector sales.......sales.. 468 130 167 279 326 363 477 479 529 556527 545 606
Old gold scrap......... 577 621 631 644 626 1,099 608 610 708 836 943
Net producer hedging........hedging... 142 105 475 142 504 97 506
(15) (151) (423)Implied net
disinvestment........ 203 93 102 275 342 44
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Reported Supply.......Supply........... 3,478 3,141 3,564 3,440 3,949 4,1013,344 3,657 3,541 4,223 4,102 4,165 3,664 3,709 3,5554,022 3,900 3,971 4,142
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Demand
Gold fabrication in carat
jewelry...................Fabrication
Jewellery.......... 2,559 2,640 2,812 2,856 3,311 3,182 3,154 3,232 3,038 2,689
Gold fabrication in
electronics............... 178 187 204 207 235 225 247 285 204 210
Gold fabrication in
dentistry................. 63 64 67 68 70 64 66 69 68 69
Gold fabrication in other
industrial and decorative
applications.............. 100 104 110 113 115 103 99 101 101 82
Retail investment........... 331 349 465 298 493 337 446 335 359 3773,148 3,222 3,026 2,680 2,533
Other.............. 491 455 502 485 562 567 593 555 476 482 516
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Reported
Demand.................... 3,232Fabrication...... 3,050 3,095 3,314 3,341 3,873 3,749 3,741 3,777 3,501 3,163 3,049
Bar hoarding........... 182 249 343 200 350 163 266 230 248 250 183
Net producer hedging... 15 151 437 310
Implied net investment. 246 190 158 122 600
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Demand........... 3,478 3,344 3,657 3,541 4,223 3,911 4,0114,102 4,165 4,022 3,769 3,4273,900 3,972 4,142
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== Supply less Demand/(2)/..... 246 (203) (92) (102) (275) 191 154 (357) (61) 128
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Note: Totals may not add due to independent rounding.
Source: GFMS Gold Survey 2004
- --------
(1)"Tonne" refers to one metric tonne. This is equivalent to 1,000 kilograms or
32,150.7465 troy ounces.
(2)A negative number means that total reported demand exceeded total reported
supply. Totals may not add due to independent rounding.
Source: Gold Fields Mineral Services Ltd Gold Survey 2003.
The following are some of the main characteristics of the gold market
illustrated by the table:
. Gold supply over the past ten years has averaged 3,844 tonnes with
primary production (new mine output) accounting for approximately two
thirds of the total;
. During the period shown old gold/scrap was the second largest contributor
to supply averaging approximately 600 tonnes per annum with the exception
of 1998 when supply surged to 1,099 tonnes during the Asian economic
crisis. Higher gold prices over the past two years have resulted in an
increase to the average level of scrap flows during 2001 and 2002;
. Despite the Washington Accord on Gold, signed in 1999 and due to expire
in September 2004, the supply of gold from the official sector (central
bank sales) has increased in recent years;
. Gold hedging activity by mining companies had the impact of supplying
additional material to the market until 1999, but the past three years
has seen a reversal of this activity as mining companies have responded
to investor demands for less forward selling of production;
. The biggest source of demand for gold output over the period shown has
come from the jewelry sector which has accounted for an average of 77% of
all demand. Demand from this sector has typically
12
exceeded annual world mine production, meaning additional sources of
supply have been relied upon to fill the gap; and
. Total fabrication demand for gold over the 10-year period accounted for
approximately 90% of all supply over the same period.
Statistics published by Gold Fields Mineral Services Ltd in their 2003 Gold
Survey estimate that existing above-ground stocks of gold at the end of 2002
were approximately 147,800 metric tonnes (approx 4.75 billion ounces).2004.
Historical Chart of the Price of Gold
The price of gold is volatile and fluctuations are expected to have a direct
impact on the value of the iShares. However, movements in the price of gold in
the past are not a reliable indicator of future movements. Movements may be
influenced by various factors, including announcements from central banks
regarding a country's reserve gold holdings, agreements among central banks,
political uncertainties around the world, and economic concerns.
14
The following chart illustrates the movements in the price of an ounce of
gold in dollars from January 1994 to AprilSeptember 2004:
[CHART]
Note: The vertical line represents the high and low price for the respective
month, and the square indicates the settle price for the month.
Source: COMEX Division of the New York Mercantile Exchange, Inc.
1315
OPERATION OF THE GOLD MARKET
Futures Exchanges
The most significant gold futures exchanges are the COMEX, operated by
Commodities Exchange, Inc., a subsidiary of New York Mercantile Exchange, Inc.,
and the Tokyo Commodity Exchange (TOCOM). The COMEX is the largest exchange in
the world for trading metals futures and options and has been trading gold
since 1974. The TOCOM has been trading gold since 1982.
COMEX
Future exchanges seek to provide a neutral, regulated marketplace for the
trading of derivatives contracts for commodities. Future contracts are defined
by the exchange for each commodity. For each commodity traded, this contract
specifies the precise quality and quantity standards. The contract's terms and
conditions also define the location and timing of physical delivery.
An exchange does not buy or sell those contracts, but seeks to offer a
transparent forum where members, on their own behalf or on the behalf of
customers, can trade the contracts in a safe, efficient and orderly manner.
During regular trading hours at COMEX, the commodity contracts are traded
through open outcry; a verbal auction in which all bids, offers and trades must
be publicly announced to all members. The prices at which each commodity trades
throughout the day serve as world benchmarks. They are immediately transmitted
around the world by a wide variety of price-reporting services under
arrangement with the exchange. Electronic trading is offered by the exchange
after regular market hours. Except for brief breaks to switch between open
outcry and electronic trading in the evening and the morning, gold trades
almost 24 hours a day, five business days a week.
In addition to the public nature of the pricing, futures exchanges in the
United States are regulated at two levels, internal and external governmental
supervision. The internal is performed through self-regulation and consists of
regular monitoring of the following: the open-outcry process to insure that it
is conducted in conformance with all exchange rules; the financial condition of
all exchange member firms to insure that they continuously meet financial
commitments; and the positions of commercial and non-commercial customers to
insure that physical delivery and other commercial commitments can be met, and
that pricing is not being improperly affected by the size of any particular
customer positions. External governmental oversight is performed by the CFTC,
which reviews all the rules and regulations of United States futures exchanges
and monitors their enforcement.
Gold futures opened for trading on the COMEX on December 31, 1974,
coinciding with the lifting of the Government's ban on gold ownership by
private citizens in the United States.
The clearing system of NYMEX seeks to minimize credit risk exposure for
NYMEX participants. The system binds all the members through both financial
deposits and other commitments into a unitary system guaranteeing the
performance of each other and their customers. The NYMEX clearinghouse operates
this system by holding member firms' funds on deposit, who in turn hold their
member and non-member customer funds. The clearinghouse acts as fiscal transfer
agent moving funds from account to account on a daily basis as dictated by
price changes. The clearinghouse also insures that trading is conducted in an
orderly manner by matching trades and maintaining the delivery process.
The COMEX rules and procedures seek to insure the integrity of the trading
process. They are complemented by a system designed to insure the quality of
the physical gold used for delivery under the futures contracts. For gold to be
eligible for delivery upon a COMEX contract, it must be deposited into an
exchange-licensed depository from a source that is capable of guaranteeing the
gold's quality. The three sources include: (1) a refiner approved for COMEX
gold delivery, (2) an assayer approved to assay such gold, or (3) from another
licensed depository, when it entered that depository via either (1) or (2).
Gold can only be moved from any of these sources by a
1416
COMEX-approved deliverer. Throughout every step, the gold bar must be
accompanied by a complete documentary history of its movement. If this chain of
integrity is broken at any point, the bar is not eligible and either must be
re-assayed to prove its quality or sent back to the refinery to be recast.
The trading unit of COMEX gold futures contracts is 100 troy ounces. Gold
bars tendered for delivery can be cast in the form of either one bar or three
one-kilogram bars. In either form, the gross weight of the bar or bars tendered
for each contract must be within a five-percent tolerance. The bars must assay
at not less than 995 fineness, i.e. 99.5% pure gold. The weight, fineness, bar
number and identifying stamp of the refiner must be clearly incised on each bar
by the approved refiner. The buyer taking delivery pays for the actual gold
content, called the fine weight, in the bar. The fine weight is determined by
multiplying the gross weight of the bar or bars tendered for each contract by
their fineness. For example, a bar with a gross weight of 100 oz. with a
fineness of 995, has a fine weight of 99.5 troy ounces. Delivery of COMEX gold
is based on negotiable warehouse receipts, called warrants, for specific bars
identified on the receipt which are stored in licensed depositories located in
New York City.
All procedures described above are set forth in the COMEX rules and
regulations as in effect as of the date of this prospectus. These rules and
regulations are established by the Board of Directors of the NYMEX and subject
to change by that body.
Exchange Regulation
In the United States, commodity futures trading, and the markets where it is
conducted, are regulated under the federal Commodity Exchange Act, which is
administered by the CFTC, an independent agency of the federal government. The
CFTC oversees the operation of the U.S. commodity futures markets, including
COMEX. One of the principal public policy objectives of the Commodity Exchange
Act is to insure the integrity of the markets it oversees and the reliability
of the prices of trades on those markets. The Commodity Exchange Act and CFTC
require markets, including COMEX, to have rules and procedures to prevent
market manipulation, abusive trade practice and fraud and the CFTC conducts
regular review of the markets' rule enforcement programs.
Over-the-Counter Market
The OTC gold market includes spot, forward, and option and other derivative
transactions conducted on a principal-to-principal basis. While this is a
global 24-hour per day market, its main centers are London, New York and Zurich.
Ten members of the LBMA, the trade association that acts as the coordinator
for activities conducted on behalf of its members and other participants in the
London bullion market, act as OTC market-makers and most OTC market trades are
cleared through London. The LBMA plays an important role in setting OTC gold
trading industry standards. The LBMA's "London Good Delivery Lists", identify
approved refiners of gold. In the OTC market, gold that meets the
specifications for weight, dimensions, fineness (or purity), identifying marks
(including the assay stamp of an LBMA-acceptable refiner) and appearance set
forth in "The Good Delivery Rules for Gold and Silver Bars" published by the
LBMA are "London Good Delivery Bars." A London Good Delivery Bar (typically
called a "400 ounce bar") must contain between 350 and 430 fine troy ounces of
gold (1 troy ounce = 31.1034768 grams), with a minimum fineness (or purity) of
995 parts per 1000 (99.5%), be of good appearance and be easy to handle and
stack. The fine gold content of a gold bar is calculated by multiplying the
gross weight of the bar (expressed in units of 0.025 troy ounces) by the
fineness of the bar. A London Good Delivery Bar must also bear the stamp of one
of refiners who are on the LBMA-approved list. A London Gold Delivery Bar,
which is acceptable for settlement of any OTC transaction will be acceptable
for delivery to the trust in connection with the issuance of Baskets of iShares.
1517
London Market Regulation
Regulation of the London gold market's participants, including the major
participating members of the LBMA is the responsibility of the Financial
Services Authority (FSA) pursuant to the Financial Services and Markets Act
2000 (FSM Act). This law makes all UK-based banks and investment firms, subject
to certain fitness and properness, capital adequacy, liquidity, and systems and
control requirements. Spot, commercial forwards, and deposits of gold not
covered by the FSM Act is subject to The London Code of Conduct for
Non-Investment Products, which was established by market participants in
conjunction with the Bank of England.
Not a Regulated Commodity Pool
The trust will not trade in gold futures contracts on COMEX or on any other
futures exchange. The trust will take delivery of physical gold that complies
with the COMEX gold delivery rules or the LBMA gold delivery rules. Because the
trust will not trade in gold futures contracts on any futures exchange, the
trust with not be regulated by the CFTC under the Commodity Exchange Act as a
"commodity pool," and will not be operated by a CFTC-regulated commodity pool
operator. Investors in the trust will not receive the regulatory protections
afforded to investors in regulated commodity pools, nor may COMEX or any
futures exchange enforce its rules with respect to the trust's activities. In
addition, investors in the trust will not benefit from the protections afforded
to investors in gold futures contracts on regulated futures exchanges.
1618
BUSINESS OF THE TRUST
The activities of the trust will be 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 will not
be actively managed. It will not engage in any activities designed to obtain a
profit from, or to ameliorate losses caused by, changes in the price of gold.
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 will not be 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 will be 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 will be
represented by physical gold, identified on the custodian's books as the
property of the trust and held by the custodian in New York, London and
other locations that may be authorized in the future.
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 will be 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 will be eligible for margin accounts.
Listed.
Although there can be no assurance that an actively traded market in the
iShares will develop, the iShares will be listed and traded on the American
Stock Exchange under the symbol "IAU".
Relatively cost efficient.
Because the expenses involved in an investment in physical gold will be
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
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
1719
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 at 1:30 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
iShares can be created and redeemed only in Baskets at NAV,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 the close of regular
trading of COMEX gold futures contracts (which is normally 1:30 P.M. New York
time), the trustee will evaluate the gold held by the trust and determine 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 will value 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 will 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 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 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 will subtract
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 will subtract
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 will also determine
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.
1820
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 up to $100,000 per annum in
legal expenses. The sponsor will also pay the costs of the trust's organization
and the initial sale of the iShares, including the applicable SEC registration
fees.
The sponsor's fee will accrue daily at an annualized rate equal to 0.40% of
the adjusted net asset value of the trust and will be payable monthly in
arrears. The trustee will, when directed by the sponsor, and, in the absence of
such direction, may, in its discretion, sell gold in such quantity and at such
times, as may be necessary to permit payment of the sponsor's fee and of trust
expenses 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 to be sold will 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.
Cash held by the trustee pending payment of the trust's expenses will not
bear any interest. Each sale of gold by the trust will be a taxable event to
Shareholders. See "United States Federal Tax Consequences--Taxation of U.S.
Shareholders."
Impact of Trust Expenses on the Trust's Net Asset Value
The trust will sell gold to raise the funds needed for the payment of the
sponsor's fee and all trust expenses not assumed by the sponsor. See "The
Sponsor--The Sponsor's Fee". The purchase price received as consideration for
such sales will be the trust's sole source of funds to cover its liabilities.
The trust will not engage in any activity designed to derive a profit from
changes in the price of gold. Gold not needed to redeem Baskets of iShares, or
to cover the sponsor's fee and trust expenses not assumed by the trustee, will
be held in physical form by the custodian (except for residual amounts not
exceeding 430 ounces which will be held in unallocated form by the custodian on
behalf of the trust). As a result of the recurring sales of gold necessary to
pay the sponsor's fee and the trust expenses not assumed by the sponsor, the
net asset value of the trust and, correspondingly, the fractional amount of
physical gold represented by each iShare will decrease over the life of the trust. New
deposits of gold, received in exchange for additional new Baskets issued by the
trust, will not reverse this trend.
The following table, prepared by the sponsor, illustrates the anticipated
impact of the sales of gold discussed above on the fractional amount of gold
represented by each outstanding iShare. It assumes that the only sales of gold
will be those needed to pay the sponsor's fee and that the price of gold and
the number of iShares remain constant during the three-year period covered. The
table does not show the impact of any extraordinary expenses the trust may
incur. Any such extraordinary expenses, if and when incurred, will accelerate
the decrease in the fractional amount of gold represented by each iShare.
Calculation of NAV:
Year
----------------------------------
1 2 3
---------- ---------- ----------
Hypothetical gold price per ounce.................... $ 400.00 $ 400.00 $ 400.00
Sponsor's fee........................................ 0.40% 0.40% 0.40%
Shares of trust, beginning........................... 100,000 100,000 100,000
Ounces of gold in trust, beginning................... 10,000.00 9,960.00 9,920.00
Beginning adjusted net asset value of the trust...... $4,000,000 $3,984,000 $3,968,000
Ounces of gold to be sold to cover the sponsor's fee* 40.00 39.84 39.68
Ounces of gold in trust, ending...................... 9,960.00 9,920.00 9,880.00
Ending adjusted net asset value of the trust......... $3,984,000 $3,968,000 $3,952,000
Ending NAV........................................... $ 39.84 $ 39.68 $ 39.52
* Sales will occur daily, since the sponsor's fee is payable monthly in
arrears.
1921
DESCRIPTION OF THE iSHARES AND THE TRUST AGREEMENT
The trust was formed on [.], 2004 when the sponsor and the trustee signed
the Trust Agreement and the Initial Purchaser made the initial deposit for the
issuance of three Baskets. The purpose of the trust is to own gold transferred
to the trust in exchange for iShares issued by the trust. The trust is governed
by the Trust Agreement among the sponsor, the trustee, the registered holders
and beneficial owners of iShares and all persons that deposit gold for the
purpose of creating iShares. The Trust Agreement sets out the rights of
depositors of gold and registered holders of iShares and the rights and
obligations of the sponsor and the trustee. New York law governs the Trust
Agreement, the trust and the iShares. The following is a summary of material
provisions of the Trust Agreement. It is qualified by reference to the entire
Trust Agreement, which is filed as an exhibit to the registration statement of
which the prospectus is a part.
Each iShare represents a fractional undivided beneficial interest in the net
assets of the trust. The assets of the trust will consist primarily of gold
held by the custodian on behalf of the trust. However, the trust is expected to
make daily sales of gold to pay the sponsor's fee and to cover expenses not
assumed by the sponsor. Such sales will result in the trust holding cash for
brief periods of time. In addition, there may be other situations where the
trust may hold cash. For example, a claim may arise against the custodian, an
Authorized Participant, or any other third party, which is settled in cash. In
those situations where the trust unexpectedly receives cash or any other
assets, the Trust Agreement provides that no deposits of gold will be accepted
(i.e., there will be no issuance of new shares) until after the record date for
the distribution of such cash or other property has passed. The trust will
issue iShares only in Baskets of 50,000 or integral multiples thereof. Baskets
of iShares will be redeemed by the trust in exchange for the amount of gold
having a value equal torepresented by the NAV times theaggregate number of iShares redeemed. The trust is not a
registered investment company under the Investment Company Act of 1940 and is
not required to register under such act.
Deposit of Gold; Issuance of Baskets of iShares
The trust expects to create and redeem iShares on a continuous basis but
only in Baskets of 50,000 iShares. 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 will deliver the appropriate number of Baskets to the DTC
account of the depositing Authorized Participant. Only Authorized Participants
can deposit gold and receive Baskets of iShares in exchange. As of the date of
this prospectus, Barclays Capital, and are the only Authorized
Participants. The sponsor and the trustee will 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.
The Basket Gold Amount necessary for the creation of a Basket will change
from day to day. The initial Basket Gold Amount is 5,000 fine ounces of gold.
The trustee will adjust the quantity of gold included in the Basket Gold Amount
for a business day as appropriate to reflect sales of gold and any loss of
deposited gold that occurs, through and including that business day and as may
be required to reflect expenses accrued through and including that business
day. The trustee will determine the quantity of gold equal in value to those
expenses. See "Business of the Trust--Valuation of Gold; Computation of Net
Asset Value" for an explanation of how the value of gold is determined by the
trustee. The trustee will subtract that number of fine ounces of gold from the
total number of fine ounces of gold then held by the trust as of that business
day, and divide the resulting gold amount by the number of Baskets outstanding
as of that business day. Fractions of a fine ounce of gold included in the
Basket Gold Amount smaller than .001 fine ounce will be disregarded.
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 citylocation or citieslocations where it expects to make the
corresponding deposit of gold with the custodian. The trustee will acknowledge
the purchase order unless it or the sponsor decides to refuse the deposit as
described below under "Requirements for Trustee Actions." The date the trustee
receives that order will determine the Basket Gold Amount the Authorized
Participant needs to deposit. However, orders received by the trustee after the
closing of regular trading of gold futures contracts on
22
COMEX will be treated as received on the next following date on which COMEX is
open for such trading. The trustee has entered into an agreement with the
custodian which contains arrangements so that gold can be delivered to the
custodian in the vicinity of New York, New York,Toronto, Canada, Montreal, Canada,
London, England, or at other locations that may be authorized in the future.
No iShares will be issued unless and until the custodian has informed the
trustee that it has allocated to the trust's account the corresponding amount
of gold in physical bars (except that any amounts
of less than 430 ounces may be held in the trust account on an unallocated
basis). In accordance with the procedures that the
20
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) will
be allocated to the trust's account no later than 9:00 a.m. (New York time) on
(a) 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
(b) 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.
In all other cases, the custodian will 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 trustee will acknowledge
the order unless it or the sponsor decides to refuse the surrender as described
below under "Requirements for Trustee Actions." The date the trustee receives
that order will determine the Basket Gold Amount to be received in exchange.
However, orders received by the trustee after the closing of regular trading of
gold futures contracts on COMEX will be treated as received on the next
following date on which COMEX is open for such trading.
The custodian will 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 will be delivered at the locations designated by the trustee, in
consultation with the custodian. Redeeming Authorized Participants will be
entitled to express a preference as to where they would like to have gold
delivered, but will have no right to receive delivery at a specified location.
GoldUnless otherwise agreed to by the Custodian, gold will be delivered to the
redeeming Authorized Participants in the form of physical bars only (except
that any amount of no less than 430 ounces may be transferred to an unallocated
account of or as ordered by, the redeeming Authorized Participant).
Certificates Evidencing the iShares
The iShares will be evidenced by certificates executed and delivered by the
trustee on behalf of the trust. The sponsor expects that DTC will accept the
iShares for settlement through its book-entry settlement system. So
23
long as the iShares are eligible for DTC settlement, there will be only one
certificate evidencing shares that will be registered in the name of a nominee
of DTC. Investors will be able to own iShares only in the form of book-entry
security entitlements with DTC or direct or indirect participants in DTC. No
investor will be entitled to receive a separate certificate evidencing iShares.
Because iShares can only be held in the form of book-entries
21
through DTC and
its participants, investors must rely on DTC, a DTC participant and any other
financial intermediary through which they hold iShares to receive the benefits
and exercise the rights described in this section. Investors should consult
with their broker or financial institution to find out about the procedures and
requirements for securities held in DTC book-entry form.
Cash and Other Distributions
If the sponsor and trustee determine that there is more cash being held in
the trust than is needed to pay the trust's expenses for the next month, the
trustee will distribute the extra cash to DTC.
If the trust receives any property other than gold or cash, the trustee will
distribute that property to DTC by any means it thinks is lawful, equitable and
feasible. If it cannot make the distribution in that way, the trustee will sell
the property and distribute the net proceeds, in the same way as it does with
cash.
Registered holders of iShares will receive these distributions in proportion
to the number of iShares owned. Before making a distribution, the trustee will
deduct any applicable withholding taxes and any fees and expenses of the trust
that have not been paid. It will distribute only whole United States dollars
and cents and will round fractional cents to the nearest whole cent. The
trustee is not responsible if it decides that it is unlawful or impractical to
make a distribution available to registered holders.
Voting Rights
iShares do not have any voting rights. However, registered holders of at
least 25% of the iShares have the right to require the trustee to cure any
material breach by it of the Trust Agreement, and registered holders of at
least 75% of the iShares have the right to require the trustee to terminate the
Trust Agreement as described below.
Fees and Expenses of the Trustee
. 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 $1,000.$2,000.
. 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.
Trust Expenses and Gold Sales
In addition to the fee payable to the sponsor (See "The Sponsor--The
Sponsor's Fee"), the trustee will pay the following expenses out of the assets
of the trust:
. any expenses of the trust that are not assumed by the sponsor;
. any taxes and other governmental charges that may fall on the trust or
its property;
. 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
. any indemnification of the sponsor as described below.
The trustee will sell 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
"Business of the Trust--Trust Expenses."
24
The trustee is not responsible for any depreciation or loss incurred by
reason of sales of gold made in compliance with the Trust Agreement.
22
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.
Evaluation of Gold and the Trust Assets
See "Business of the Trust--Valuation of Gold; Computation of Net Asset
Value".
Amendment and Termination
The sponsor and the trustee may agree to amend the Trust Agreement without
the consent of the holders of iShares. If an amendment imposes or increases
fees or charges, except for taxes and other governmental charges, or prejudices
a substantial right of holders of iShares, it will not become effective for
outstanding iShares until 30 days after the trustee notifies DTC of the
amendment. At the time an amendment becomes effective, by continuing to hold
iShares, investors are deemed to agree to the amendment and to be bound by the
Trust Agreement as amended.
The trustee will terminate the Trust Agreement if:
. the trustee is notified that the iShares are delisted from the AMEX and
are not approved for listing on another national securities exchange
within five business days of their delisting;
. holders of at least 75% of the outstanding iShares notify the trustee
that they elect to terminate the trust;
. 60 days have elapsed since the trustee notified the sponsor of the
trustee's election to resign and a successor trustee has not been
appointed and accepted its appointment;
. the SEC determines that the trust is an investment company under the
Investment Company Act of 1940, as amended, and the trustee has actual
knowledge of that determination;
. the aggregate market capitalization of the trust, based on the closing
price for the iShares, was less than $350 million on each of five
consecutive trading days and the trustee receives, within six months from
the last of those trading days, notice that the sponsor has decided to
terminate the trust;
. the CFTC determines that the trust is a commodity pool under the
Commodity Exchange Act and the trustee has actual knowledge of that
determination; or
. the trust fails to qualify for treatment, or ceases to be treated, as a
grantor trust for United States federal income tax purposes and the
trustee receives notice that the sponsor has determined that the
termination of the trust is advisable.
If not terminated earlier by the trustee, the trust will terminate on [.],
2044. The trustee will notify DTC at least 30 days before the date for
termination of the Trust Agreement. After termination, the trustee and its
agents will do the following under the Trust Agreement but nothing else: (1)
collect distributions pertaining to trust property, (2) pay the trust's
expenses and sell gold as necessary to meet those expenses and (3) deliver
trust property upon surrender and cancellation of iShares. Ninety days or more
after termination, the trustee may sell any remaining trust property by public
or private sale. After that, the trustee will hold the money it received on the
sale, as well as any other cash it is holding under the Trust Agreement for the
pro rata benefit of the registered holders that have not surrendered their
iShares. It will not invest the money and has no liability for interest. The
trustee's only obligations will be to account for the money and other cash,
after deduction of applicable fees, trust expenses and taxes and governmental
charges.
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Limitations on Obligations and Liability
The Trust Agreement expressly limits the obligations of the sponsor and the
trustee. It also limits the liability of the sponsor and the trustee. The
sponsor and the trustee:
. are only obligated to take the actions specifically set forth in the
Trust Agreement without negligence or bad faith;
. are not liable if either of them is prevented or delayed by law or
circumstances beyond their control from performing their obligations
under the Trust Agreement;
. are not liable if they exercise discretion permitted under the Trust
Agreement;
. have no obligation to prosecute a lawsuit or other proceeding related to
the iShares or the Trust Agreement on behalf of the holders of iShares or
on behalf of any other person;
. may rely upon any documents they believe in good faith to be genuine and
to have been signed or presented by the proper party.
In addition, the sponsor will be indemnified by the trust for any liability or
expense it incurs without negligence, bad faith or willful misconduct on its
part.
Requirements for Trustee Actions
Before the trustee will deliver or register a transfer of iShares, make a
distribution on iShares, or permit withdrawal of trust property, the trustee
may require:
. payment of stock transfer or other taxes or other governmental charges
and transfer or registration fees charged by third parties for the
transfer of any iShares or trust property;
. satisfactory proof of the identity and genuineness of any signature or
other information it deems necessary; and
. compliance with regulations it may establish, from time to time,
consistent with the Trust Agreement, including presentation of transfer
documents.
The trustee may suspend the delivery of iShares, registrations of transfer of
iShares and surrenders of iShares for the purpose of withdrawing trust property
generally, or may refuse particular deposit, transfer or withdrawal requests at
any time if the trustee or the sponsor thinks it necessary or advisable for any
reason.
2426
THE SECURITIES DEPOSITORY; BOOK-ENTRY-ONLY SYSTEM; GLOBAL SECURITY
DTC will act as securities depository for the iShares. DTC is a
limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities of its participants
and to facilitate the clearance and settlement of transactions in such
securities among the DTC Participants through electronic book-entry changes.
This eliminates the need for physical movement of securities certificates. DTC
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own DTC. Access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a DTC Participant, either directly or
indirectly. DTC agrees with and represents to its participants that it will
administer its book-entry system in accordance with its rules and by-laws and
requirements of law.
Individual certificates will not be issued for the iShares. Instead, a
global certificate will be signed by the trustee on behalf of the trust,
registered in the name of Cede & Co., as nominee for DTC, and deposited with
the trustee on behalf of DTC. The global certificate will represent all of the
iShares outstanding at any time.
Upon the settlement date of any creation, transfer or redemption of iShares,
DTC will credit or debit, on its book-entry registration and transfer system,
the amount of the iShares so created, transferred or redeemed to the accounts
of the appropriate DTC Participants. The trustee and the DTC Participants will
designate the accounts to be credited and charged in the case of creation or
redemption of iShares.
Beneficial ownership of the iShares will be limited to DTC Participants,
Indirect Participants and persons holding interests through DTC Participants
and Indirect Participants. Owners of beneficial interests in the iShares will
be shown on, and the transfer of ownership will be effected only through,
records maintained by DTC (with respect to DTC Participants), the records of
DTC Participants (with respect to Indirect Participants, and the records of
Indirect Participants (with respect to beneficial owners that are not DTC
Participants or Indirect Participants). Beneficial owners are expected to
receive from or through the DTC Participant a written confirmation relating to
their purchase of the iShares.
Investors may transfer the iShares through DTC by instructing the DTC
Participant or Indirect Participant through which the Shareholders hold their
iShares to transfer the iShares. Transfers will be made in accordance with
standard securities industry practice.
DTC may decide to discontinue providing its service for the iShares by
giving notice to the trustee and the sponsor. Under such circumstances, the
trustee and the sponsor will either find a replacement for DTC to perform its
functions at a comparable cost or, if a replacement is unavailable, deliver
separate certificates for iShares to the DTC Participants having iShares
credited to their accounts.
The rights of the Shareholders generally must be exercised by DTC
Participants acting on their behalf in accordance with the rules and procedures
of DTC.
The Trust Agreement provides that, as long as the iShares are represented by
a global certificate registered in the name of DTC or its nominee, as described
above, the trustee will be entitled to treat DTC as the holder of the iShares.
2527
THE SPONSOR
The sponsor is a national banking association chartered in the United States
and a wholly-owned subsidiary of Barclays Bank PLC. The sponsor operates as a
limited purpose trust company. Its primary regulator is the Office of the
Comptroller of the Currency, the agency of the U.S. Treasury Department that
regulates United States national banks. The sponsor's principal office is
located at 45 Fremont Street, San Francisco, CA 94105.
The Sponsor's Role
The sponsor will arrange for the creation of the trust, the registration of
the iShares for their public offering in the United States and the listing of
the iShares on the AMEX. 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 will also pay the costs of the
trust's organization and the initial sale of the iShares, including the
applicable SEC registration fees.
The sponsor will not exercise day-to-day oversight over the trustee or the
custodian. The sponsor may remove the trustee and appoint a successor trustee
if the trustee ceases to meet certain objective requirements (including the
requirement that it have capital, surplus and undivided profits of at least
$150 million) or if, having received written notice of a material breach of its
obligations under the Trust Agreement, the trustee has not cured the breach
within thirty days. The sponsor also has the right to replace the trustee
during the ninety days following any merger, consolidation or conversion in
which the trustee is not the surviving entity or, in its discretion, on the
fifth anniversary of the creation of the trust or on any subsequent third
anniversary thereafter. The sponsor also has the right to approve any new or
additional custodian that the trustee may wish to appoint.
The Sponsor's Fee
The sponsor's fee will accrue daily at an annualized rate equal to 0.40% of
the adjusted net asset value of the trust and will be payable monthly in
arrears.
2628
THE TRUSTEE
The Bank of New York, a banking corporation organized under the laws of the
State of New York with trust powers, will serve as the trustee. The Bank of New
York has a trust office at 101 Barclay Street, Floor 6E, New York, New York
10286. The Bank of New York is subject to supervision by the New York State
Banking Department and the Board of Governors of the Federal Reserve System.
Information regarding creation and redemption Basket composition, NAV of the
trust, transaction fees and the names of the parties that have each executed an
Authorized Participant Agreement may be obtained from The Bank of New York by
calling the following number: (212) 815-6250. A copy of the Trust Agreement is
available for inspection at The Bank of New York's trust office identified
above. The Bank of New York had at least $150 million in capital and retained
earnings as of December 31, 2003.
The Trustee's Role
The trustee is responsible for the day-to-day administration of the trust.
This includes (1) processing orders for the creation and redemption of Baskets;
(2) coordinating with the custodian the receipt and delivery of gold
transferred to, or by, the trust in connection with each issuance and
redemption of Baskets; (3) calculating the net asset value and the adjusted net
asset value of the trust on each business day; and (4) selling the trust's gold
as needed to cover the trust's expenses. In addition, the trustee will prepare
and certify the financial statements of the trust.
The trustee's monthly fees will be paid by the sponsor.
The trustee and any of its affiliates may from time to time purchase or sell
iShares for their own account, as agent for their customers and for accounts
over which they exercise investment discretion.
THE CUSTODIAN
The Bank of Nova Scotia, a bank organized under the laws of Canada, will
serve as the custodian of the trust's gold.
The Custodian's Role
The custodian is responsible for safekeeping the gold deposited into the
trust in connection with the creation of Baskets. The custodian is appointed by
the trustee and is responsible to the trustee only. The custodian has no
obligation to accept any additional delivery on behalf of the trust if, after
giving effect to such delivery, the total value of the trust's gold held by the
custodian exceeds $2 billion. If this limit is exceeded, the sponsor
anticipates that the trustee, with the consent of the sponsor, would retain an
additional custodian. While the sponsor will seek any agreement with an
additional custodian to be at least as protective of the interests of the trust
as the current agreement with The Bank of Nova Scotia is, the actual terms and
conditions of such agreement will only be negotiated at the time such
additional custodian becomes necessary. The identity of such additional
custodian, as well as market conditions prevailing at the time, may, among
other factors, result in the need to hire an additional custodian under terms
and conditions significantly different from those in the agreement with The
Bank of Nova Scotia. For example, the duration of the agreement with the
additional custodian, its fees, the maximum amount of gold that the additional
custodian will hold on behalf of the trust, the scope of the additional
custodian's liability (including with respect to gold held by subcustodians)
and the additional custodian's standard of care may not be exactly the same as
in the agreement with The Bank of Nova Scotia.
The custodian is responsible for conducting certain limited inspections of
the gold delivered by an Authorized Participant and exercising a level of care
similar to that used for its own account. However, the custodian is not
responsible for conducting any chemical or other tests designed to verify that
such gold meets the purity requirements referred to in the Trust Agreement.
The custodian's fees will be paid by the sponsor.
2729
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 custodian and any of its affiliates may from time to time purchase or
sell iShares for their own account, as agent for their customers and for
accounts over which they exercise investment discretion.
28
CUSTODY OF THE TRUST'S GOLDCustody of the Trust's Gold
The following is a description of the material provisions of the custodian
agreement between the trustee and The Bank of Nova Scotia as the custodian
under which the custodian will hold the gold that belongs to the trust. For
additional information, see the form of custodian agreement that is filed as an
exhibit to the registration statement of which this prospectus is a part. The
custodian's office is located at One Liberty Plaza, New York, New York 10006.
New York law governs the custodian agreement.
The custodian will receive and hold gold that is deposited for the account
of the trust. The custodian will release gold from the trust's account when
instructed in writing by the trustee, and not otherwise.
The custodian may keep the trust's gold at locations in the vicinity of New
York, New York,Toronto, Canada, Montreal, Canada, London, England, or with the consent
of the trustee and the sponsor, in other places. The custodian may, at its own
expense and risk, use subcustodians to discharge its obligations to the trust
under the custodian agreement. The custodian has agreed that, other than The
Bank of England, it will only retain subcustodians if they agree to grant to
the trustee and the independent accountants of the trust access to records and
inspection rights similar to those granted by The Bank of Nova Scotia in its
agreement with the trustee. The custodian will remain responsible to the
trustee for any gold held by any subcustodian appointed by the custodian to the
same extent as if such gold were held by the custodian itself.
When instructed by the trustee, the custodian will make gold from the
trust's account available for collection at its office or at the office of a
subcustodian where the gold is being held or will deliver up to 430 ounces of
gold on an unallocated basis to any account maintained with it or, if the
custodian considers it lawful and practical, to an account maintained with any
other custodial institution. As a result, in connection with redemptions of
shares, gold may be received on an unallocated basis in an account maintained
anywhere (if the custodian considers it lawful and practical to do so), or gold
may be collected at any of the physical locations where the custodian is
holding the trust's gold in New York, CityToronto, Montreal or in London, to the
extent the gold is available in any particular location.
The custodian will be liable and must indemnify the trustee for any loss or
liability relating to any act or omission of the custodian, including any
failure of the custodian to act in accordance with the trustee's instructions
or any physical loss, destruction or damage to the gold held for the trust's
account, except for losses due to nuclear accidents, terrorism, riots, acts of
God, insurrections, strikes and similar causes beyond the control of the
custodian for which the custodian will not be responsible to the trust. The
custodian will be responsible for the trust's gold held at subcustodians to the
same extent as if that gold were in the custodian's own vault.
The custodian may hold gold for the account of the trust on an unallocated
basis. However, the custodian must take reasonable action to minimize the
amount of bullion in the trust's account that is on an unallocated basis, and
the custodian must allocate gold bars to the account of the trust so that no
more than 430 ounces of gold are held for the trust's account on an unallocated
basis at the end of each business day of the custodian.
The custodian must maintain at least the minimum amount of capital required
to be an approved gold depository for the purposes of delivery with respect of
gold futures traded on COMEX and must maintain adequate insurance covering any
loss of property held for the trust. The sponsor expects the custodian's
insurance will generally support the ability of the custodian to meet its
obligations under the custodian agreement, but that insurance does not directly
benefit the trust.
Either the trustee or the custodian may terminate the custodian agreement on
60 days' prior notice.
2930
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material United States federal income tax
consequences that generally will apply to the purchase, ownership and
disposition of iShares by a U.S. Shareholder (as defined below), and certain
United States federal income consequences that may apply to an investment in
iShares by a Non-U.S. Shareholder (as defined below), represents, insofar as it
describes conclusions as to United States federal income tax law and subject to
the limitations and qualifications described therein, the opinion of Clifford
Chance US LLP, special United States federal income tax counsel to the sponsor.
The discussion below is based on the Code, Treasury Regulations promulgated
thereunder and judicial and administrative interpretations of the Code, all as
in effect on the date of this prospectus and all of which are subject to change
either prospectively or retroactively. The tax treatment of Shareholders may
vary depending upon their own particular circumstances. Certain Shareholders
(including banks, financial institutions, insurance companies, tax-exempt
organizations, broker- dealers, traders, persons holding iShares as a position
in a "hedging," "straddle," "conversion," or "constructive sale" transaction
for United States federal income tax purposes, persons whose "functional
currency" is not the United States dollar, or other investors with special
circumstances) may be subject to special rules not discussed below. In
addition, the following discussion applies only to investors who will hold
iShares as "capital assets" within the meaning of section 1221 of the Code.
Moreover, the discussion below does not address the effect of any state, local
or foreign tax law on an owner of iShares. Purchasers of iShares are urged to
consult their own tax advisors with respect to all federal, state, local and
foreign tax law considerations potentially applicable to their investment in
iShares.
For purposes of this discussion, a "U.S. Shareholder" is a Shareholder that
is:
. An individual who is treated as a citizen or resident of the United
States for United States federal income tax purposes;
. A corporation or partnership (or entity treated as a corporation or
partnership for United States federal income tax purposes) created or
organized in or under the laws of the United States or any political
subdivision thereof, including the District of Columbia;
. An estate, the income of which is includible in gross income for United
States federal income tax purposes regardless of its source; or
. A trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, or a trust that has made a valid election under applicable
Treasury Regulations to be treated as a domestic trust.
A Shareholder that is not a U.S. Shareholder as defined above is considered a
"Non-U.S. Shareholder" for purposes of this discussion.
Taxation of the Trust
The sponsor and the trustee will treat the trust as a "grantor trust" for
United States federal income tax purposes. In the opinion of Clifford Chance US
LLP, although not free from doubt due to the lack of directly governing
authority, the trust will be classified as a "grantor trust" for United States
federal income tax purposes. As a result, the trust itself will not be subject
to United States federal income tax. Instead, the trust's income and expenses
will "flow through" to the Shareholders, and the trustee will report the
trust's income, gains, losses and deductions to the IRS on that basis. The
opinion of Clifford Chance US LLP represents only its best legal judgment and
is not binding on the IRS or any court. Accordingly, there can be no assurance
that the IRS will agree with the conclusions of counsel's opinion and it is
possible that the IRS or another tax authority could assert a position contrary
to one or all of those conclusions and that a court could sustain that contrary
position. Neither the sponsor nor the trustee will request a ruling from the
IRS with respect to the classification of the trust for United States federal
income tax purposes. If the IRS were to assert successfully that the trust is
not classified as a "grantor trust," the trust would be classified as a
partnership for United States federal income tax purposes, which may affect
timing and other tax consequences to the Shareholders.
3031
The following discussion assumes that the trust will be classified as a
"grantor trust" for United States federal income tax purposes.
Taxation of U.S. Shareholders
Shareholders will be treated, for United States federal income tax purposes,
as if they directly owned a pro rata share of the underlying assets held in the
trust. Shareholders also will be treated as if they directly received their
respective pro rata shares of the trust's income, if any, and as if they
directly incurred their respective pro rata shares of the trust's expenses. In
the case of a Shareholder that purchases iShares for cash, its initial tax
basis in its pro rata share of the assets held in the trust at the time it
acquires its iShares will be equal to its cost of acquiring the iShares. In the
case of a Shareholder that acquires its iShares as part of a creation of a
Basket, the delivery of gold to the trust in exchange for the underlying gold
represented by the iShares will not be a taxable event to the Shareholder, and
the Shareholder's tax basis and holding period for the Shareholder's pro rata
share of the gold held in the trust will be the same as its tax basis and
holding period for the gold delivered in exchange therefor. For purposes of
this discussion, and unless stated otherwise, it is assumed that all of a
Shareholder's iShares are acquired on the same date and at the same price per
iShare. Shareholders that hold multiple lots of iShares, or that are
contemplating acquiring multiple lots of iShares, should consult their own tax
advisers as to the determination of the tax basis and holding period for the
underlying gold related to such iShares.
When the trust sells gold, for example to pay expenses, a Shareholder will
recognize gain or loss in an amount equal to the difference between (a) the
Shareholder's pro rata share of the amount realized by the trust upon the sale
and (b) the Shareholder's tax basis for its pro rata share of the gold that was
sold. A Shareholder's tax basis for its share of any gold sold by the trust
generally will be determined by multiplying the Shareholder's total basis for
its share of all of the gold held in the trust immediately prior to the sale,
by a fraction the numerator of which is the amount of gold sold, and the
denominator of which is the total amount of the gold held in the trust
immediately prior to the sale. After any such sale, a Shareholder's tax basis
for its pro rata share of the gold remaining in the trust will be equal to its
tax basis for its share of the total amount of the gold held in the trust
immediately prior to the sale, less the portion of such basis allocable to its
share of the gold that was sold. The delivery to the trust of gold in specified
denominations (e.g., COMEX gold in denominations of 100 ounces) and the
subsequent delivery by the trust of gold in different denominations (e.g., LBMA
gold in denominations of 400 ounces) will not constitute a taxable event.
Upon a Shareholder's sale of some or all of its iShares, the Shareholder
will be treated as having sold the portion of its pro rata share of the gold
held in the trust at the time of the sale that is attributable to the iShares
sold. Accordingly, the Shareholder generally will recognize gain or loss on the
sale in an amount equal to the difference between (a) the amount realized
pursuant to the sale of the iShares, and (b) the Shareholder's tax basis for
the portion of its pro rata share of the gold held in the trust at the time of
sale that is attributable to the iShares sold, as determined in the manner
described in the preceding paragraph.
A redemption of some or all of a Shareholder's iShares in exchange for the
underlying gold represented by the iShares redeemed generally will not be a
taxable event to the Shareholder. In addition, a Shareholder that acquires its
iShares as part of a creation of a Basket by the delivery to the trust of gold
in specified denominations (e.g., COMEX gold in denominations of 100 ounces),
the subsequent redemption of its iShares for gold delivered by the trust in
different denominations (e.g., LBMA gold in denominations of 400 ounces) will
not constitute a taxable event, provided that amount of gold received upon
redemption contains the equivalent metallic content of the gold delivered upon
creation, less amounts accrued or sold to pay the trust's expenses and other
charges. The Shareholder's tax basis for the gold received in the redemption
generally will be the same as the Shareholder's tax basis for the portion of
its pro rata share of the gold held in the trust immediately prior to the
redemption that is attributable to the iShares redeemed. The Shareholder's
holding period with respect to the gold received should include the period
during which the Shareholder held the iShares redeemed. A subsequent sale of
the gold received by the Shareholder will be a taxable event.
3132
After any sale or redemption of less than all of a Shareholder's iShares,
the Shareholder's tax basis for its pro rata share of the gold held in the
trust immediately after such sale or redemption generally will be equal to its
tax basis for its share of the total amount of the gold held in the trust
immediately prior to the sale or redemption, less the portion of such basis
which is taken into account in determining the amount of gain or loss
recognized by the Shareholder upon such sale or, in the case of a redemption,
is treated as the basis of the gold received by the Shareholder in the
redemption.
Maximum 28% Long-Term Capital Gains Tax Rate for U.S. Shareholders Who Are
Individuals
Under current law, gains recognized by individuals from the sale of
"collectibles," including gold, held for more than one year are taxed at a
maximum rate of 28%, rather than the current 15% rate applicable to most other
long-term capital gains. For these purposes, gain recognized by an individual
upon the sale of an interest in a trust that holds collectibles is treated as
gain recognized on the sale of collectibles, to the extent that the gain is
attributable to unrealized appreciation in value of the collectibles held by
the trust. Therefore, any gain recognized by an individual U.S. Shareholder
attributable to a sale of iShares held for more than one year, or attributable
to the trust's sale of any gold which the Shareholder is treated (through its
ownership of iShares) as having held for more than one year, generally will be
taxed at a maximum rate of 28%. The tax rates for capital gains recognized upon
the sale of assets held by an individual U.S. Shareholder for one year or less
or by a taxpayer other than an individual United States taxpayer are generally
the same as those at which ordinary income is taxed.
Brokerage Fees and Trust Expenses
Any brokerage or other transaction fee incurred by a Shareholder in
purchasing iShares will be treated as part of the Shareholder's tax basis in
the underlying assets of the trust. Similarly, any brokerage fee incurred by a
Shareholder in selling iShares will reduce the amount realized by the
Shareholder with respect to the sale.
Shareholders will be required to recognize the full amount of gain or loss
upon a sale of gold by the trust (as discussed above), even though some or all
of the proceeds of such sale are used by the trustee to pay trust expenses.
Shareholders may deduct their respective pro rata shares of each expense
incurred by the trust to the same extent as if they directly incurred the
expense. Shareholders who are individuals, estates or trusts, however, may be
required to treat some or all of the expenses of the trust as miscellaneous
itemized deductions. Individuals may deduct certain miscellaneous itemized
deductions only to the extent they exceed 2% of adjusted gross income. In
addition, such deductions may be subject to phase-outs and other limitations
under applicable provisions of the Code.
Investment by Regulated Investment Companies
Mutual funds and other investment vehicles which are "regulated investment
companies" within the meaning of Code section 851 should consult with their tax
advisors concerning (i) the likelihood that an investment in iShares, although
they are a "security" within the meaning of the Investment Company Act of 1940,
may be considered an investment in the underlying gold for purposes of Code
section 851(b), and (ii) the extent to which an investment in iShares might
nevertheless be consistent with preservation of their qualification under Code
section 851.
Investment by Certain Retirement Plans
The purchase of iShares as an investment for an IRA, or for a
participant-directed account maintained under any plan that is tax-qualified
under section 401(a) of the Code, may be treated as the acquisition of a
"collectible" that is treated as a taxable distribution from the account to the
owner of the IRA, or to the participant for whom the plan account is
maintained, of an amount equal to the cost to the account of acquiring the
collectible. Such treatment would apply if an account's purchase of iShares
would be treated, for these purposes, as the acquisition of an interest in the
underlying gold held in the trust, and such bullion (i) is not treated as in
the physical
3233
possession of the IRA trustee, or (ii) is of a fineness less than the minimum
fineness of a "contract market" (as defined in 7 United States Code (S) 7)
required for a regulated futures contract. Persons considering the purchase of
iShares by an IRA, or by a participant-directed account under a Code section
401(a) plan, should consult their own tax advisers as to whether such purchase
will be treated as resulting in a taxable distribution to the IRA owner or plan
participant. See also "ERISA and Related Considerations."
Taxation of Non-U.S. Shareholders
A Non-U.S. Shareholder generally will not be subject to United States
federal income tax with respect to gain recognized upon the sale or other
disposition of iShares, or upon the sale of gold by the trust, unless (1) the
Non-U.S. Shareholder is an individual and is present in the United States for
183 days or more during the taxable year of the sale or other disposition, and
the gain is treated as being from United States sources; or (2) the gain is
effectively connected with the conduct by the Non-U.S. Shareholder of a trade
or business in the United States and certain other conditions are met.
United States Information Reporting and Backup Withholding
The trustee will file certain information returns with the IRS in connection
with the trust. A U.S. Shareholder may be subject to United States backup
withholding tax in certain circumstances unless it provides its taxpayer
identification number and complies with certain certification procedures.
Non-U.S. Shareholders may have to comply with certification procedures to
establish that they are not a United States person in order to avoid the
information reporting and backup withholding tax requirements.
The amount of any backup withholding will be allowed as a credit against a
Shareholder's United States federal income tax liability and may entitle such a
Shareholder to a refund, provided that the required information is furnished to
the IRS.
Taxation in Jurisdictions Other Than the United States
Prospective purchasers of iShares that are based in or acting out of a
jurisdiction other than the United States are advised to consult their own tax
advisers as to the tax consequences, under the laws of such jurisdiction (or
any other jurisdiction not being the United States to which they are subject),
of their purchase, holding, sale and redemption of or any other dealing in
iShares and, in particular, as to whether any value added tax, other
consumption tax or transfer tax is payable in relation to such purchase,
holding, sale, redemption or other dealing.
ERISA AND RELATED CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 (ERISA) and/or section
4975 of the Code impose certain requirements on employee benefit plans and
certain other plans and arrangements, including individual retirement accounts
and annuities, Keogh plans, and certain collective investment funds or
insurance company general or separate accounts in which such plans or
arrangements are invested, that are subject to ERISA and/or the Code
(collectively, Plans), and on persons who are fiduciaries with respect to the
investment of assets treated as "plan assets" of a Plan. Government plans and
some church plans are not subject to the fiduciary responsibility provisions of
ERISA or the provisions of section 4975 of the Code, but may be subject to
substantially similar rules under state or other federal law.
In contemplating an investment of a portion of Plan assets in iShares, the
Plan fiduciary responsible for making such investment should carefully
consider, taking into account the facts and circumstances of the Plan,
3334
the "Risk Factors" discussed above and whether such investment is consistent
with its fiduciary responsibilities, including, but not limited to: (a) whether
the fiduciary has the authority to make the investment under the appropriate
governing plan instrument; (b) whether the investment would constitute a direct
or indirect non-exempt prohibited transaction with a party in interest; (c) the
Plan's funding objectives; and (d) whether under the general fiduciary
standards of investment prudence and diversification such investment is
appropriate for the Plan, taking into account the overall investment policy of
the Plan, the composition of the Plan's investment portfolio and the Plan's
need for sufficient liquidity to pay benefits when due.
It is anticipated that the iShares will constitute "publicly-held offered
securities" as defined in Department of Labor Regulations (S) 2510.3-101(b)(2).
Accordingly, iShares purchased by a Plan, and not the Plan's interest in the
underlying gold held in the trust represented by the iShares, should be treated
as assets of the Plan, for purposes of applying the "fiduciary responsibility"
and "prohibited transaction" rules of ERISA and the Code. See also "United
States Federal Tax Consequences--Investment by Certain Retirement Plans."
3435
PLAN OF DISTRIBUTION
In addition to, and independent of the initial purchases by the Initial
Purchaser (described below), the trust will issue iShares in Baskets to
Authorized Participants in exchange for deposits of gold on a continuous basis.
Because new iShares can be created and issued on an ongoing basis, at any point
during the life of the trust, a "distribution," as such term is used in the
Securities Act, maywill be occurring. Broker-dealersAuthorized Participants, other
broker-dealers and other persons are cautioned that some of their activities
may result in their being deemed participants in a distribution in a manner
which couldwould render them statutory underwriters and subject them to the
prospectus-delivery and liability provisions of the Securities Act. For
example, a broker-dealer firm or its client maywill be deemed a statutory
underwriter if, with a view to or in connection with a distribution of the
constituent iShares, it purchases a Basket from the trust, breaks the Basket
down into the constituent iShares and sells the iShares directly to its customers; or if
it chooses to couple the creation of a supply of new iShares with an active
selling effort involving solicitation of secondary market demand for the
iShares. A determination of whether a particular market participant is an
underwriter must take into account all the facts and circumstances pertaining
to the activities of the broker-dealer or its client in the particular case,
and the examples mentioned above should not be considered a complete
description of all the activities that couldwould lead to designation as an
underwriter.
Investors that purchase iShares through a commission/fee-based brokerage
account may pay commissions/fees charged by the brokerage account. We recommend
that investors review the terms of their brokerage accounts for details on
applicable charges.
Dealers that are not "underwriters" but are participating in a distribution
(as contrasted to ordinary secondary trading transactions), and thus dealing
with iShares that are part of an "unsold allotment" within the meaning of
Section 4(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus-delivery exemption provided by Section 4(3) of the Securities Act.
The sponsor intends to qualify the iShares in states selected by the sponsor
and that sales be made through broker-dealers who are members of the NASD.
Investors intending to create or redeem Baskets through Authorized Participants
in transactions not involving a broker-dealer registered in such investor's
state of domicile or residence should consult their legal advisor regarding
applicable broker-dealer or securities regulatory requirements under the state
securities laws prior to such creation or redemption.
Barclays Capital Inc. is the Initial Purchaser. On [.], 2004, the Initial
Purchaser agreed to purchase 150,000 iShares which compose the initial Baskets.
The Initial Purchaser intends to make a public offering of the initial Baskets.
The Initial Purchaser will not receive a fee. With respect to sale of the
iShares comprising the initial Baskets and in the event that the Initial
Purchaser or any affiliate acts as Authorized Participant, it may receive
commissions/fees from investors who purchase iShares.
The trust will not bear any expenses in connection with the offering or
sales of the initial Baskets of iShares.
The sponsor has agreed to indemnify the Initial Purchaser against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments that the Initial Purchaser may be required to make in
respect thereof.
The offering of Baskets is being made in compliance with Conduct Rule 2810
of the NASD. Accordingly, the Initial Purchaser will not make any sales to any
account over which it has discretionary authority without the prior written
approval of a purchaser of iShares.
The Initial Purchaser and the Sponsor, each of whom is a 100% subsidiary of
Barclays Bank PLC, have a working relationship involving the development of
business opportunities within the Barclays Bank PLC group. Affiliates of the
Initial Purchaser may act as dealers with respect to the iShares.
The Initial Purchaser will not act as an Authorized Participant with respect
to the initial Baskets, and its activities with respect to the initial Baskets
will be distinct from those of an Authorized Participant.
3536
The Initial Purchaser has represented, warranted and agreed that:
. the offering of the iShares will be made on a private placement basis in
Canada (in the provinces of British Columbia, Ontario and Quebec) (1)
through the Initial Purchaser or its affiliates who are permitted under
applicable securities laws or available exemptions to offer and sell the
iShares in Canada; (2) solely to purchasers who are entitled under
applicable provincial securities laws to purchase the iShares without the
benefit of a prospectus qualified under the securities laws; and (3) in
the case of purchasers in provinces other than Ontario, without the
services of a dealer registered pursuant to those securities laws;
. the offering and sale of iShares in Japan can only be effected through a
licensed Commodity Investment Dealer ("shohin toushi hanbai gyosha") or a
person exempt under the law Concerning Regulations of Commodities
Investment Business (Commodities Law). The prospectus cannot be
distributed in Japan other than to a licensed Commodity Investment Dealer
or a person exempt under the Commodities Law;
. the offering and sale of iShares in Switzerland will be on the basis of a
non-public offering. This prospectus does not constitute a prospectus
according to articles 652a or 1156 of the Swiss Federal Code of
Obligations and the iShares may not be offered or distributed on a
professional basis in or from Switzerland and neither this prospectus nor
any other offering material relating to the iShares may be publicly
issued in connection with any such offer or distribution. The iShares
have not been and will not be approved by any Swiss regulatory authority.
In particular, neither the iShares nor the trust are or will be
supervised by the Swiss Federal Banking Commission, and investors may not
claim protection under the Swiss Investment Fund Act;
. the trust is a collective investment scheme as defined in the Financial
Services and Markets Act 2000. The trust has not been authorized, or
otherwise recognized or approved, by the Financial Services Authority
and, as an unregulated scheme, it accordingly cannot be promoted in the
United Kingdom to the general public. The Initial Purchaser has
represented, warranted and agreed that it will promote the trust in the
United Kingdom in accordance with applicable law and regulation only to
(1) persons who are investment professionals (as defined in Article 14(5)
of the Financial Services and Markets Act 2000 (Promotion of Collective
Investment Schemes) (Exemptions) Order 2001 (the "CIS Order")); (2)
persons who are within any of the categories of persons described in
Article 22 of the CIS Order; or (3) persons to whom this prospectus may
otherwise lawfully be communicated;
. this prospectus has not been registered as a prospectus with the Monetary
Authority of Singapore under the Securities and Futures Act, Chapter 289
of Singapore (the "SFA"). Accordingly, this Information Memorandum and
any other document or material in connection with the offer or sale, or
invitation for subscription or purchase, of the iShares may not be
circulated or distributed, nor may the iShares be offered or sold, or be
made the subject of an invitation for subscription or purchase, whether
directly or indirectly, to the public or any member of the public in
Singapore other than (i) to an institutional investor or other person
specified in Section 274 of the SFA, (ii) to a sophisticated investor,
and in accordance with the conditions, specified in Section 275 of the
SFA or (iii) otherwise pursuant to, and in accordance with the conditions
of, any other applicable provision of the SFA;
. it will comply with the Securities Sales Prospectus Act
(Wertpapier-Verkaufsprospektgesetz, the "WV Act") of the Federal Republic
of Germany and all other applicable legal and regulatory requirements. In
particular, the Initial Purchaser represents that it has not engaged and
agrees that it will not engage in a public offering (offentliches
Angebot) within the meaning of the WV Act with respect to any iShares
otherwise than in accordance with the WV Act;
. the iShares may not be offered, sold or distributed in Spain save in
compliance with the requirements of the Spanish Securities Market Law
(Ley 24/1988, de 28 de julio, del Mercado de Valores), as amended and
restated, and Royal Decree 291/1992 on Issues and Public Offerings of
Securities (Real Decreto 291/1992, de 27 de marzo, sobre Emisiones y
Ofertas Publicas de Venta de Valores), as amended and restated, and other
applicable Spanish laws and regulations;
3637
. the iShares may not be acquired by or offered, directly or indirectly to,
individuals or entities in the Netherlands and this prospectus may not be
circulated in the Netherlands as part of initial distribution or at any
time thereafter, except to individuals or entities whose ordinary
business or profession is (1) to trade or invest in securities or (2)
involves the acquisition and disposal of investment objects of the same
kind as the assets or a substantial part of the assets of the trust, in
either case within the meaning of Article 1 of the regulation dated
October 9, 1990 (as amended) issued pursuant to Article 14 of the
Investment Institutions Supervision Act (Wet Toezicht
Beleggingsinstellingen) of 27 June 1990;
. the offering of the iShares has not been registered pursuant to the
Italian securities legislation and, accordingly, the Initial Purchaser
has represented and agreed that it has not offered or sold, and will not
offer or sell, any iShares in the Republic of Italy in a solicitation to
the public, and that sales of the iShares in the Republic of Italy shall
be effected in accordance with all Italian securities, tax and exchange
control and other applicable laws and regulations. The Initial Purchaser
has represented and agreed that it will not offer, sell or deliver any
iShares or distribute copies of this prospectus or any other document
relating to the iShares in the Republic of Italy except: (1) to
"Professional Investors", as defined in Article 31.2 of CONSOB Regulation
No. 11522 of 1 July 1998 as amended ("Regulation No. 11522"), pursuant to
Article 30.2 and 100 of Legislative Decree No. 58 of 24 February 1998 as
amended ("Decree No. 58"), or in any other circumstances where an
expressed exemption to comply with the solicitation restrictions provided
by Decree No. 58 or CONSOB Regulation No. 11971 of 14 May 1999 as amended
applies, provided, however, that any such offer, sale or delivery of the
iShares or distribution of copies of this prospectus or any other
document relating to the iShares in the Republic of Italy must be: (a)
made by investment firms, banks or financial intermediaries permitted to
conduct such activities in the Republic of Italy in accordance with
Legislative Decree No. 385 of 1 September 1993 as amended ("Decree No.
385"), Decree No. 58, Regulation No. 11522 and any other applicable laws
and regulations; and (b) in compliance with any other applicable
notification requirement or limitation which may be imposed by CONSOB or
the Bank of Italy; or (2) if Italian residents submit unsolicited offers
to the Initial Purchaser to purchase the iShares"; and
. (1) it has not offered or sold and will not offer or sell in Hong Kong,
by means of any document, any iShares other than to persons whose
ordinary business is to buy or sell shares or debentures, whether as
principal or agent, or in circumstances which do not constitute an offer
to the public within the meaning of the Companies Ordinance (Chapter 32
of the Laws of Hong Kong) and (2) it has not issued and will not issue
any advertisement, invitation or document relating to the iShares,
whether in Hong Kong or elsewhere, which is directed at, or the contents
of which are likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong Kong)
other than with respect to iShares which are or are intended to be
disposed of only to persons outside Hong Kong or only to "professional
investors" within the meaning of the Securities and Futures Ordinance
(Chapter 571 of the Laws of Hong Kong) and any rules made thereunder.
In addition, this prospectus has not been submitted to the registration
procedures of the French Autorite des Marches Financiers and, accordingly, the
iShares may not be offered or sold to the public in France. Offers and sales of
the iShares in France may be made only to qualified investors (investisseurs
qualifies) in accordance with Article L.411-2 of the French Code monetaire et
financier and decree no. 98-880 dated 1 October 1998 (the "French Code"). This
prospectus or any other offering material relating to the iShares may not be
distributed in France to any person other than a qualified investor, as defined
in the French Code.
The iShares will be listed on the American Stock Exchange under the symbol
"IAU".
3738
LEGAL MATTERS
The validity of the iShares will be passed upon for the sponsor by Clifford
Chance US LLP, New York, New York, who, as special United States tax counsel to
the sponsor, will also render an opinion regarding the material federal income
tax consequences relating to the iShares.
License Agreement
Without conceding that the operation of the trust or the marketing or
trading in iShares would infringe upon any intellectual property owned by The
Bank of New York, the sponsor has entered into a license agreement with The
Bank of New York under which The Bank of New York grants to the sponsor a
perpetual, world wide, non-exclusive, non-transferable license under The Bank
of New York's patents and patent applications that cover securitized gold
products solely for the purpose of establishing, operating and marketing any
securitized gold financial product that is sold, sponsored or issued by the
sponsor.
EXPERTS
PricewaterhouseCoopers will audit the Statement of Financial Condition of
the trust as of [.], 2004. The Statement of Financial Condition of the trust
appears in this prospectus in reliance on their report thereon, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
The sponsor has filed on behalf of the trust a registration statement on
Form S-1 with the SEC under the Securities Act. This prospectus does not
contain all of the information set forth in the registration statement
(including the exhibits to the registration statement), parts of which have
been omitted in accordance with the rules and regulations of the SEC. For
further information about the trust or the iShares, please refer to the
registration statement, which you may inspect, without charge, at the public
reference facilities of the SEC at the below address or online at www.sec.gov,
or obtain at prescribed rates from the public reference facilities of the SEC
at the below address.
The trust is subject to the informational requirements of the Exchange Act
and the sponsor and the trustee will each, on behalf of the trust, file certain
reports and other information with the SEC. The sponsor will file an updated
prospectus annually for the trust pursuant to the Securities Act. The reports
and other information can be inspected at the public reference facilities of
the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549 and online at
www.sec.gov. You may also obtain copies of such material from the public
reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. You may obtain more information concerning the
operation of the public reference facilities of the SEC by calling the SEC at
1-800-SEC-0330 or visiting online at www.sec.gov.
3839
REPORT OF THE INDEPENDENT AUDITORS
[To be furnished by amendment]
FORM OF STATEMENT OF FINANCIAL CONDITION
OPENING OF BUSINESS ., 2004
Assets
Investment in gold, at value/1/............................. $ [a]
Total assets................................................ [a]
Liabilities and Interest of Beneficial Owners
Total liabilities/2/........................................ --
NET ASSETS
Total net assets (applicable to 150,000 iShares outstanding)/3/ $ [a]
Net Asset Value per Equity Gold Share
NAV (comprising [a] / 150,000 iShares outstanding)/3/.......... $ $[a/150,000]
- --------
(1)On the date of the formation of the trust, the custodian received from the
Initial Purchaser 15,000 ounces of gold on behalf of the trust, in exchange
for 3 Baskets equivalent to 150,000 iShares. The value of the gold deposited
with the trust has been based on a price for an ounce of gold of $[.]. This
price is the price for an ounce of gold based on the COMEX settlement price
for spot month gold futures on [.], 2004, the date on which the trust was
formed.
(2)The costs of the trust's organization and the initial offering of the
iShares, will be borne by the sponsor. The sponsor will pay on an ongoing
basis certain trust expenses, including the fees of the trustee, as
described under "Business of the Trust--Trust Expenses".
(3)The iShares are created and redeemed in Baskets of 50,000 iShares. See
"Description of the iShares and the Trust Agreement".
3940
================================================================================
iShares COMEX Gold Trust
[.] iShares
PROSPECTUS
[.], 2004
Until [.], 2004, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions
================================================================================
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
TABLE OF CONTENTS
Item 13. Other Expenses of Issuance and Distribution.
The trust shall not bear any expenses incurred in connection with the
issuance and distribution of the securities being registered. These expenses
shall be paid by the sponsor.
Item 14. Indemnification of Directors and Officers.
Section 5.6(b) of the Trust Agreement provides that the trustee shall
indemnify the sponsor, its directors, employees and agents against, and hold
each of them harmless from, any loss, liability, cost, expense or judgment
(including reasonable fees and expenses of counsel) (i) caused by the
negligence or bad faith of the trustee or (ii) arising out of any information
furnished in writing to the sponsor by the trustee expressly for use in the
registration statement, or any amendment thereto, or in a periodic report filed
with the SEC relating to the iShares that is not materially altered by the
sponsor.
Section 5.6(d) of 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 incurred without their (1) negligence, bad faith, willful misconduct or
willful malfeasance arising out of or in connection with the performance of its
obligations under the Trust Agreement or any actions taken in accordance with
the provisions of the Trust Agreement or (2) reckless disregard of their
obligations and duties under the Trust Agreement.
Item 15. Recent Sales of Unregistered Securities.
Not applicable.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit No. Description
- ----------- -----------
1.1 Form of Distribution AgreementAgreement*
4.1 Form of Depositary Trust Agreement
4.2 Form of Authorized Participant Agreement
5.1 Form of Opinion of Clifford Chance US LLP as to legality
8.1 Form of Opinion of Clifford Chance US LLP as to tax matters
10.1 Form of Custodian Agreement
10.2 License Agreement with The Bank of New York
23.1 Consent of PricewaterhouseCoopers**
23.2 Consents of Clifford Chance US LLP are included in Exhibits 5.1 and 8.1
24.1 Powers of attorney are included on the signature page to the registration statement filed with the
Securities and Exchange Commission on February 6, 2004 (Registration Statement No. 333-
112589).
- --------
* Previously filed.
** To be furnished by amendment.
(b) Financial Statement Schedules
Not applicable.
II-1
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Securities and Exchange Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(4) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Francisco, California, on May 20,November 10, 2004.
Barclays Global Investors, N.A.
sponsor of the iShare COMEX Gold
Trust
By: /s/ BLAKE R. GROSSMAN
-----------------------------
Blake R. Grossman
Chief Executive Officer -
President
By: /s/ FRANCIS S. RYAN
-----------------------------
Francis S. Ryan
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities* and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ BLAKE R. GROSSMAN Chief Executive Officer, May 20,
Signature Capacity Date
--------- -------- ----
/s/ BLAKE R. GROSSMAN Chief Executive Officer, November 10, 2004
- ----------------------------- Director, President
/s/ RICHARD T. RICCI** Chief Operating Officer, November 10, 2004
- ----------------------------- Director
/s/ FRANCIS S. RYAN Director, Chief Financial November 10, 2004
- ----------------------------- Officer
/s/ ANDREW G. SKIRTON** Director November 10, 2004
- -----------------------------
/s/ CHESTER B. FELDBERG Director September 22, 2004
- -----------------------------
Director, President
/s/ RICHARD T. RICCI** Chief Operating Officer, May 20, 2004
- ----------------------------- Director
/s/ FRANCIS S. RYAN Director, Chief Financial May 20, 2004
- ----------------------------- Officer
/s/ ANDREW G. SKIRTON** Director May 20, 2004
- -----------------------------
- --------
* The Registrant will be a trust and the persons are signing in their
capacities as officers or directors of Barclays Global Investors, N.A., the
sponsor of the Registrant.
**By: /s/ FRANCIS S. RYAN
--------------------------
Francis S. Ryan
Attorney-in-fact
II-3
POWER OF ATTORNEY
The undersigned hereby constitutes Blake R. Grossman and Francis S. Ryan,
and each of them singly, his true and lawful attorneys-in-fact with full power
to sign on his behalf, in the capacity indicated below, any and all amendments
to this registration statement and any subsequent related registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
generally to do all such things in his name and on his behalf, in the capacity
indicated below, to enable the registrant to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming his signature as it may
be signed by said attorneys-in-fact, or any of them, on any and all amendments
to this registration statement or any such subsequent related registration
statement.
/s/ CHESTER B. FELDBERG
-------------------------
Name: Chester B. Feldberg
Title: Director
Date: September 22, 2004
II-4
EXHIBIT INDEX
Exhibit
Number Description
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1.1 Form of Distribution AgreementAgreement*
4.1 Form of Depositary Trust Agreement
4.2 Form of Authorized Participant Agreement
5.1 Form of Opinion of Clifford Chance US LLP as to legality
8.1 Form of Opinion of Clifford Chance US LLP as to tax matters
10.1 Form of Custodian Agreement
10.2 License Agreement with The Bank of New York
23.1 Consent of PricewaterhouseCoopers**
23.2 Consents of Clifford Chance US LLP are included in Exhibits 5.1 and 8.1
24.1 Powers of attorney are included on the signature page to the registration statement filed with the
Securities and Exchange Commission on February 6, 2004 (Registration Statement No. 333-112589)
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* Previously filed.
** To be furnished by amendment.