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 10Q. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forwardlooking statements can be identified by terminology such as "may," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other comparable terminology. 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 below, 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. Although the Sponsor does not make forward looking statements unless it believes it has a reasonable basis for doing so, the Sponsor cannot guarantee their accuracy. Except as required by applicable disclosure laws, none of the Trust, the Sponsor, the Advisor, the Trustee or the Delaware Trustee is under a duty to update any of the forwardlooking statements to conform such statements to actual results or to a change in expectations or predictions.
Introduction
The iShares S&P GSCI™
iShares
The Trust intends to offer Shares on a continuous basis. The Trust issues and redeems Shares only in one or more blocks of 50,000 Shares ("Baskets"). Only institutions that enter into an agreement with the Trust to become "Authorized Participants" may purchase or redeem Baskets, in exchange for Index Futures and Collateral Assets with an aggregate value equal to the net asset value per Share, or "NAV" of the Shares being purchased or redeemed.
Owners of beneficial interests in Shares ("Shareholders") who are not Authorized Participants have no right to redeem their Shares. In order to liquidate their investment in the Shares, Shareholders who are not Authorized Participants must generally sell their Shares in the secondary market, assuming that demand for their Shares exists. The price obtained by the Shareholders for the Shares may be less than the NAV of those Shares.
Shares of the Trust trade on
Valuation of Index Futures? Computation of the Trust's Net Asset Value
The Sponsor has the exclusive authority to determine the net asset value of the
Trust and the NAV, which it has delegated to the Trustee under the Trust
Agreement. The Trustee determines the net asset value of the Trust and the NAV
as of
The Trustee values the Trust's long positions in Index Futures on the basis of
that day's settlement prices for the Index Futures held by the Trust as
announced by the applicable Exchange. The value of the Trust's positions in any
particular Index Futures contract equals the product of (1) the number of such
Index Futures contracts owned by the Trust, (2) the settlement price of such
Index Futures contract on the date of calculation and (3) the multiplier of such
Index Futures contract. If there is no announced settlement price for a
particular Index Futures contract on a Business Day, the Trustee uses the most
recently announced settlement price unless the Trustee, in consultation with the
Sponsor, determines that such price is inappropriate as a basis for valuation.
The daily settlement price for each Index Futures contract currently held by the
Trust is established on each trading day, generally at
The Trustee values all other holdings of the Trust at (1) its current market value, if quotations for such property are readily available or (2) its fair value, as reasonably determined by the Trustee, if the current market value cannot be determined.
Once the value of the Index Futures, Collateral Assets of the Trust and interest earned on the Trust's Collateral Assets has been determined, the Trustee subtracts all accrued expenses and liabilities of the Trust as of the time of calculation in order to calculate the net asset value of the Trust.
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Table of Contents
Once the net asset value of the Trust has been calculated, 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. Any changes to the NAV
that may result from creation and redemption activity are not reflected in the
NAV calculations for purposes of the Trust's operations until the Business Day
following the Business Day on which they occur, but are reflected in the Trust's
financial statements as of such first Business Day. Creation and redemption
orders received after
Results of Operations
The Quarter Ended
The Trust's net asset value increased from
The 10.25% increase in the Trust's NAV from
Net increase in net assets resulting from operations for the quarter ended
The Six-Month Period Ended
The Trust's net asset value decreased from
The 36.39% decrease in the Trust's NAV from
Net decrease in net assets resulting from operations for the period was
Liquidity and Capital Resources
The Trust's assets as of
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 liquidity needs.
Because the Trust trades Index Futures, its capital is at risk due to changes in the value of the Index Futures or other assets (market risk) or the inability of counterparties to perform (credit risk).
Market Risk
The Trust holds Index Futures positions and Collateral Assets to satisfy applicable margin requirements on those Index Futures positions. Because of this limited diversification of the Trust's assets, fluctuations in the value of the Index Futures are expected to directly affect the value of the Shares. The value of the Index Futures 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 Trust's exposure to market risk will be influenced by a number of factors, including the lack of liquidity of the Index Futures market and activities of other market participants.
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Table of Contents Credit Risk
When the Trust purchases or holds Index Futures, it is exposed to the credit
risk of a default by the CME's clearing house, which serves as the counterparty
to each Index Futures position, and of a default by its clearing futures
commission merchant, or Clearing FCM. In the case of such a default, the Trust
may be unable to recover amounts due to it on its Index Futures positions and
Collateral Assets posted as margin. The Trust is also exposed to credit risk as
a result of its ownership of
Off-Balance Sheet Arrangements and Contractual Obligations
The Trust does not use and is not expected to use special purpose entities to facilitate off-balance sheet financing arrangements. The Trust does not have and is not expected to have 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 that are in the interest of the Trust. While the Trust's exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Trust's financial position.
Critical Accounting Policies
The financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in
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