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GSG > SEC Filings for GSG > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for ISHARES S&P GSCI COMMODITY-INDEXED TRUST

Form 10-Q for ISHARES S&P GSCI COMMODITY-INDEXED TRUST


8-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of Part I of this Form 10-Q. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as "may," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other comparable terminology. None of the Trust, the Sponsor, the Manager, the Trustee or the Delaware Trustee assumes responsibility for the accuracy or completeness of any forward-looking statements. None of the Trust, the Sponsor, the Manager, the Trustee or the Delaware Trustee is under a duty to update any of the forward-looking statements to conform such statements to actual results or to a change in expectations or predictions.

Introduction

The iShares® S&P GSCI™ Commodity-Indexed Trust (the "Trust") is a Delaware statutory trust that issues units of beneficial interest ( "Shares") representing fractional undivided beneficial interests in its net assets. Substantially all of the assets of the Trust consist of interests in the iShares ® S&P GSCI™ Commodity-Indexed Investing Pool LLC (the "Investing Pool"). The Investing Pool holds long positions in futures contracts ( "CERFs") on the S&P GSCI™ Excess Return Index ("S&P GSCI-ER") listed on the Chicago Mercantile Exchange, (the "CME"), and posts margin in the form of cash or short-term or similar securities, referred to as "Short-Term Securities," to collateralize its CERF positions. It is the objective of the Trust that the performance of the Shares will correspond generally to the performance of the S&P GSCI™ Total Return Index (the "Index") before payment of the Trust's and the Investing Pool's expenses and liabilities. The Index is intended to reflect the performance of a diversified group of commodities. BlackRock Asset Management International Inc. ("BAMII") is the "Sponsor" of the Trust and the "Manager" of the Investing Pool. BlackRock Institutional Trust Company, N.A. is the "Trustee" of the Trust. The Trust and the Investing Pool are commodity pools, as defined in the regulations of the Commodity Futures Trading Commission (the "CFTC") and are operated by BAMII, a commodity pool operator registered with the CFTC. The Trust and the Investing Pool have delegated some of the administration to State Street Bank and Trust Company (the "Trust Administrator" or "Investing Pool Administrator"). Wilmington Trust Company, a Delaware banking corporation, serves as the "Delaware Trustee" of the Trust. Neither the Trust nor the Investing Pool is an investment company registered under the Investment Company Act of 1940, as amended.

The Trust intends to offer Shares on a continuous basis but is not required to do so and may suspend the offering of Shares at any time. The Trust issues and redeems Shares only in one or more blocks of 50,000 Shares ( "Baskets"). These transactions are generally in exchange for consideration (or redemption proceeds) consisting of CERFs and cash (or, at the discretion of the Sponsor, Short-Term Securities in lieu of cash) with a value equal to the net asset value per Basket on the date the creation or redemption order is received in proper form. Only certain institutions, called "Authorized Participants," that enter into an agreement with the Trust may purchase or redeem Baskets. Owners of beneficial interests in Shares ("Shareholders") who are not Authorized Participants have no right to redeem their Shares; they may redeem their Shares only through an Authorized Participant and only in Baskets.

Shares of the Trust trade on NYSE Arca, Inc. ("NYSE Arca") under the symbol "GSG."

Valuation of CERFs; Computation of Trust's Net Asset Value

The Trustee determines the net asset value of the Trust and the net asset value per Share, or NAV, as of 4:00 p.m. (New York time), on each Business Day on which NYSE Arca is open for regular trading, as soon as practicable after that time. A "Business Day" is


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defined as a day (1) on which none of the following occurs: (a) NYSE Arca is closed for regular trading, (b) the CME is closed for regular trading or (c) the Federal Reserve wire transfer system is closed for cash wire transfers, or
(2) that the Trustee determines that it is able to conduct business. The Trustee values the Trust's assets based upon the determination by the Manager, which may act through the Investing Pool Administrator, of the net asset value of the Investing Pool. The Manager determines the net asset value of the Investing Pool as of the same time that the Trustee determines the net asset value of the Trust.

The Manager values the Investing Pool's long position in CERFs on the basis of that day's announced CME settlement price for the CERF. The value of the Investing Pool's CERF position (including any related margin) equals the product of (a) the number of CERF contracts owned by the Investing Pool and (b) the settlement price on the date of calculation. If there is no announced CME settlement price for the CERF on a Business Day, the Manager uses the most recently announced CME settlement price unless the Manager determines that such price is inappropriate as a basis for valuation. The daily settlement price for the CERF is established by the CME shortly after the close of trading in Chicago on each trading day.

The Manager values all other property of the Investing Pool at (a) its current market value, if quotations for such property are readily available, or (b) its fair value, as reasonably determined by the Manager, if the current market value cannot be determined.

Once the value of the CERFs and interest earned on any assets posted as margin and any other assets of the Investing Pool have been determined, the Manager subtracts all accrued expenses and liabilities of the Investing Pool as of the time of calculation in order to calculate the net asset value of the Investing Pool. The Manager, or the Investing Pool Administrator on its behalf, then calculates the value of the Trust's interests in the Investing Pool ("Investing Pool Interests") and provides this information to the Trustee.

Once the value of the Trust's Investing Pool Interests has been determined and provided to the Trustee, the Trustee subtracts all accrued expenses and other liabilities of the Trust from the total value of the assets of the Trust, in each case as of the calculation time. The resulting amount is the net asset value of the Trust. The Trustee determines the NAV by dividing the net asset value of the Trust by the number of Shares outstanding at the time the calculation is made. Shares to be delivered under a creation order are considered to be outstanding for purposes of determining the NAV if the applicable creation order was received by the Trustee prior to 2:40 p.m. (New York time) (or, on any day on which the CME is scheduled to close early, prior to the close of trading of CERFs on the CME on such day), on the date of calculation. Shares to be delivered under a redemption request are not considered to be outstanding for purposes of calculating the NAV if the applicable redemption request was received by the Trustee prior to 2:40 p.m. (New York time) (or, on any day on which the CME is scheduled to close early, prior to the close of trading of CERFs on the CME on such day), on the date of calculation.

Results of Operations

The Quarter Ended September 30, 2012

The Trust's net asset value increased from $1,181,472,461 at June 30, 2012 to $1,325,611,094 at September 30, 2012. The increase in the Trust's net asset value was primarily due to an increase in the price of CERFs during the quarter from $440.80 at June 30, 2012 to $491.70 at September 30, 2012, an 11.55% increase. The Trust's net asset value also benefitted from an increase in outstanding Shares, which rose from 38,650,000 at June 30, 2012 to 38,950,000 at September 30, 2012 due to 400,000 Shares (8 Baskets) being created and 100,000 Shares (2 Baskets) being redeemed during the quarter.

The Nine Months Ended September 30, 2012

The Trust's net asset value increased from $1,313,291,939 at December 31, 2011 to $1,325,611,094 at September 30, 2012. The increase in the Trust's net asset value was primarily due to an increase in the price of CERFs during the period from $474.80 at December 31, 2011 to $491.70 at September 30, 2012, a 3.56% increase. The increase in the Trust's net asset value was offset by a decrease in outstanding Shares, which decreased from 39,750,000 at December 31, 2011 to 38,950,000 at September 30, 2012 due to 1,550,000 Shares (31 Baskets) being created and 2,350,000 Shares (47 Baskets) being redeemed during the period.


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Liquidity and Capital Resources

The Trust's sole asset as of September 30, 2012 was its investment in the Investing Pool. The Investing Pool's assets consist of CERFs, cash and Short-Term Securities that are posted as collateral for the Investing Pool's CERF positions. The Trust and the Investing Pool do not anticipate any further need for liquidity because creations and redemptions of Shares generally occur in kind and ordinary expenses are met by cash on hand. Interest earned on the assets posted as collateral is paid to the Investing Pool and is used to pay the fixed fee to the Manager and purchase additional CERFs, or, in the discretion of the Sponsor, distributed to Shareholders. In exchange for a fee based on the net asset value of the Investing Pool, the Sponsor and the Manager have assumed most of the ordinary expenses incurred by the Trust and the Investing Pool. In the case of an extraordinary expense and/or insufficient interest income to cover ordinary expenses, however, the Investing Pool could be forced to liquidate its CERF positions to pay such expenses. As of September 30, 2012, the market for CERFs had not developed significant liquidity and the Investing Pool represented substantially all of the long-side open interest in CERFs. In addition, it is expected that Goldman, Sachs & Co. or its accountholders may represent, directly or indirectly, a substantial portion of the short-side interest in such market. The existence of such a limited number of market participants could cause or exacerbate losses to the Trust if the Trust were required to liquidate its CERF positions.

The Sponsor is unaware of any other trends, demands, conditions or events that are reasonably likely to result in material changes to the Trust's or the Investing Pool's liquidity needs.

Because the Investing Pool trades CERFs, its capital is at risk due to changes in the value of the CERFs or other assets (market risk) or the inability of counterparties to perform (credit risk).

Market Risk

The Investing Pool holds CERF positions and posts cash and Short-Term Securities as margin to collateralize the CERF positions. Because of this limited diversification of the Investing Pool's assets, fluctuations in the value of the CERFs are expected to directly affect the value of the Shares. The value of the CERFs is expected to track generally the S&P GSCI-ER, although this correlation may not be exact. The S&P GSCI-ER, in turn, reflects the value of a diversified group of commodities. The market risk associated with the Investing Pool's CERF positions is limited to the amount of cash and Short-Term Securities posted as margin. The Investing Pool's exposure to market risk will be influenced by a number of factors, including the lack of liquidity of the CERF market and activities of other market participants.

Credit Risk

When the Investing Pool purchases or holds CERFs, it is exposed to the credit risk of a default by the CME Clearing House, which serves as the counterparty to each CERF position, and of a default by its clearing futures commission merchant. In the case of such a default, the Investing Pool could be unable to recover amounts due to it on its CERF positions and assets posted as margin. The Investing Pool is also exposed to the credit risk of the obligors of any Short-Term Securities posted as margin.

Off-Balance Sheet Arrangements and Contractual Obligations

The Trust and the Investing Pool have not used, nor do they expect to use, special purpose entities to facilitate off-balance sheet financing arrangements. The Trust and the Investing Pool have no loan guarantee arrangements or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services for the benefit, or on behalf of the Trust and the Investing Pool. While the Trust's and the Investing Pool's exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on either the Trust's or the Investing Pool's financial position.


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Critical Accounting Policies

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust's and the Investing Pool's financial position and results of operations. These estimates and assumptions affect the Trust's and the Investing Pool's application of accounting policies. In addition, please refer to Note 2 to the financial statements of the Trust and the Investing Pool for further discussion of the Trust's and the Investing Pool's accounting policies.

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