Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustFinancial_Report.xls
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR2.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR5.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR9.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR6.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR3.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR1.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR4.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR8.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR7.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR34.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR29.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR31.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR27.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR10.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR32.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR17.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR12.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR30.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR19.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR23.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR13.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR15.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR16.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR33.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR28.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR22.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR21.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR18.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR25.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR11.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR20.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR14.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR24.htm
XML - IDEA: XBRL DOCUMENT - iShares S&P GSCI Commodity-Indexed TrustR26.htm
EX-32.2 - CERTIFICATION BY PFO PURSUANT TO 18 U.S.C. SECTION 1350 - iShares S&P GSCI Commodity-Indexed Trustd454119dex322.htm
EX-31.3 - CERTIFICATION BY PEO PURSUANT TO RULE 13A-14(A) - iShares S&P GSCI Commodity-Indexed Trustd454119dex313.htm
EX-31.2 - CERTIFICATION BY PFO PURSUANT TO RULE 13A-14(A) - iShares S&P GSCI Commodity-Indexed Trustd454119dex312.htm
EX-32.1 - CERTIFICATION BY PEO PURSUANT TO 18 U.S.C. SECTION 1350 - iShares S&P GSCI Commodity-Indexed Trustd454119dex321.htm
EX-31.4 - CERTIFICATION BY PFO PURSUANT TO RULE 13A-14(A) - iShares S&P GSCI Commodity-Indexed Trustd454119dex314.htm
EX-23.1 - CONSENT OF PRICEWATERHOUSECOOPERS LLP - iShares S&P GSCI Commodity-Indexed Trustd454119dex231.htm
EX-31.1 - CERTIFICATION BY PEO PURSUANT TO RULE 13A-14(A) - iShares S&P GSCI Commodity-Indexed Trustd454119dex311.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2012

 

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission file numbers: 001-32947 (Registrant)

                                                     001-32948 (Co-Registrant)

 

 

iShares® S&P GSCI™ Commodity-Indexed Trust

iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

(Rule 140 Co-Registrant)

(Exact name of Registrant as specified in its charter)

 

 

 

  51-6573369 (Registrant)
Delaware   34-2061331 (Co-Registrant)

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Numbers)

c/o BlackRock Asset Management International Inc.

400 Howard Street

San Francisco, California 94105

Attn: Product Management Team

iShares Product Research & Development

(Address of principal executive offices)

(415) 670-2000

(Registrant and Co-Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Shares   NYSE Arca, Inc.
(Title of class)   (Name of exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨


Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x  (Registrant)   Accelerated filer   ¨  
Non-accelerated filer   ¨   Smaller reporting company   ¨  

(Do not check if a smaller reporting company)

     

Indicate by check mark whether the Registrant and Co-Registrant are shell companies (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of June 30, 2012, the aggregate market value of the shares held by non-affiliates was approximately $1,176,506,000.

DOCUMENTS INCORPORATED BY REFERENCE:

None.

THE FINANCIAL STATEMENT SCHEDULES CONTAINED IN PART IV OF THIS FORM 10-K CONSTITUTE THE ANNUAL REPORT WITH RESPECT TO THE TRUST AND INVESTING POOL FOR PURPOSES OF CFTC RULE 4.22(C) (THE “CFTC ANNUAL REPORT”).

 

 

 


Table of Contents

 

         Page  

PART I

  

Item 1.

  Business      1   

Item 1A.

  Risk Factors      19   

Item 1B.

  Unresolved Staff Comments      35   

Item 2.

  Properties      35   

Item 3.

  Legal Proceedings      36   

Item 4.

  Mine Safety Disclosures      36   

PART II

  

Item 5.

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities      37   

Item 6.

  Selected Financial Data      38   

Item 7.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      39   

Item 7A.

  Quantitative and Qualitative Disclosures About Market Risk      42   

Item 8.

  Financial Statements and Supplementary Data      43   

Item 9.

  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      47   

Item 9A.

  Controls and Procedures      47   

Item 9B.

  Other Information      48   

PART III

  

Item 10.

  Directors, Executive Officers and Corporate Governance      49   

Item 11.

  Executive Compensation      49   

Item 12.

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      49   

Item 13.

  Certain Relationships and Related Transactions, and Director Independence      49   

Item 14.

  Principal Accounting Fees and Services      49   

PART IV

  

Item 15.

  Exhibits, Financial Statement Schedules      50   


PART I

Item 1. Business.

Summary

The iShares® S&P GSCI™ Commodity-Indexed Trust (the “Trust”) is a Delaware statutory trust formed on July 7, 2006. The Trust issues units of beneficial interest (called “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 is a Delaware limited liability company formed on July 7, 2006. The Investing Pool holds long positions in futures contracts on the S&P GSCI™ Excess Return Index (“CERFs”). 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. (“BTC”) 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 (“CFTC”) and are operated by BAMII, a commodity pool operator registered with the CFTC. The Trust and the Investing Pool has 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 “Investment Company Act”).

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 (called “Baskets”). These transactions are generally in exchange for consideration (or redemption proceeds) consisting of CERFs and cash (or, in the discretion of the Sponsor, short-term or similar securities in lieu of cash, referred to as “Short-Term Securities”) 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. The Trust has delegated the processing of creation and redemption orders of Baskets to SEI Investments Distribution Co. (the “Processing Agent”).

The activities of the Trust are limited to:

 

  (1) issuing Baskets in exchange for CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash),

 

  (2) contributing the proceeds described in (1) that it receives in connection with issuances of Baskets to the Investing Pool in return for interests in the Investing Pool (“Investing Pool Interests”),

 

  (3) paying out of Trust assets any Trust expenses and liabilities not assumed by the Sponsor,

 

  (4) delivering proceeds consisting of CERFs, cash and Short-Term Securities in exchange for Baskets surrendered for redemption, and

 

  (5) redeeming Investing Pool Interests in exchange for the proceeds described in (4).

The Trust, through the Investing Pool, will be a passive investor in CERFs and the cash or Short-Term Securities posted as margin to collateralize the Investing Pool’s CERF positions. At any time when CERFs of more than one expiration are listed on the Chicago

 

1


Mercantile Exchange Inc. (the “CME”), the Sponsor will determine, pursuant to the terms of the Investing Pool Agreement and in accordance with its current lot selection procedures, which CERFs of a given expiration, will be transferred in connection with either the creation or redemption of Baskets.

The activities of the Investing Pool are limited to:

 

  (1) issuing Investing Pool Interests to the Trust in return for CERFs and cash or Short-Term Securities,

 

  (2) paying out of Investing Pool assets any expenses and liabilities not assumed by the Manager, and

 

  (3) delivering proceeds consisting of CERFs, cash and Short-Term Securities in exchange for Investing Pool Interests surrendered for redemption.

BlackRock Fund Advisors (the “Advisor”), which is a commodity trading advisor registered with the CFTC, acts as the commodity trading advisor for the Investing Pool. The Advisor enters into long positions in CERFs and posts cash and Short-Term Securities as collateral on behalf of the Investing Pool. To the extent that the Investing Pool accepts proceeds from the Trust in the form of cash rather than CERFs and other assets, the Investing Pool will use that cash to purchase additional CERFs, in an amount that the Advisor determines will enable the Investing Pool to achieve investment results that correspond with the Index, and to collateralize those CERFs.

The Sponsor maintains an Internet website at www.ishares.com, through which monthly account statements and the registrants’ annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), can be accessed free of charge, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Additional information regarding the Trust and the Investing Pool may also be found on the SEC’s EDGAR database at www.sec.gov.

Investment Objective of the Trust and the Investing Pool

The investment objective of the Trust is to seek investment results, through the Trust’s investment in the Investing Pool, that correspond generally, but are not necessarily identical, to the performance of the Index, before the payment of expenses and liabilities of the Trust and the Investing Pool. The Investing Pool holds long positions in CERFs, which are futures contracts listed on the CME, whose settlement at expiration is based on the value of the S&P GSCI™ Excess Return Index (“S&P GSCI-ER”) at that time. The Investing Pool also earns interest on the assets used to collateralize its holdings of CERFs.

CERFs are futures contracts listed for trading on the CME. The CERFs currently listed on the CME have an expiration date of March 2014. CERFs listed on later dates may have terms that differ from those of CERFs listed at this time, including changes to the transaction fees charged by the CME and the Clearing FCM (as defined below) associated with the purchase and sale of CERFs on the CME. The aggregate transaction fees currently equal $13.20 per CERF for purchases and sales of CERFs expiring in March 2014. The CME may change such fees in the future. Each CERF is a contract that provides for cash settlement, at expiration, based upon the final settlement value of the S&P GSCI-ER at the expiration of the contract, multiplied by a fixed dollar multiplier. Accordingly, a position in CERFs provides the holder with the positive or negative return on the S&P GSCI-ER during the period in which the position is held. For further discussion of the CERFs, see “Futures Contracts on the S&P GSCI-ER” below.

The Investing Pool also earns interest on the assets used to collateralize its holdings of CERFs. The interest on the collateral deposited by the Investing Pool as margin, together with the returns from the CERFs, is expected to result in a total return for the Investing Pool

 

2


that corresponds generally, but is not identical, to the Index (before the payment of expenses and liabilities). Neither the Trust nor the Pool will engage in activities designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the S&P GSCI-ER or the value of the Investing Pool’s Short-Term Securities.

The Shares are intended to constitute a relatively cost-effective means of achieving investment exposure to the performance of the Index. Although the Shares are not the exact equivalent of an investment in the underlying futures contracts and Treasury securities represented by the Index, the Shares are intended to provide investors with an alternative way of participating in the commodities market.

Secondary Market Trading

While the Trust anticipates that the price of the Shares will fluctuate in a manner that reflects changes in the Trust’s net asset value over time, at any given time the Shares may trade at, above or below their net asset value per Share (“NAV”). The NAV will fluctuate primarily with changes in the market value of CERFs. The trading price of the Shares will fluctuate in accordance with changes in their NAV, intraday changes in the value of the CERFs and market supply and demand. The amount of the discount or premium in the trading price relative to the NAV may be influenced by non-concurrent trading hours between NYSE Arca, Inc. (“NYSE Arca”), the exchange on which the Shares trade, the CME, on which CERFs trade, and the principal commodities markets on which the futures contracts in the S&P GSCI-ER trade. While the Shares are expected to trade on NYSE Arca until 4:00 p.m. (New York time), liquidity in the markets for the CERFs and the underlying commodities in the S&P GSCI-ER will be reduced whenever the principal markets for these contracts are closed, which usually occurs from 4:00 p.m. to 5:00 p.m. (Chicago time) for the CERFs. As a result, trading spreads, and the resulting premium or discount on the Shares, may widen during these “gaps” in market trading hours.

Investing Pool Interests have been issued by the Investing Pool only to the Trust and the Manager, and are not expected to be transferred. There will be no active secondary market for Investing Pool Interests.

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

The Trustee determines the net asset value of the Trust and the 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 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 positions in CERFs on the basis of that day’s announced CME settlement prices for the CERFs held by the Investing Pool. The value of the Investing Pool’s position in a CERF contract of a particular expiration (including any related margin) equals the product of (a) the number of such CERF contracts owned by the Investing Pool and (b) the settlement price of such CERF contract on the date of calculation. If there is no announced CME settlement price for such CERF contract 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 prices for the CERFs are established by the CME shortly after the close of trading in Chicago on each trading day.

The Manager values all other holdings 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.

 

3


Once the value of the CERFs and interest earned on any assets posted as margin and any other assets of the Investing Pool has 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 Investing Pool Interests and provides this information to the Trustee.

Once the value of the Trust’s Investing Pool Interests have 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.

Trust Expenses

The Sponsor is obligated under the Amended and Restated Trust Agreement, dated September 12, 2007 (as amended, the “Trust Agreement”), to pay the following administrative, operational and marketing expenses:

 

  (1) the fees of the Trustee, the Delaware Trustee, the Trust Administrator and the Processing Agent,

 

  (2) NYSE Arca listing fees,

 

  (3) printing and mailing costs,

 

  (4) audit fees,

 

  (5) tax reporting costs,

 

  (6) license fees and

 

  (7) legal expenses up to $100,000 annually.

The Trust is not expected to have other ordinary recurring administrative, operational or marketing expenses.

The Sponsor, BAMII, does not receive a fee in connection with its role as Sponsor. However, BAMII receives an allocation in connection with its role as Manager of the Investing Pool that accrues daily at an annualized rate equal to 0.75% of the net asset value of the Investing Pool and is payable by the Investing Pool monthly in arrears. The Manager earned $9,733,635 for the year ended December 31, 2012.

The Sponsor and the Trustee can amend or terminate the Sponsor’s obligation to pay certain expenses of the Trust pursuant to the Trust Agreement.

The Trust bears the costs of any applicable brokerage commissions and similar transaction fees, which are payable by the Investing Pool out of its assets. The Sponsor does not expect such commissions and fees to exceed $10,000 in any year.

The Trustee will also pay the following expenses out of the assets of the Trust:

 

   

any expenses of the Trust that are not assumed by the Sponsor;

 

4


   

any taxes and other governmental charges that may fall on the Trust or its property;

 

   

any expenses of any extraordinary services performed by the Trustee or the Sponsor on behalf of the Trust or expense of any action taken by the Trustee or the Sponsor to protect the Trust and the rights and interests of holders of the Shares; and

 

   

any indemnification of the Sponsor.

The Trustee is also entitled to charge the Trust for all expenses and disbursements incurred by the Trustee in connection with the actions described in the second and third bullet points above, including fees and disbursements of its legal counsel; provided that the Trustee is not entitled to charge the Trust for (1) expenses and disbursements that were incurred by it before the Shares were publicly traded and (2) fees of agents for performing services that the Trustee is required under the Trust Agreement to perform.

The Trustee, at the direction of the Sponsor, may liquidate the Trust’s property from time to time as necessary to permit payment of the fees and expenses that the Trust is required to pay. The Trustee is not responsible for any depreciation or loss incurred by reason of the liquidation of Trust property made in compliance with the Trust Agreement.

Creations of Baskets

The Trust intends to offer Shares on a continuous basis on each Business Day, but issuances of new Shares may be suspended at any time and were suspended from August 24, 2009 to April 26, 2010, because the Trust could not invest the proceeds of new issuances in additional CERF positions due to restrictions on speculative position limits imposed by the CME. Shares may be offered only in Baskets of 50,000 Shares. Baskets will be typically issued only in exchange for an amount of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash) equal to the “Basket Amount” for the Business Day on which the creation order was received by the Trustee. The Basket Amount for a Business Day will have a per Share value equal to the NAV as of such day, and the assets included in the Basket Amount will be valued in the same manner and on the same basis as the Trust’s NAV calculations for its assets generally, as fully described in “Business of the Trust and the Investing Pool – Valuation of CERFs; Computation of Trust’s Net Asset Value”. However, orders received by the Trustee after 2:40 p.m. (New York time) (or, on any day on which the CME is scheduled to close early, after the close of trading of CERFs on the CME on such day), will be treated as received on the next following Business Day. The Trustee will notify the Authorized Participants of the Basket Amount on each Business Day.

Before the Trust will issue any Baskets to an Authorized Participant, that Authorized Participant must deliver to the Trustee a creation order indicating the number of Baskets it intends to purchase and providing other details with respect to the procedures by which the Baskets will be transferred. The Trustee will acknowledge the creation order unless it or the Sponsor decides to refuse the order as described below.

Upon the transfer of (1) the required consideration of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash) in the amounts, and to the accounts, specified by the Trustee, and (2) all transaction fees associated with creations (including but not limited to fees charged by the CME and the Clearing FCM) per Basket, currently equal to $13.20 multiplied by the number of CERFs expiring in March 2014 in the Basket Amount, the Trustee will deliver the appropriate number of Baskets to the DTC account of the Authorized Participant. The total transaction fees charged per Basket created may change from time to time. In limited circumstances and with the approval of the Trustee, Baskets may be created for cash, in which case the Authorized Participant will be required to pay any additional issuance costs, including the costs to the Investing Pool of establishing the corresponding CERF position.

Only Authorized Participants can transfer the required consideration and receive Baskets in exchange. Authorized Participants may act for their own accounts or as agents for broker-dealers, custodians and other securities market participants that wish to create or redeem Baskets. An Authorized Participant will have no obligation to create or redeem Baskets for itself or on behalf of other persons. An order for one or more Baskets may be placed by an Authorized Participant on behalf of multiple clients. The Sponsor and

 

5


the Trustee will maintain a current list of Authorized Participants. As of the date of this report, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., Knight Clearing Services LLC, Merrill Lynch Professional Clearing Corp., Newedge USA, LLC, Timber Hill LLC and UBS Securities LLC are the only Authorized Participants.

No Shares will be issued unless and until the Trustee receives confirmation that (1) the required consideration has been received in the account or accounts specified by the Trustee and (2) the Manager confirms that Investing Pool Interests with an initial value equal to the consideration received for the Shares have been issued to the Trust. It is expected that delivery of the Shares will be made against transfer of consideration on the next Business Day following the Business Day on which the creation order is received by the Trustee, which is referred to as a T+1 settlement cycle. If the Trustee has not received the required consideration for the Shares to be delivered on the delivery date, by 11:00 a.m. (New York time), the Trustee may cancel the creation order.

The Trustee has the absolute right to reject any creation order, for reasons including, among others, (1) the related order not being in proper form as described in the Authorized Participant Agreement, (2) market conditions or other circumstances that make transactions in or delivery of the Shares or the CERFs impossible or impractical, (3) a determination by the Trustee that the acceptance of the related order would have adverse tax or other consequences to the Trust, the Investing Pool or the Shareholders, or (4) circumstances that would cause the acceptance of the related order to result in a violation of the law in the opinion of counsel to the Trustee, the Sponsor, the Trust Administrator or the Processing Agent. Neither the Trustee nor any agents acting on its behalf will be liable to any person for rejecting a creation order.

Redemptions of Baskets

Authorized Participants may typically surrender Baskets in exchange only for an amount of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash) equal to the Basket Amount on the Business Day the redemption request is received by the Trustee. However, redemption requests received by the Trustee after 2:40 p.m. (New York time) (or, on any day on which the CME is scheduled to close early, after the close of trading of CERFs on the CME on such day), will be treated as received on the next following Business Day. Holders of Baskets who are not Authorized Participants will be able to redeem their Baskets only through an Authorized Participant. It is expected that Authorized Participants may redeem Baskets for their own accounts or on behalf of Shareholders who are not Authorized Participants, but they are under no obligation to do so.

Before surrendering Baskets for redemption, an Authorized Participant must deliver to the Trustee a request indicating the number of Baskets it intends to redeem and providing other details with respect to the procedures by which the required Basket Amount will be transferred. The Trustee will acknowledge the redemption order unless it or the Sponsor decides to refuse the redemption order as described below.

After the delivery by the Authorized Participant to the Trustee’s DTC account of the total number of Shares to be redeemed by an Authorized Participant, the Trustee will deliver to the order of the redeeming Authorized Participant redemption proceeds consisting of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash). The Trustee may deliver CERFs of different expiration than were included in the creation of the Basket. In connection with a redemption order, the redeeming Authorized Participant authorizes the Trustee to deduct from the proceeds of redemption any and all transaction fees associated with redemptions (including but not limited to fees charged by the CME and the Clearing FCM) per Basket, currently equal to $13.20 multiplied by the number of CERFs expiring in March 2014 included in the Basket Amount. The total transaction fees charged per Basket redeemed may change from time to time. In limited circumstances and with the approval of the Trustee, Baskets may be redeemed for cash, in which case the Authorized Participant will be required to pay any additional redemption costs, including the

 

6


costs to the Investing Pool of liquidating the corresponding CERF position. The Trust will receive these redemption proceeds pursuant to the Trust’s contemporaneous redemption of Investing Pool Interests of corresponding value. Shares can be surrendered for redemption only in Baskets.

It is expected that delivery of the CERFs, cash or Short-Term Securities to the redeeming Shareholder will be made against transfer of the Baskets on the next Business Day following the Business Day on which the redemption request is received by the Trustee. If the Trustee’s DTC account has not been credited with the total number of Shares to be redeemed pursuant to the redemption order by 11:00 a.m. (New York time), on the delivery date, the Trustee may cancel the redemption order.

The Trustee has the absolute right to reject any redemption order, for reasons including, among others, (1) the related order not being in proper form as described in the Authorized Participant Agreement, (2) market conditions or other circumstances that make transactions in or delivery of the Shares or the CERFs impossible or impractical, (3) a determination by the Trustee that the acceptance of the related order would have adverse tax or other consequences to the Trust, the Investing Pool or the Shareholders, or (4) circumstances that would cause the acceptance of the related order to result in a violation of law in the opinion of counsel to the Trustee, the Sponsor, the Trust Administrator or the Processing Agent.

Custody of the Trust Assets

The creation and redemption of Baskets, and the corresponding creation and redemption of Investing Pool Interests, will generally be effected through transactions known as exchanges for related positions, or “EFRPs.” Because EFRPs involve contemporaneous transfers, it is anticipated that the Trust will not hold CERFs and the securities used to collateralize CERFs on a regular basis. The Investing Pool Interests, which are not certificated, will be recorded in the books and records of the Trust by the Trustee and in the books and records of the Investing Pool by the Manager. To the extent the Trust has property that requires a custodian, the Trustee will appoint an agent qualified to maintain the property of the Trust.

Investing Pool Agreement

The Investing Pool is governed by the “Investing Pool Agreement,” entered into between the Trust and BAMII, as members and BAMII serves as Manager. As Manager, BAMII is responsible for the administration of the Investing Pool.

The Investing Pool has issued Investing Pool Interests only to the Trust and the Manager. Under the terms of the Investing Pool Agreement, neither the Trust nor the Manager may transfer Investing Pool Interests to any other person; provided that the Manager may transfer its Investing Pool Interests to any non-natural person that is an affiliate of BAMII. Each time Shares are created or redeemed, the Trust will contribute to the Investing Pool, or receive a distribution from the Investing Pool, in an amount equivalent to the Basket Amount it receives in connection with such creation or redemption. The Manager made an initial contribution of $25,000 to the Investing Pool.

The Manager has delegated some of the administration of the Investing Pool to BTC (the “Administrator”), which in turn has employed the Investing Pool Administrator to maintain various records and carry out various duties on behalf of the Investing Pool. BTC has also employed PricewaterhouseCoopers LLP as the tax administrator to provide tax accounting and tax reporting services for the Trust and the Investing Pool.

The Manager will pay expenses that would otherwise be considered ordinary operating expenses of the Investing Pool (other than trading commissions). In recognition of its paying these expenses, as well as the ordinary operating expenses with respect to the Trust, for which BAMII serves as Sponsor, the Manager receives a special allocation from the Investing Pool that accrues daily at an annualized rate equal to 0.75% of the net asset value of the Investing Pool and is payable by the Investing Pool monthly in arrears.

 

7


Neither the Manager nor the Trust or any of their respective agents or officers will have personal liability to the Investing Pool or each other for monetary damages for breach of fiduciary duty (if any) or any act or omission performed or omitted by any such person in good faith on behalf of the Investing Pool, except for such person’s gross negligence or willful misconduct. The Investing Pool Agreement provides that, to the extent it has available assets, the Investing Pool will indemnify the Trust, the Manager and the officers, agents and delegates of the Investing Pool, for any loss, damage, claim or expense based on their conduct relating to the Investing Pool, provided that the conduct resulting in the loss, damage, claim or expense did not result from the indemnified parties’ gross negligence, bad faith or willful misconduct.

The Investing Pool Agreement may be amended by the Trust and the Manager. The Investing Pool will be dissolved and its affairs will be wound up upon the first to occur of: (1) the entry of a decree of judicial dissolution under the Delaware Limited Liability Company Act, (2) at any time the Manager determines that dissolving the Investing Pool is desirable, or (3) the termination of the legal existence of the last remaining member of the Investing Pool or the occurrence of any other event that terminates the continued membership of the last remaining member of the Investing Pool in the Investing Pool unless the Investing Pool is continued without dissolution in a manner permitted by the Delaware Limited Liability Company Act.

The Investing Pool has entered into a commodity trading advisor agreement with the Advisor, which provides the Advisor with discretionary authority to make all determinations with respect to the Investing Pool’s assets, subject to specified limitations. The Investing Pool has also entered into a futures commission merchant (“FCM”) agreement that provides for the execution and clearing of transactions in futures, payment of commissions, custody of assets and other standard provisions. Goldman, Sachs & Co. is the “Clearing FCM” of the Investing Pool. The Investing Pool may employ other FCMs for the execution of CERF transactions.

Goldman, Sachs & Co. and some of its affiliates trade the contracts comprising the S&P GSCI™ Commodity Index (“S&P GSCI™”), as well as the underlying commodities and other derivative instruments thereon, for their proprietary accounts and other accounts under their management. Goldman, Sachs & Co. and some of its affiliates may underwrite or issue other securities or financial instruments indexed to the S&P GSCI™ and related indices. These activities could present conflicts of interest and could adversely affect the value of the S&P GSCI™. There may be conflicts of interest between you and Goldman, Sachs & Co. See “Risk Factors—Risk Factors Relating to Conflicts of Interest— Proprietary trading and other activities by Goldman, Sachs & Co. and its affiliates could conflict with your interests as a Shareholder.”

Futures Contracts on the S&P GSCI-ER

The assets of the Investing Pool consist of CERFs and cash or Short-Term Securities posted as margin to collateralize the Investing Pool’s CERF positions. CERFs are traded on the CME and were first listed and made available for trading on March 13, 2006. Until October 2010, these CERF contracts, which expired in March 2011, were the only CERFs listed. In October 2010, the CME listed a second CERF contract, which expires in March 2014. Consequently, CERFs have a limited trading history. Futures contracts and options on futures contracts on the S&P GSCI™, which does not reflect the excess return embedded in the S&P GSCI-ER, have been traded on the CME since 1992. CERFs are listed and traded separately from the S&P GSCI™ futures contracts and options on futures contracts.

CERFs are subject to the rules of the CME. CERFs trade on GLOBEX, the CME’s electronic trading system, and do not trade through open outcry on the floor of the CME. Transactions in CERFs are cleared through the “CME Clearing House” by the trader’s FCM acting as its agent. Under these clearing arrangements, the CME Clearing House becomes the buyer to each member FCM representing a seller of the contract and the seller to each member FCM representing a buyer of the contract. As a result of these clearing arrangements, each trader holding a position in CERFs is subject to the credit risk of the CME Clearing House and the FCM carrying its position in CERFs. See “Risk Factors—Risk Factors Related to CERFs and the S&P GSCI-ER—The Investing Pool’s

 

8


Clearing FCM or the CME Clearing House could fail, which could expose the Investing Pool to greater risk.”

As noted above, the CERFs currently listed on the CME have an expiration date of March 2014. CERFs listed on later dates may have terms that differ from those of CERFs listed at this time, including changes to the transaction fees charged by the CME and the Clearing FCM associated with the purchase and sale of CERFs on the CME. The aggregate transaction fees currently equal $13.20 per CERF for purchases and sales of CERFs expiring in March 2014. The CME may change such fees in the future. Each CERF is a contract that provides for cash settlement, at expiration, based upon the final settlement value of the S&P GSCI-ER at the expiration of the contract, multiplied by a fixed dollar multiplier. For the CERF contract expiring in March 2014, the final settlement value is determined on the eleventh business day of March 2014. On a daily basis, market participants with positions in CERFs, other than those participants subject to special margin requirements, such as the Investing Pool, are obligated to pay, or entitled to receive, cash (known as “variation margin”) in an amount equal to the change in the daily settlement level of the CERF from the preceding trading day’s settlement level (or, initially, the contract price at which the position was entered into). Specifically, if the daily settlement price of the contract increases over the previous day’s price, the seller of the contract must pay the difference to the buyer, and if the daily settlement price is less than the previous day’s price, the buyer of the contract must pay the difference to the seller.

Futures contracts typically require deposits of initial margin as well as payments of daily variation margin as the value of the contracts fluctuate. For most market participants, the initial margin requirement for CERFs is generally expected to be 3% to 7%. Certain market participants, known as “100% margin participants,” however, are required to deposit with their FCMs initial margin in an amount equal to 100% of the value of the CERF on the date the position is established. The FCM, in turn, is required to deliver to the CME Clearing House initial margin at a level generally expected to be from 3% to 7% and pledge to the CME Clearing House, pursuant to a separate custody arrangement pursuant to CME rules, an amount equal to the remainder of the 100% margin amount posted by 100% margin participants. The separate custody arrangement will be an account with the FCM.

As a result of these arrangements, a 100% margin participant buying a CERF is subject to substantially greater initial margin requirements than other market participants, but is not required to deposit any additional amounts with its FCM as variation margin if the value of the CERFs declines. Instead, the FCM is obligated to make variation margin payments to the CME Clearing House in respect of CERFs held by 100% margin participants, which it transfers from the separate custody account (and, in turn, from the 100% margin posted by those participants).

If the daily settlement price increases, the FCM receives variation margin from the CME Clearing House for the account of the 100% margin participant, which it holds in the separate custody account for the benefit of the 100% margin participant. The buyer is not, however, entitled to receive or withdraw this variation margin from its FCM until the liquidation or final settlement of its CERF position. The buyer is entitled to receive interest or other income on the assets it has deposited as margin or that are credited to the custody account on its behalf from time to time.

Upon liquidation or settlement of a CERF, a 100% margin participant will receive from its FCM its initial margin deposit, adjusted for variation margin paid or received by the FCM with respect to the contract during the time it was held by the participant (or the proceeds from liquidation of any investments made with such funds for the benefit of the participant under the terms of its custody arrangement with the carrying FCM).

The 100% margin participants include any market participant that is (1) an investment company registered under the Investment Company Act or (2) an investment fund, commodity pool, or other similar type of pooled trading vehicle (other than a pension plan or fund) that is offered to the public pursuant to an effective registration statement filed under the United States Securities Act of 1933, as amended, regardless of whether it is also registered under the Investment Company Act, and that has its principal place of business in the United States.

 

9


The Investing Pool is a 100% margin participant. The Investing Pool satisfies the 100% margin requirement by depositing with the Clearing FCM cash or Short-Term Securities with a value equal to 100% of the value of each long position in CERFs.

CERFs also differ from traditional futures contracts in another significant respect. In contrast to other types of futures contracts, which are typically listed with monthly, bimonthly or quarterly expirations, CERFs are expected to be listed with longer expirations. A buyer or seller of CERFs will be able to trade CERFs on the market maintained by the CME and will consequently be able to liquidate its position at any time, subject to the existence of a liquid market. If a party to a CERF wishes to hold its position to expiration, however, it will be necessary to maintain the position for up to the applicable term, which may be several years. As a CERF nears expiration, it is anticipated, but there can be no assurance, that the CME will list an additional CERF with a term of similar length. CERFs have generally been less liquid than other futures contracts.

Creation and redemption of interests in the Trust, and the corresponding creation and redemption of interests in the Investing Pool, are generally effected through EFRPs. EFRPs involve contemporaneous transactions in futures contracts and the underlying cash commodity or a closely related commodity. In a typical EFRP, the buyer of the futures contract sells the underlying commodity to the seller of the futures contract. In the context of CERFs, the CME permits the execution of EFRPs consisting of simultaneous purchases (sales) of CERFs and sales (purchases) of Shares. This mechanism generally is used by the Trust in connection with the creation and redemption of Baskets. Specifically, it is anticipated that an Authorized Participant requesting the creation of additional Baskets typically will transfer CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash) to the Trust in return for Shares. The Trust will simultaneously contribute to the Investing Pool the CERFs (and any cash or Short-Term Securities) received from an Authorized Participant in return for an increase in its Investing Pool Interests.

If an EFRP is executed in connection with the redemption of one or more Baskets, an Authorized Participant will transfer to the Trust the interests being redeemed and the Trust will transfer to an Authorized Participant CERFs, cash or Short-Term Securities. In order to obtain the CERFs and cash or Short-Term Securities to be transferred to an Authorized Participant, the Trust will redeem an equivalent portion of its interest in the Investing Pool Interests. The Trust may include CERFs of different expirations in the creation and redemption of Baskets.

The Index and the S&P GSCI-ER

This section contains a description of the Index and the S&P GSCI-ER. All information regarding the Index and the S&P GSCI-ER contained in this annual report, including its composition, method of calculation, changes in its components and historical performance, has been derived from publicly available information, including information published by Standard & Poor’s, or S&P, which is the “Index Sponsor,” but has not been independently verified. Investors in the Shares should conduct their own investigation into the Index, the S&P GSCI-ER and the Index Sponsor.

The previous Index Sponsor, Goldman, Sachs & Co., sold its GSCI family of indices, including the S&P GSCI™, the S&P GSCI-ER and the Index, to S&P effective May 2007. Prior to their acquisition by S&P, the S&P GSCI™ was known as the Goldman Sachs Commodity Index, the S&P GSCI-ER was known as the GSCI® Excess Return Index and the Index was known as the GSCI® Total Return Index.

The Trust and Shares are not sponsored, endorsed, sold or promoted by the Index Sponsor. The Index Sponsor makes no representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly or the ability of the S&P GSCI™, the S&P GSCI-ER or the Index or any related indices or sub-indices to track the appropriate market performance. The Index Sponsor’s only relationship to BAMII, BTC, the Trust or the Investing Pool is the licensing of certain trademarks, trade names of the Index Sponsor and the S&P GSCI™ and other intellectual property. The S&P GSCI™, the S&P GSCI-ER and the Index are determined and composed by the Index Sponsor and calculated by the Index Sponsor or its agents without regard to BAMII, BTC, the Investing Pool or the Trust. The Index Sponsor

 

10


has no obligation to take the needs of BAMII, BTC, the Investing Pool, the Trust or the Shareholders into consideration in determining, composing or calculating the S&P GSCI™, the S&P GSCI-ER or the Index. The Index Sponsor is not responsible for and has not participated in the determination of the prices and the amount of the Shares or the timing of the issuance of sale of Shares or in the determination or calculation of the Basket Amount. The Index Sponsor has no obligation or liability in connection with the administration, marketing or trading of the Shares.

The Index Sponsor does not guarantee the accuracy or the completeness of the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein, and the Index Sponsor disclaims any and all liability for any errors, omissions, or interruptions therein. The Index Sponsor makes no warranty, express or implied, as to the results to be obtained by the Trust, the Investing Pool, the Shareholders or any other person or entity from use of the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein. The Index Sponsor makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein. Without limiting any of the foregoing, the Index Sponsor expressly disclaims any and all liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.

The following information with respect to the Index and the S&P GSCI-ER reflects the policies of and is subject to change by the Index Sponsor. The Index Sponsor owns the copyright and other rights to the Index and the S&P GSCI-ER. The Index Sponsor has no obligation to consider your interests as a Shareholder and has no obligation to continue to publish, and may discontinue the publication of, the Index or the S&P GSCI-ER. The consequences of the Index Sponsor’s discontinuing the S&P GSCI-ER are described under “Risk Factors—Risk Factors Relating to CERFs and the S&P GSCI-ER.”

Current information regarding the market values of the Index and the S&P GSCI-ER is available from the Index Sponsor and numerous public sources. None of the Sponsor, the Trustee, the Delaware Trustee, the Trust or the Investing Pool makes any representation that publicly available information about the Index and the S&P GSCI-ER is accurate or complete. In addition, none of the Sponsor, the Trustee, the Delaware Trustee, the Trust or the Investing Pool accepts any responsibility for the calculation, maintenance or publication of, or for any error, omission or disruption in, the Index or the S&P GSCI-ER.

The Index and the S&P GSCI-ER were established in May 1991. The Index reflects the value of an investment in the S&P GSCI-ER together with a Treasury bill return. The S&P GSCI-ER reflects the returns that are potentially available through a rolling uncollateralized investment in the contracts comprising the S&P GSCI™.

Because futures contracts have scheduled expirations, or delivery months, as one contract nears expiration it becomes necessary to close out the position in that delivery month and establish a position in the next available delivery month. This process is referred to as “rolling” the position forward. The S&P GSCI-ER is designed to reflect the return from rolling each contract included in the S&P GSCI™ as it nears expiration into the next available delivery month. This is accomplished by selling the position in the first delivery month and purchasing a position of equivalent value in the second delivery month. If the price of the second contract is lower than the price of the first contract, the “rolling” process results in a greater quantity of the second contract being acquired for the same value. Conversely, if the price of the second contract is higher than the price of the first contract, the “rolling” process results in a smaller quantity of the second contract being acquired for the same value.

More specifically, the rolling of the contracts included in the S&P GSCI™ occurs on the fifth through the ninth business days of each month. During this roll period, each contract is shifted from the contract with the nearest expiration to the contract with the next nearest expiration at a rate of 20% per day for each the five days of the roll period. Therefore, during the first four business days of a month, and just before the end of the fifth business day, the S&P GSCI™ consists of futures contracts with the nearest expirations. The S&P GSCI™ is calculated as though each contract roll occurs at the end of each day during the roll period, at the daily settlement prices. At the end of the fifth business day, the S&P GSCI™ is adjusted so that 20% of the contracts underlying the S&P GSCI™

 

11


held are in the next nearest expiring contracts, with 80% remaining in the nearest expiring contracts. The roll process continues on the sixth, seventh and eighth business days, with the relative weights of the nearest to the next nearest expirations gradually shifting from a 60%/40% weighting, to a 40%/60% weighting, to a 20%/80% weighting. At the end of the ninth business day, the last of the contracts with the nearest expirations are exchanged, completing the roll and leaving the S&P GSCI™ composed entirely of contracts with the next nearest expirations. See “Contract Daily Return.”

The S&P GSCI™ itself is an index on a production-weighted basket of principal physical commodities that satisfy specified criteria. The S&P GSCI™ reflects the level of commodity prices at a given time and is designed to be a measure of the performance over time of the markets for these commodities. The commodities represented in the S&P GSCI™ are those physical commodities on which active and liquid contracts are traded on trading facilities in major industrialized countries. The commodities included in the S&P GSCI™ are weighted, on a production basis, to reflect the relative significance (in the view of the Index Sponsor) of those commodities to the world economy. The fluctuations in the level of the S&P GSCI™ are intended generally to correlate with changes in the prices of those physical commodities in global markets. The value of the S&P GSCI™ has been normalized such that its hypothetical level on January 2, 1970 was 100.

The following is a summary of the composition of and the methodology used to calculate the S&P GSCI™ as of the date of this annual report. The methodology for determining the composition and weighting of the S&P GSCI™ and for calculating its value is subject to modification in a manner consistent with the purposes of the S&P GSCI™, as described below. The Index Sponsor makes the official calculations of the value of the S&P GSCI™. At present, this calculation is performed continuously and is reported on Reuters Page .SPGSCI and on Bloomberg page SPGSCI<index> and is updated at least once every three minutes during business hours on each day on which the S&P GSCI™ is calculated, referred to as an “S&P GSCI™ Business Day.” The settlement price for the S&P GSCI-ER is reported on Reuters Page .SPGSCIP and on Bloomberg page SPGSCIP<index> at the end of each S&P GSCI™ Business Day. If Reuters ceases to publish the value of the S&P GSCI™ or the settlement price of the S&P GSCI-ER, the Index Sponsor has undertaken to use commercially reasonable efforts to ensure that a comparable reporting service publishes the value of the S&P GSCI™ and the settlement price of the S&P GSCI-ER so long as any Shares are outstanding.

In light of the rapid development of electronic trading platforms and the potential for significant shifts in liquidity between traditional exchanges and those platforms, the Index Sponsor may review both the procedures and criteria for determining the contracts to be included in the S&P GSCI™, as well as the procedures and criteria for evaluating available liquidity on an intra-year basis in order to provide S&P GSCI™ market participants with efficient access to new sources of liquidity and the potential for more efficient trading. In particular, the Index Sponsor may examine the conditions under which an instrument traded on an electronic platform, rather than a traditional futures contract traded on a traditional futures exchange, should be permitted to be included in the S&P GSCI™ and how the composition of the S&P GSCI™ should respond to rapid shifts in liquidity between those instruments and contracts currently included in the S&P GSCI™.

The Index Committee and Commodity Index Advisory Panel

The Index Sponsor has established an “Index Committee” to oversee the daily management and operations of the S&P GSCI™, and is responsible for all analytical methods and calculation in the indices. The Index Committee is comprised of full-time professional members of S&P’s staff. At each meeting, the Index Committee reviews any issues that may affect index constituents, statistics comparing the composition of the indices to the market, commodities that are being considered as candidates for addition to an index, and any significant market events. In addition, the Index Committee may revise index policy covering rules for selecting commodities, or other matters.

 

12


S&P considers information about changes to its indices and related matters to be potentially market moving and material. Therefore, all Index Committee discussions are confidential.

In addition, the Index Sponsor has established a “Commodity Index Advisory Panel” to assist it with the operation of the S&P GSCI™. The Commodity Index Advisory Panel meets on an annual basis and at other times at the request of the Index Committee. The principal purpose of the Commodity Index Advisory Panel is to advise the Index Committee with respect to, among other things, the calculation of the S&P GSCI™, the effectiveness of the S&P GSCI™ as a measure of commodity futures market performance and the need for changes in the composition or the methodology of the S&P GSCI™. The Commodity Index Advisory Panel acts solely in an advisory and consultative capacity. The Index Committee makes all decisions with respect to the composition, calculation and operation of the S&P GSCI™. Certain of the members of the Commodity Index Advisory Panel may be affiliated with clients of S&P. Also, certain of the members of the Commodity Index Advisory Panel may be affiliated with entities which, from time to time, may have investments linked to the S&P GSCI™, either through transactions in the contracts included in the S&P GSCI™, futures contracts on the S&P GSCI™ or derivative products linked to the S&P GSCI™.

Composition of the S&P GSCI™

Currently, in order to be included in the S&P GSCI™, a contract must satisfy the following eligibility criteria:

 

1) The contract must:

 

  a) be in respect of a physical commodity and not a financial commodity;

 

  b) have a specified expiration or term, or provide in some other manner for delivery or settlement at a specified time, or within a specified period, in the future;

 

  c) be available, at any given point in time, for trading at least five months prior to its expiration or such other date or time period specified for delivery or settlement; and

 

  d) be traded on a trading facility that allows market participants to execute spread transactions, through a single order entry, between the pairs of contract expirations included in the S&P GSCI™ that at any given point in time will be involved in the rolls to be effected in the next three roll periods.

 

2) The commodity must be the subject of a contract that:

 

  a) is denominated in U.S. dollars;

 

  b) is traded on or through an exchange, facility or other platform, referred to as a “trading facility,” that has its principal place of business or operations in a country that is a member of the Organization for Economic Cooperation and Development that:

 

  i) makes price quotations generally available to its members or participants (and, if the Index Sponsor is not such a member or participant, to the Index Sponsor) in a manner and with a frequency that is sufficient to provide reasonably reliable indications of the level of the relevant market at any given point in time;

 

  ii) makes reliable trading volume information available to the Index Sponsor with at least the frequency required by the Index Sponsor to make the monthly determinations;

 

  iii) accepts bids and offers from multiple participants or price providers; and

 

  iv) is accessible by a sufficiently broad range of participants.

 

3)

The price of the relevant contract that is used as a reference or benchmark by market participants, referred to as the “daily contract reference price,” generally must have been available on a continuous basis for at least two years prior to the proposed date of inclusion in the S&P GSCI™. In appropriate circumstances, however, the Index Sponsor, in consultation with the Index Committee, may determine that a shorter time period is sufficient or that historical daily contract reference prices for that

 

13


  contract may be derived from daily contract reference prices for a similar or related contract. The daily contract reference price may be (but is not required to be) the settlement price or other similar price published by the relevant trading facility for purposes of margining transactions or for other purposes.

 

4) At and after the time a contract is included in the S&P GSCI™, the daily contract reference price for that contract must be published between 10:00 a.m. and 4:00 p.m. (New York time) on each Business Day relating to that contract by the trading facility on or through which it is traded and must generally be available to all members of, or participants in, that trading facility (and, if the Index Sponsor is not such a member or participant, to the Index Sponsor) on the same day from the trading facility or through a recognized third-party data vendor. Such publication must include, at all times, daily contract reference prices for at least one expiration or settlement date that is five months or more from the date the determination is made, as well as for all expiration or settlement dates during that five-month period.

 

5) Volume data with respect to the contract must be available for at least the three months immediately preceding the date on which the determination is made.

 

6) A contract that is not included in the S&P GSCI™ at the time of determination and that is based on a commodity that is not represented in the S&P GSCI™ at that time must, in order to be added to the S&P GSCI™ at that time, have an annualized total dollar value traded over the relevant period of at least $15 billion. The “total dollar value traded” is the dollar value of the total quantity of the commodity underlying transactions in the relevant contract and any related contract over the period for which the calculation is made, based on the average of the daily contract reference prices on the last day of each month during the period.

 

7) A contract that is already included in the S&P GSCI™ at the time of determination and that is the only contract on the relevant commodity included in the S&P GSCI™ must, in order to continue to be included in the S&P GSCI™ after that time, have an annualized total dollar value traded over the relevant period of at least $5 billion and at least $10 billion during at least one of the three most recent annual periods used in making the determination.

 

8) A contract that is not included in the S&P GSCI™ at the time of determination and that is based on a commodity on which there are one or more contracts already included in the S&P GSCI™ at that time must, in order to be added to the S&P GSCI™ at that time, have an annualized total dollar value traded over the relevant period of at least $30 billion.

 

9) A contract that is already included in the S&P GSCI™ at the time of determination and that is based on a commodity on which there are one or more contracts already included in the S&P GSCI™ at that time must, in order to continue to be included in the S&P GSCI™ after that time, have an annualized total dollar value traded over the relevant period of at least $10 billion and at least $20 billion during at least one of the three most recent annual periods used in making the determination.

 

10) A contract that is:

 

  a) already included in the S&P GSCI™ at the time of determination must, in order to continue to be included after that time, have a reference percentage dollar weight of at least 0.10%. The “reference percentage dollar weight” of a contract represents the current value of the quantity of the underlying commodity that is included in the S&P GSCI™ at a given time. This figure is determined by dividing (A) the product of the contract production weight of each contract, or “CPW,” and the average of its daily contract reference prices on the last day of each month during the relevant period, by (B) the sum of the products in (A) for all contracts included in the S&P GSCI™. The CPW of a contract is part of its weight in the S&P GSCI™; and

 

  b) not included in the S&P GSCI™ at the time of determination must, in order to be added to the S&P GSCI™ at that time, have a reference percentage dollar weight of at least 1.00%.

 

14


11) In the event that two or more contracts on the same commodity satisfy the eligibility criteria:

 

  a) Such contracts will be included in the S&P GSCI™ in the order of their respective total quantity traded during the relevant period (determined as the total quantity of the commodity underlying transactions in the relevant contract), with the contract having the highest total quantity traded being included first, provided that no further contracts will be included if such inclusion would result in the portion of the S&P GSCI™ attributable to that commodity exceeding a particular level; and

 

  b) If additional contracts could be included with respect to several commodities at the same time, that procedure is first applied with respect to the commodity that has the smallest portion of the S&P GSCI™ attributable to it at the time of determination. Subject to the other eligibility criteria described above, the contract with the highest total quantity traded on that commodity will be included. Before any additional contracts on the same commodity or on any other commodity are included, the portions of the S&P GSCI™ attributable to all commodities are recalculated. The selection procedure described above is then repeated with respect to the contracts on the commodity that then has the smallest portion of the S&P GSCI™ attributable to it.

The contracts currently included in the S&P GSCI™ are futures contracts traded on the New York Mercantile Exchange, Inc. (“NYM”), ICE Futures U.S. (“ICE-US”), ICE Futures Europe (“ICE-UK”), the CME, the Chicago Board of Trade (“CBT”), the Kansas City Board of Trade (“KBT”), the COMEX Division of the New York Mercantile Exchange, Inc. (“CMX”) and the London Metal Exchange (“LME”).

The futures contracts currently included in the S&P GSCI™, their percentage dollar weights, their market symbols and the exchanges on which they are traded as of January 31, 2013 and are as follows:

 

Commodity

   Dollar Weights
January  31, 2013*
    Ticker(1)      Trading
Facility
 

Crude Oil

     24.31     CL         NYM / ICE   

Brent Crude Oil

     22.37     LCO         ICE - UK   

Gas Oil

     8.60     LGO         ICE - UK   

Heating Oil

     6.19     HO         NYM   

Unleaded Gas

     6.05     RB         NYM   

Corn

     5.08     C         CBT   

Wheat

     3.47     W         CBT   

Copper

     3.26     MCU         LME   

Gold

     2.88     GC         CMX   

Live Cattle

     2.74     LC         CME   

Soybeans

     2.71     S         CBT   

Natural Gas

     2.22     NG         NYM / ICE   

Aluminum

     2.05     MAL         LME   

Lean Hogs

     1.55     LH         CME   

Sugar

     1.45     SB         ICE - US   

Cotton

     0.98     CT         ICE - US   

Kansas Wheat

     0.74     KW         KBT   

Coffee

     0.58     KC         ICE - US   

Nickel

     0.57     MNI         LME   

Zinc

     0.54     MZN         LME   

Feeder Cattle

     0.50     FC         CME   

Silver

     0.48     SI         CMX   

Lead

     0.45     MPB         LME   

Cocoa

     0.20     CC         ICE - US   

 

(1) 

Tickers are Reuters RIC Codes.

* The futures contracts included in the S&P GSCI™ and their percentage dollar weights, among other matters, may change. Source: S&P. Used with permission.

 

15


The quantity of each of the contracts included in the S&P GSCI™ is determined on the basis of a five-year average, referred to as the “world production average,” of the production quantity of the underlying commodity as published by the United Nations Statistical Yearbook, the Industrial Commodity Statistics Yearbook and other official sources. However, if a commodity is primarily a regional commodity, based on its production, use, pricing, transportation or other factors, the Index Sponsor, in consultation with the Index Committee, may calculate the weight of that commodity based on regional, rather than world, production data. At present, natural gas is the only commodity the weights of which are calculated on the basis of regional production data, with the relevant region defined as North America.

The five-year moving average is updated annually for each commodity included in the S&P GSCI™, based on the most recent five-year period (ending approximately one and a half years prior to the date of calculation and moving backwards) for which complete data for all commodities is available. The CPWs used in calculating the S&P GSCI™ are derived from world or regional production averages, as applicable, of the relevant commodities, and are calculated based on the total quantity traded for the relevant contract and the world or regional production average, as applicable, of the underlying commodity. However, if the volume of trading in the relevant contract, as a multiple of the production levels of the commodity, is below specified thresholds, the CPW of the contract is reduced until the threshold is satisfied. This is designed to ensure that trading in each contract is sufficiently liquid relative to the production of the commodity.

In addition, the Index Sponsor performs this calculation on a monthly basis and, if the multiple of any contract is below the prescribed threshold, the composition of the S&P GSCI™ is reevaluated, based on the criteria and weighting procedure described above. This procedure is undertaken to allow the S&P GSCI™ to shift from contracts that have lost substantial liquidity into more liquid contracts during the course of a given year. As a result, it is possible that the composition or weighting of the S&P GSCI™ will change on one or more of these monthly evaluation dates. The likely circumstances under which the Index Sponsor would be expected to change the composition of the Index during a given year, however, are (1) a substantial shift of liquidity away from a contract included in the Index as described above, or (2) an emergency, such as a natural disaster or act of war or terrorism, that causes trading in a particular contract to cease permanently or for an extended period of time. In either event, the Index Sponsor will publish the nature of the changes, through websites, news media or other outlets, with as much prior notice to market participants as is reasonably practicable. Moreover, regardless of whether any changes have occurred during the year, the Index Sponsor reevaluates the composition of the S&P GSCI™ at the conclusion of each year, based on the above criteria. Other commodities that satisfy that criteria, if any, will be added to the S&P GSCI™. Commodities included in the S&P GSCI™ that no longer satisfy that criteria, if any, will be deleted.

The Index Sponsor also determines whether modifications in the selection criteria or the methodology for determining the composition and weights of and for calculating the S&P GSCI™ are necessary or appropriate in order to assure that the S&P GSCI™ represents a measure of commodity market performance. The Index Sponsor has the discretion to make any such modifications.

Contract Expirations

Because the S&P GSCI™ is comprised of actively traded contracts with scheduled expirations, it can be calculated only by reference to the prices of contracts for specified expiration, delivery or settlement periods, referred to as “contract expirations.” The contract

 

16


expirations included in the S&P GSCI™ for each commodity during a given year are designated by the Index Sponsor, in consultation with the Index Committee, provided that each contract must be an “active contract.” An “active contract” for this purpose is a liquid, actively-traded contract expiration, as defined or identified by the relevant trading facility or, if no such definition or identification is provided by the relevant trading facility, as defined by standard custom and practice in the industry.

If a trading facility deletes one or more contract expirations, the S&P GSCI™ will be calculated during the remainder of the year in which that deletion occurs on the basis of the remaining contract expirations designated by the Index Sponsor. If a trading facility ceases trading in all contract expirations relating to a particular contract, the Index Sponsor may designate a replacement contract on the commodity. The replacement contract must satisfy the eligibility criteria for inclusion in the S&P GSCI™. To the extent practicable, the replacement will be effected during the next monthly review of the composition of the S&P GSCI™. If that timing is not practicable, the Index Sponsor will determine the date of the replacement and will consider a number of factors, including the differences between the existing contract and the replacement contract with respect to contractual specifications and contract expirations.

If a trading facility eliminates one or more contract expirations, but there are remaining contract expirations of the same contract, the weighting of the commodity underlying the relevant contract will not be affected. If the trading facility ceases trading in all contract expirations relating to a particular contract, and the Index Sponsor designates a replacement contract on the same commodity, the index weighting allocated to the terminated contract will be allocated to the replacement contract. Accordingly, unless a contract is eliminated entirely and no replacement contract is designated, a cessation of trading in certain contract expirations or the elimination of a contract will not affect the weighting of commodities in the Index. If a contract is eliminated and there is no replacement contract, the underlying commodity will necessarily drop out of the Index and the weighting allocated to that contract will then be allocated pro rata to the remaining contracts in the Index. The designation of a replacement contract, or the elimination of a commodity from the Index because of the absence of a replacement contract, could affect the value of the Index and the
S&P GSCI-ER, either positively or negatively, depending on the price of the contract that is eliminated and the prices of the remaining contracts in the Index. It is impossible, however, to predict the effect of these changes, if they occur, on the value of the Index or the S&P GSCI-ER.

Total Dollar Weight of the S&P GSCI™

The total dollar weight of the S&P GSCI™ is the sum of the dollar weights of each of the underlying commodities.

The dollar weight of each such commodity on any given day is equal to:

 

   

the daily contract reference price;

 

   

multiplied by the appropriate CPW; and

 

   

during a roll period, the appropriate “roll weights” (discussed below).

The daily contract reference price used in calculating the dollar weight of each commodity on any given day is the most recent daily contract reference price made available by the relevant trading facility, except that the daily contract reference price for the most recent prior day will be used if the exchange is closed or otherwise fails to publish a daily contract reference price on that day. In addition, if the trading facility fails to make a daily contract reference price available or publishes a daily contract reference price that, in the reasonable judgment of the Index Sponsor, reflects manifest error, the relevant calculation will be delayed until the price is made available or corrected; provided, that, if the price is not made available or corrected by 4:00 p.m., (New York time), the Index Sponsor may, if it deems that action to be appropriate under the circumstances, determine the appropriate daily contract reference price for the applicable futures contract in its reasonable judgment for purposes of the relevant S&P GSCI™ calculation.

 

17


It is generally considered unlikely that a trading facility will fail to publish a daily contract reference price in the regular course of business, because the price is required to margin open positions in the relevant contracts. It is possible, however, that a trading facility will fail to publish a daily contract reference price under emergency or extraordinary conditions, such as in the event of a natural disaster, act of war or terrorist attack, that prevent trading or cause a termination of trading on a given day. A manifest error in a daily contract reference price is also unlikely to occur, but is nevertheless possible. This could arise, for example, in the event of a system malfunction that results in the published daily contract reference price being outside the range of trading for the relevant day. In that instance, it would be clear that the published price could not be correct and the Index Sponsor would likely disregard that price.

Contract Daily Return

The contract daily return on any given day is equal to (1) (A) the sum, for each of the commodities included in the S&P GSCI™, of the applicable daily contract reference price on the relevant contract multiplied by the appropriate CPW and the appropriate “roll weight,” divided by (B) the total dollar weight of the S&P GSCI™ on the preceding day, minus (2) one.

The “roll weight” of each commodity reflects the fact that the positions in contracts must be liquidated or rolled forward into more distant contract expirations as they near expiration. If actual positions in the relevant markets were rolled forward, the roll would likely need to take place over a period of days. Since the S&P GSCI™ is designed to replicate the performance of actual investments in the underlying contracts, the rolling process incorporated in the S&P GSCI™ also takes place over a period of days at the beginning of each month, referred to as the “roll period.” On each day of the roll period, the “roll weights” of the first nearby contract expirations on a particular commodity and the more distant contract expiration into which it is rolled are adjusted, so that the hypothetical position in the contract on the commodity that is included in the S&P GSCI™ is gradually shifted from the first nearby contract expiration to the more distant contract expiration.

If on any day during a roll period any of the following conditions exists, the portion of the roll that would have taken place on that day is deferred until the next day on which these conditions do not exist:

 

   

no daily contract reference price is available for a given contract expiration;

 

   

any such price represents the maximum or minimum price for that contract month, based on exchange price limits, referred to as a “Limit Price”;

 

   

the daily contract reference price published by the relevant trading facility reflects manifest error, or that price is not published by 4:00 p.m. (New York time). In that event, the Index Sponsor may, but is not required to, determine a daily contract reference price and complete the relevant portion of the roll based on that price; provided, that, if the trading facility publishes a price before the opening of trading on the next day, the Index Sponsor will revise the portion of the roll accordingly; or

 

   

trading in the relevant contract terminates prior to its scheduled closing time.

If any of these conditions exist throughout the roll period, the roll with respect to the affected contract will be effected in its entirety on the next day on which these conditions no longer exist.

Calculation of the S&P GSCI-ER

The value of the S&P GSCI-ER on any S&P GSCI™ Business Day is equal to the product of (1) the value of the S&P GSCI-ER on the immediately preceding S&P GSCI™ Business Day multiplied by (2) one plus the contract daily return on the S&P GSCI™ Business Day on which the calculation is made.

 

18


Calculation of the Index

The value of the Index on any S&P GSCI™ Business Day is equal to the product of (1) the value of the Index on the immediately preceding S&P GSCI™ Business Day multiplied by (2) one plus the sum of the contract daily return and the Treasury bill return on the S&P GSCI™ Business Day on which the calculation is made, multiplied by (3) one plus the Treasury bill return for each non- S&P GSCI™ Business Day since the immediately preceding S&P GSCI™ Business Day. The Treasury bill return is the return on a hypothetical investment at a rate equal to the interest rate on a specified U.S. Treasury bill.

Item 1A. Risk Factors.

Risk Factors Relating to Commodities Markets

The value of the Shares depends on the value of CERFs, which will fluctuate based on the prices of commodity futures contracts reflected in the S&P GSCI-ER. These prices may be volatile, thereby creating the potential for losses, regardless of the length of time you intend to hold your Shares.

Because the price of the Shares depends on the value of the CERFs held by the Investing Pool, the value of the Shares will fluctuate based on the prices of commodity futures contracts reflected in the S&P GSCI-ER. The value of the S&P GSCI-ER has been extremely volatile at times during the past several years. Commodity prices are generally affected by, among other factors, the cost of producing, transporting and storing commodities, changes in consumer or commercial demand for commodities, the hedging and trading strategies of producers and consumers of commodities, speculative trading in commodities by commodity pools and other market participants, disruptions in commodity supply, weather, political and other global events, global economic factors, and government intervention in or regulation of the commodity or commodity futures markets. These factors cannot be controlled by the Trust or the Investing Pool. Accordingly, the price of the Shares could change substantially and in a rapid and unpredictable manner. This exposes you to a potential loss on your investment in the Shares, regardless of the length of time you intend to hold your Shares.

The following events, among others, would generally result in a decline in the price of the Shares:

 

   

A significant increase in hedging activity by producers of the underlying commodities. Should producers of the S&P GSCI™ underlying commodities increase their hedging of their future production through forward sales or other short positions, this increased selling pressure could depress the price of one or more of the underlying commodities, which could adversely affect the price of the Shares.

 

   

A significant change in the attitude of speculators and investors toward the S&P GSCI™ underlying commodities. Should the speculative community take a negative view towards one or more of the underlying commodities, it could cause a decline in the CERFs, which may reduce the price of the Shares.

 

   

Significant reductions in the size of positions permitted to be owned by the Investing Pool or others in CERFs or in the futures contracts and/or commodities comprising the S&P GSCI™, for example as a result of more restrictive position limits or position limit exemptions, or more expansive position aggregation requirements, could reduce liquidity and depress the price of the S&P GSCI™ and/or the underlying commodities, adversely affecting the value of your Shares.

Conversely, several factors could trigger a temporary increase in the price of the S&P GSCI™ underlying commodities and, consequently, the CERFs. In that case, you could buy Shares at prices affected by the temporarily high commodity prices, and you could subsequently incur losses when the causes for the temporary increase disappear.

Historical performance of the Index and the S&P GSCI-ER is no guide to their future performance or to the performance of the Shares.

 

19


Past performance of the Index and the S&P GSCI-ER is not necessarily indicative of their future performance or of the performance of the Shares. There can be no guarantee that the level of the Index or the S&P GSCI-ER will increase. You may lose some or all of your investment in the Shares.

The following chart shows the performance of the Trust versus the Index for the year ended December 31, 2012:

 

LOGO

Commodity futures trading may be illiquid. In addition, suspensions or disruptions of market trading in the commodities markets and related futures markets may adversely affect the value of your Shares.

The commodity futures markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity, congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, technical and operational or system failures, nuclear accidents, terrorism, riots and acts of God. In addition, U.S. futures exchanges and some foreign exchanges have regulations that limit the amount of fluctuation in futures contract prices that may occur during a single business day. These limits are generally referred to as “daily price fluctuation limits,” and the maximum or minimum price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price has been reached in a particular contract, it is possible that no trades may be made at a different price. It is not certain how long any such price limits would remain in effect. Limit prices may have the effect of precluding trading in a particular contract or forcing the liquidation of contracts at disadvantageous times or prices, consequently affecting the value of the S&P GSCI-ER. Further, it is expected that Goldman, Sachs & Co. or its account holders may represent, directly or indirectly, a substantial portion of the short-side interest in the CERFs market. The existence of such a limited number of market participants could cause or exacerbate temporary distortions, especially those distortions resulting from illiquidity.

Any of these circumstances could thereby adversely affect the value of the CERFs held by the Investing Pool and, therefore, the value of your Shares. In addition, these circumstances could also limit trading in the CERFs, which could affect the calculation of the NAV and the trading price of the Shares. Accordingly, these limits may result in a NAV that differs, and may differ significantly, from the NAV that would prevail in the absence of such limits. If Baskets are created or redeemed at a time when these price limits are in

 

20


effect, the creation or redemption price will reflect the price limits as well.

In calculating the S&P GSCI-ER, if the relevant trading facility does not publish a settlement price as scheduled, or publishes a settlement price that, in the reasonable judgment of the Index Sponsor, is manifestly incorrect, the Index Sponsor may determine the settlement price in its reasonable judgment. In addition, if any day on which the Index Sponsor calculates the S&P GSCI-ER is a day on which a relevant trading facility for a contract on a commodity that underlies the S&P GSCI-ER is not open, then the Index Sponsor will use the settlement price for that contract as of the last day on which that trading facility was open. In these circumstances, the value of the CERFs and the value of your Shares may be adversely affected.

During a period when commodity prices are fairly stationary, an absence of “backwardation” in the prices of the commodities included in the S&P GSCI-ER may itself cause the price of your Shares to decrease.

As the futures contracts that underlie the S&P GSCI-ER near expiration, they are replaced by contracts that have a later expiration. Thus, for example, a contract purchased in March may specify a June expiration. As that contract nears expiration, it may be replaced by selling the June contract and purchasing the contract expiring in September. This process is referred to as “rolling.” Historically, the prices of some futures contracts (generally those relating to commodities that are typically consumed immediately rather than stored) have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.” In these circumstances, absent other factors, the sale of the June contract would take place at a price that is higher than the price at which the September contract is purchased, thereby allowing the contract holder to purchase a greater quantity of the September contract. While many of the contracts included in the S&P GSCI-ER have historically exhibited periods of backwardation, backwardation will likely not exist at all times. Moreover, some of the commodities reflected in the S&P GSCI-ER have historically exhibited characteristics typical of “contango” markets rather than backwardation. Contango markets are those in which the prices of contracts are higher in the distant delivery months than in the nearer delivery months due to the costs of long-term storage of a physical commodity prior to delivery or other factors. The forward price of a commodity futures contract may also fluctuate between backwardation and contango.

The absence of backwardation, or the existence of contango, in the commodity markets could result in losses, which could adversely affect the value of the S&P GSCI-ER and, accordingly, decrease the value of your Shares.

Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.

In recent years, many bills have been introduced in the U.S. Congress targeting perceived excessive speculation in commodities and commodity indices, including by institutional “index funds,” on regulated futures markets and in the over-the-counter (“OTC”) derivatives markets. Many of these legislative proposals have not been enacted but could be in the future.

In 2010, Congress adopted some anti-speculative proposals in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). These provisions of the Dodd-Frank Act have been interpreted by the CFTC to require the CFTC to expand establish its speculative position limits, as appropriate, to a wider range of listed futures and options on physical commodities (including certain energy, metals and agricultural products) as well as to economically equivalent swaps while significantly narrowing the bona fide hedging exemptions to a narrower category of commercial market participants and physical hedging strategies.

Pursuant to the provisions of the Dodd-Frank Act described above, the CFTC adopted regulations in October 2011 (the “Position Limits Rules”) that impose new federal position limits on futures and options on a subset of energy, metal, and agricultural commodities and economically equivalent swaps, (collectively, “referenced contracts”). The CFTC has stated that it intends to

 

21


phase-in key provisions of the Position Limits Rules beginning October 12, 2012.

The referenced contracts that will be subject to the Position Limits Rules represent 18 out of the 24 futures contracts included in the S&P GSCI-ER and over 70% of the weight of the S&P GSCI-ER. Consequently the maximum positions that market participants can hold in the referenced securities that underlie the S&P GSCI-ER will be limited, which could reduce the liquidity of such referenced contracts and adversely affect the performance of the S&P GSCI-ER and the value of your Shares. Moreover, because the relative weights of the commodities in the S&P GSCI-ER are largely determined by trading volume of the futures contracts designated for such commodities, a reduction in the trading volume of such future contracts could significantly alter the weights of the futures contracts underlying the S&P GSCI-ER, which could have adverse effects on the level of the S&P GSCI-ER and the value of your Shares.

The Position Limits Rules also expand the circumstances requiring persons to aggregate referenced contracts that are owned or controlled by such persons. Specifically, the Position Limits Rules will require, a person who holds positions in multiple commodity pools with identical trading strategies to aggregate the pool’s positions in referenced contracts with the other positions in referenced contracts that such person holds or controls. Although CERFs are not among the referenced contracts identified in the Position Limits Rules, the aggregation requirements nonetheless could impair the abilities of some participants in the market for CERFs to hedge their exposure, which could reduce liquidity in such CERFs and other futures contracts and commodities underlying the S&P GSCI-ER, and adversely affect the value of the Shares.

The Position Limits Rules will also narrow the existing bona fide hedge exemption for referenced contracts. This measure may affect the hedging and investing activities of participants in the markets for the CERFs and the futures contracts and commodities underlying the S&P GSCI-ER, which in turn could reduce the liquidity and adversely affect the pricing of the CERFs and such futures contracts and commodities. Any of these effects could adversely affect the price of the Shares.

The CFTC may lower the applicable position limits, apply position limits to a broader range of contracts (including commodity index contracts such as CERFs) or further restrict position limit exemptions. If any of these actions are taken, such measures could further reduce the size of positions that the Investing Pool and other investors could hold directly in CERFs and other underlying futures contracts and commodities, with potential reductions in liquidity and adverse effects on the pricing of CERFs. See also, “Risk Factors Relating to Commodities MarketsThe value of the Shares depends on the value of CERFs, which will fluctuate based on the prices of commodity futures contracts reflected in the S&P GSCI-ER. These prices may be volatile, thereby creating the potential for losses, regardless of the length of time you intend to hold your Shares”.

From August 24, 2009 to April 26, 2010, the Trust suspended the issuance of new Baskets because it could not invest the proceeds of such issuances in additional CERF positions due to restrictions on speculative position limits imposed by the CME.

Certain other rules proposed pursuant to the Dodd- Frank Act may also have an impact on the Trust, the Investing Pool and the value and continued availability of the Shares. On December 22, 2010, the CFTC proposed rules (the “DCM Proposed Rules”) that would require that at least 85% of the total volume of any contract listed on a “designated contract market” or “DCM”, including the CERFs listed on the CME, be executed through the central order book, rather than as a block transaction or other non-competitively executed transaction. Contracts that do not meet the 85% threshold would be required to be delisted by the DCM and transferred to a swap execution facility or liquidated.

Generally, the Investing Pool’s transactions in CERFs have been executed through block or “exchange for related positions” or “EFRP” transactions that are not executed through the CME’s central order book. While subject to revision by the CFTC in response to public comment, this provision of the DCM Proposed Rules could, if adopted as proposed, significantly and adversely affect the availability, liquidity and price of CERFs, as well as futures contracts currently included or which may in the future be included in

 

22


the S&P GSCI-ER, and could inhibit the Trust’s ability to redeem and offer Shares, which in turn could adversely affect the value and continued availability of the Shares.

Recently adopted rules regarding the risk management practices of clearing members, (the “FCM Rules”) became effective October 1, 2012. The FCM Rules require the Investing Pool’s Clearing FCM to establish risk-based limits on position and order size, amongst other measures. The FCM Rules may lead the Investing Pool’s Clearing FCM to reduce its internal limits on the size of the CERF positions it will execute or clear for the Investing Pool, reducing the Investing Pool’s and other market participants’ ability to transact in CERFs, and potentially adversely affecting the price of Shares. In the event that the Investing Pool’s Clearing FCM does reduce its internal limits on the size of CERFs positions, the Investing Pool may deem it feasible to use additional clearing FCMs. If this happens, it could substantially increase the costs of clearing for the Investing Pool.

Other regulatory measures under the Dodd-Frank Act could increase the costs of the Investing Pool, result in significant direct limitations on the maximum permitted size of the Investing Pool’s futures positions and therefore on the size of the Trust, or affect liquidity in the market for the CERFs or the underlying futures contracts, as well as the correlation between the price of the Shares and the net asset value of the Trust. Any such measures could adversely affect the value of your Shares.

Risk Factors Relating to CERFs and the S&P GSCI-ER

The trading of various CERFs—the sole futures contracts traded by the Investing Pool—presents risks unrelated to the
S&P GSCI-ER that could adversely affect the value of your Shares.

The impact of the following considerations may be heightened because of the concentration of the Investing Pool’s assets in CERFs. The Investing Pool will not be able to avoid these risks by diversifying into other assets or contracts.

Substantially all of the assets of the Investing Pool will be allocated to the trading of CERFs, and the Investing Pool will not trade any other futures contracts. CERFs have a limited trading history. Until February 2011, only one CERF contract was held by the Investing Pool. That CERF, first listed in March 2006, expired in March 2011. In October 2010 the CME listed a new CERF with an expiration of March 2014. The Investing Pool began purchasing the CERF expiring in March 2014 in February 2011. The Investing Pool has completed its “roll” of the CERFs which expired in March 2011 into CERFs that expire in March 2014. There can be no assurance as to the size or liquidity of the market for CERFs. Illiquidity of the market for CERFs may adversely affect the price of CERFs, the Trust’s ability to track the Index and the Trust’s ability to create or redeem Shares. There can be no assurance that the Clearing FCM, any Authorized Participants or any other market participant will make a market or otherwise trade in CERFs at any time or continue to do so. Withdrawal from the market of any participants, or reduced participation by those persons (especially as there are expected to be only a limited number of participants in the market for CERFs), may reduce the liquidity of CERFs and, accordingly, adversely affect the Shareholders. These risks may be heightened if the Investing Pool’s CERF positions represent a substantial portion of the long-side open interest in the CERFs, as they historically have been. As of August 21, 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 will 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 longer duration of the CERFs is also not traditional for futures contracts and may affect their liquidity and trading dynamics, which may in turn adversely affect the Shares. In particular, the rolling of each CERF contract, as it approaches expiration, could exacerbate any adverse impacts of illiquidity in the market.

Although CERFs are based on the S&P GSCI-ER, the value of the CERFs and the level of the S&P GSCI-ER may not be equivalent at all times. The CERFs currently purchased by the Investing Pool expire in March of 2014; accordingly, the price at which the CERFs will trade would be expected to correspond to the implied level of the S&P GSCI-ER in March of 2014, not to its current level. Moreover, because the expiration date of the CERFs will differ from the expiration date of the futures contracts underlying

 

23


the S&P GSCI-ER, changes to the value of those futures contracts and, consequently, to the level of the S&P GSCI-ER, will not necessarily result in an equivalent change in the value of the CERFs. In addition, although the current level of the S&P GSCI-ER is expected to influence the implied forward level of the S&P GSCI-ER, other factors, such as the expected rate of inflation, implied interest and yield rates in the market generally and implied volatility may influence market expectations at any given time about prospective changes in the level of the S&P GSCI-ER and consequently the price at which the CERFs trade.

It is also possible that the value of CERFs could be affected by factors that do not directly affect the current or implied forward level of the S&P GSCI-ER, such as the activities of market participants in trading CERFs, or in trading other instruments indexed to the S&P GSCI-ER, as well as supply and demand in the market for such. Actions by the CME with respect to CERFs, such as the imposition of trading or price limits or a suspension of trading in response to volatile market activity or other causes, and systems or communications failures could also cause the value of the CERFs to diverge from the level of the S&P GSCI-ER.

Although arbitrage activity by market participants is expected to have the effect of reducing or eliminating divergence between the value of the CERFs and the level of the S&P GSCI-ER, such arbitrage activity may not fully offset any divergence at all times during which the Shares are outstanding, especially if the market for the Shares remains illiquid. In the event that such a divergence exists from time to time, changes in the NAV, which is calculated based on the value of the CERFs, will not adequately reflect changes in the level of the S&P GSCI-ER, which could adversely affect the value of the Shares.

In addition, because CERFs are cleared through the CME Clearing House, and the Investing Pool’s CERF positions are carried on its behalf by the Clearing FCM, the Investing Pool, and therefore the Trust, will be subject to the risk of a default by the CME Clearing House or the Clearing FCM. In that event, the Investing Pool, and therefore the Trust, could be unable to recover amounts due to it on its CERF positions, including assets posted as margin, and could sustain substantial losses, even if the level of the S&P GSCI-ER increases. The magnitude of the losses may be significantly increased by the requirement to post 100% margin.

The S&P GSCI-ER may in the future include contracts that are not traded on regulated futures exchanges and that offer different or diminished protections to investors.

The S&P GSCI-ER is comprised exclusively of futures contracts traded on regulated futures exchanges. Such exchanges in the United States are referred to as “designated contract markets.” As described below under “The Index and the S&P GSCI-ER,” however, the S&P GSCI-ER may in the future include contracts (such as swaps and forward contracts) traded in the over-the-counter market or on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the relevant trading facilities, may not be subject to the same provisions of, and the protections afforded by, the CEA or other applicable statutes and related regulations that govern trading on regulated futures exchanges. In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading histories. As a result, the trading of contracts on such facilities and the inclusion of such contracts in the S&P GSCI-ER may be subject to risks not presented by most exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant contracts.

Changes in the composition and valuation of the S&P GSCI-ER may adversely affect your Shares.

The composition of the S&P GSCI-ER may change over time as additional commodities satisfy the eligibility criteria or commodities currently included in the S&P GSCI-ER fail to satisfy those criteria. The weighting factors applied to each commodity included in the S&P GSCI-ER change annually, based on changes in commodity production statistics. In addition, the Index Sponsor may modify the method for determining the composition and weighting of the S&P GSCI-ER and for calculating its value. A number of modifications to the methodology for determining the contracts to be included in the S&P GSCI-ER, and for valuing the S&P GSCI-ER, have been made in the past several years, and further modifications may be made. Such changes could adversely affect the value of your Shares. For more information about the methodology for determining the composition and weighting of the S&P GSCI-ER, see “The Index

 

24


and the S&P GSCI-ER.”

A cessation of publication of the S&P GSCI-ER could materially and adversely affect the activities of the Trust.

The S&P GSCI-ER is administered, calculated and published by the Index Sponsor, which has the right to cease publication of the S&P GSCI-ER at its discretion at any time. Under the terms of its agreement with the CME, the Index Sponsor is required, if it ceases publication of the S&P GSCI-ER, to negotiate in good faith with the CME to permit the CME to continue to calculate the
S&P GSCI-ER in order to permit CERFs to continue to trade. However, even if the Index Sponsor satisfies its obligations under its agreement with the CME, the Manager may determine that, upon a cessation of publication of the S&P GSCI-ER, it is no longer advisable to invest in CERFs and no other futures contract that reflects the performance of a successor or reasonably similar index presents an acceptable alternative investment, in which event the Investing Pool and the Trust may be liquidated.

Futures contracts (including the CERFs) are not assets with intrinsic value.

Trading in futures transfers the risk of future price movements from one market participant to another. This means that for every gain, there is an equal and offsetting loss. Futures contracts themselves (including CERFs) are not assets with intrinsic value, and simply reflect, in the case of cash-settled contracts, certain rights to payment or obligations to make payments to the other party to the contract, and in the case of physically-settled contracts, such as the futures contracts underlying the Index, an agreement to make or take delivery of a particular asset at a specified price. Accordingly, market participants taking the opposite side of the Investing Pool’s CERF trades may believe that the price of such CERF will move against the Investing Pool, and the Investing Pool may be at an informational or other disadvantage relative to such market participants.

The “rolling” of the Investing Pool’s position in CERFs from an expiring CERF into a newly listed CERF could expose the Investing Pool to risks arising from trading activity in CERFs.

It is anticipated that prior to the expiration date of the CERFs in March 2014, the CME will list a new CERF with a later expiration date and the Investing Pool will roll its positions in CERFs from the expiring contract into the new contract. However, the CME is under no obligation to list a later expiring CERF, and any CERFs listed on later dates may have terms that differ from the CERFs now listed on the CME. The rolling of expiring CERFs into new CERFs with a later expiration may be effected in a number of different ways, depending on the circumstances prevailing as each CERF approaches expiration. However, it is possible that the prices obtained by the Investing Pool on the transactions executed to effect this roll will be adversely affected by market conditions (including the possibility of market disruptions) and by the trading activities of other market participants, which may reflect market awareness of the Investing Pool’s position in CERFs. For example, if other market participants are able to anticipate the timing of the Investing Pool’s roll, they may be able to execute transactions in advance of the Investing Pool’s rolling transactions, which will allow these market participants to benefit from the transactions executed by the Investing Pool but adversely affect the prices obtained by the Investing Pool, which will in turn adversely affect the value of the Shares. In addition, if the Investing Pool’s CERF position represents a significant part of the open long interest, as has historically been the case, other market participants may take this into account, with a potential adverse impact on the prices at which the Investing Pool is able to liquidate its expiring CERF position and establish a new position in the next expiring CERF contract. There can be no assurance that the Investing Pool will effect the rolling of positions at a time or in a manner that will allow it to avoid adverse consequences.

 

25


The liquidation of CERFs could expose the Investing Pool to the effects of temporary aberrations or distortions in the market, which could adversely affect the prices at which the Investing Pool’s CERF positions are liquidated.

If the Investing Pool liquidates positions in CERFs in order to satisfy redemption requests or to pay expenses and liabilities, it will do so by entering sell orders with the Clearing FCM for execution on the CME. The resulting sales will serve to offset a portion of the Investing Pool’s long positions in CERFs. However, in entering sell orders, the Investing Pool will be subject to the risk that temporary aberrations or distortions will occur in the market at the time these sales are effected and that the prices received by the Investing Pool on its sales could be adversely affected, thereby adversely affecting the value of the Shares. Such aberrations or distortions could occur as a result of trading activities by other market participants or actions by the CME or regulatory authorities.

The Investing Pool’s Clearing FCM or the CME Clearing House could fail, which could expose the Investing Pool to greater risk.

The Investing Pool must deposit as margin an amount equal to 100% of the value of the CERFs that it enters into on the date the position is established. In addition, the Clearing FCM is required to deliver or pledge to the CME Clearing House 100% of the value of each CERF it carries on behalf of the Investing Pool. Under the rules of the CME, the CME will have the right to apply assets transferred or pledged to the CME by the Clearing FCM to satisfy certain of the Clearing FCM’s obligations in the event of a default by the Clearing FCM.

As explained elsewhere in this annual report, this 100% margin requirement is substantially different from the initial margin requirements applicable to most other futures contracts, which are typically 3% to 7% of the value of the relevant contract. As a result, a greater percentage of the assets of the Investing Pool will be held by the Clearing FCM and held by or pledged to the CME Clearing House than would be the case if the Investing Pool entered into other types of futures contracts. In the event of the bankruptcy of the Clearing FCM or the CME Clearing House, therefore, the Investing Pool could be exposed to a risk of loss with respect to a greater portion of its assets. If such a bankruptcy were to occur, the Investing Pool should be afforded the protections granted to customers of an FCM, and participants to transactions cleared through an exchange clearing house, under the United States Bankruptcy Code and applicable CFTC regulations. Because such provisions generally provide for a pro rata distribution to customers of customer property held by the bankrupt FCM or clearing house if the customer property held by the FCM or clearing house is insufficient to satisfy the customer claims, the Investing Pool may be disproportionately affected by such a bankruptcy as compared to other customers because the Investing Pool has provided a significantly higher level of margin than have other customers. In any case, there can be no assurance that these protections will be effective in allowing the Investing Pool to recover all, or even any, of the amounts it has deposited as initial margin.

Bankruptcy of the Investing Pool’s Clearing FCM can be caused by, among other things, the default of one of the Clearing FCM’s customers. In this event, the CME Clearing House is permitted to use the entire amount of margin posted by the Investing Pool (as well as margin posted by other customers of the Clearing FCM) to cover the amounts owed by the bankrupt Clearing FCM. Because the Investing Pool deposits 100% margin, it may be disproportionately affected by such a bankruptcy as compared to the other customers of its Clearing FCM.

You have no recourse to the Index Sponsor.

You have no rights against the Index Sponsor or its successors.

The Shares are not sponsored, endorsed, sold or promoted by the Index Sponsor. The Index Sponsor makes no representation or warranty, express or implied, to the owners of the Shares or any member of the public regarding the advisability of investing in securities generally or in the Shares particularly or the ability of the S&P GSCI™, the S&P GSCI-ER or the Index, including, without limitation, all sub-indices, to track the appropriate market performance. The Index Sponsor’s only relationship to BAMII, BTC, the Trust or the Investing Pool is the licensing of certain trademarks, trade names of the Index Sponsor and the S&P GSCI™ and other intellectual property. The S&P GSCI™, the S&P GSCI-ER and the Index are determined and composed by the Index Sponsor

 

26


and calculated by the Index Sponsor or its agents without regard to BAMII, BTC, the Trust or the Investing Pool. The Index Sponsor has no obligation to take the needs of BAMII, BTC, the Trust, the Investing Pool or the Shareholders into consideration in determining, composing or calculating the S&P GSCI™, the S&P GSCI-ER or the Index. The Index Sponsor is not responsible for and has not participated in the determination of the prices and the number of Shares or the timing of the issuance of sale of Shares or in the determination or calculation of the Basket Amount. The Index Sponsor has no obligation or liability in connection with the administration, marketing or trading of the Shares.

The Index Sponsor does not guarantee the accuracy or the completeness of the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein, and the Index Sponsor disclaims any and all liability for any errors, omissions, or interruptions therein. The Index Sponsor makes no warranty, express or implied, as to the results to be obtained by the Trust, the Investing Pool, the Shareholders or any other person or entity from use of the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein. The Index Sponsor makes no express or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the S&P GSCI™, the S&P GSCI-ER or the Index or any data included therein. Without limiting any of the foregoing, the Index Sponsor expressly disclaims any and all liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages.

Risk Factors Relating to the Trust and the Investing Pool

The returns on the Shares will not precisely correlate with the performance of the Index.

The value of and returns on the Shares are expected to reflect the value of and returns on the Trust’s underlying investments, through the Investing Pool, in CERFs and the cash or Short-Term Securities used to collateralize the CERF positions. The returns on the Shares will not precisely correlate with the performance of the Index due to, among other factors, differences between the return on the assets used by the Investing Pool to collateralize its CERF positions and the U.S. Treasury rate used to calculate the U.S. Treasury return component of the Index, timing differences, differences between the portion of the Investing Pool’s assets invested in CERFs versus the portion of the return on the Index contributed by the S&P GSCI-ER, and the payment of expenses and liabilities by the Trust and the Investing Pool.

Because the Trust and the Investing Pool are passive investment vehicles, the value of the Shares may be adversely affected by losses that, if these vehicles had been actively managed, might have been possible to avoid.

The Trustee passively invests substantially all of the Trust’s assets in Investing Pool Interests, and the Advisor will manage the Investing Pool’s assets in a manner that seeks to obtain returns that correspond generally to the performance of the Index, before the payment of expenses and liabilities of the Trust and the Investing Pool. This means that the net asset value of the Investing Pool and, consequently, the NAV are intended to generally track the Index when it is flat or declining, as well as when it is rising, and, therefore, it is highly likely that the value of the Shares will be adversely affected by a decline in commodity futures prices reflected in the Index. The Advisor will not engage in any activity designed to obtain a profit from, or to ameliorate losses caused by, changes in the level of the Index or the S&P GSCI-ER or the value of the Investing Pool’s Short-Term Securities, including making use of any of the hedging techniques available to professional commodity futures traders to attempt to reduce the risks of losses resulting from commodity price decreases.

Fees and expenses payable by the Investing Pool are charged regardless of profitability and may result in a depletion of its assets.

The Investing Pool is subject to the fees and expenses described in this annual report, which are payable irrespective of profitability. These fees and expenses include an allocation to the Manager that accrues daily at an annualized rate equal to 0.75% of the net asset value of the Investing Pool and is payable by the Investing Pool monthly in arrears.

 

27


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. A prolonged decline in interest rates could materially affect the amount of interest paid to the Investment Pool. In the case of either an extraordinary expense and/or insufficient interest income to cover ordinary expenses, the Investing Pool could be forced to liquidate its CERF positions to pay such expenses.

The price you receive upon the sale of your Shares may be less than their NAV.

Shares may trade at, above or below their NAV. The NAV will fluctuate with changes in the market value of the Investing Pool’s assets. The trading price of Shares will fluctuate in accordance with changes in the NAV, intraday changes in the value of the CERFs and market supply and demand. The amount of the discount or premium in the trading price of the Shares relative to their NAV may be influenced by non-concurrent trading hours between NYSE Arca, the exchange on which the Shares trade, the CME, on which CERFs trade, and the principal commodities markets on which the futures contracts in the S&P GSCI-ER trade. While the Shares are expected to trade on NYSE Arca until 4:00 p.m. (New York time), liquidity in the markets for the CERFs trading on the CME and for the underlying commodities in the S&P GSCI-ER will be reduced whenever the principal markets for those contracts are closed (normally 4:00 p.m. to 5:00 p.m. (Chicago time), for the CERFs). As a result, trading spreads, and the resulting premium or discount on Shares, may widen during these “gaps” in market trading hours.

The Trust is not obligated to pay periodic distributions or dividends to Shareholders.

Interest or other income received with respect to the Trust’s assets may be used to acquire additional CERFs or, in the discretion of the Sponsor, distributed to the Shareholders. The Trust will not be obligated, however, to make any distributions to Shareholders at any time prior to the dissolution of the Trust.

The Trust could be liquidated at a time when the disposition of its interests will result in losses to investors in Shares.

If, at any time, any of the events described under “Description of the Shares, the Trust Agreement and the Investing Pool Agreement—Amendment and Dissolution” occurs, the Trustee or, if applicable, the Shareholders may prompt the Trust’s dissolution. Upon dissolution of the Trust, the Trust will in most circumstances redeem its holdings in Investing Pool Interests, and the Investing Pool will sell the CERFs and securities held by it in the amount necessary to cover all expenses of liquidation and to pay any outstanding liabilities of the Trust. The remaining assets will be distributed among investors surrendering Shares. Any property remaining in the possession of the Trustee after ninety days may be sold by the Trustee, and the proceeds of the sale will be held by the Trustee until claimed by any remaining Shareholders. Sales of CERFs 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 Shares.

The Manager has broad discretion to liquidate the Investing Pool at any time.

The Investing Pool Agreement provides the Manager with broad discretion to liquidate the Investing Pool at any time the Manager determines that liquidation of the Investing Pool is advisable. Liquidation of the Investing Pool will require the Trustee to dissolve the Trust and redeem your Shares. It cannot be predicted when or under what circumstances, if any, the Manager would use this discretion to liquidate the Investing Pool. Any such liquidation may occur at a time when you are suffering a loss on your investment in the Shares and may upset the overall maturity and timing of your investment portfolio.

Shareholders with large holdings may choose to dissolve the Trust and thereby adversely affect your investment in the Shares.

Owners of 75% or more of the Shares have the power to dissolve 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 the performance of the Index 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. Moreover, such a dissolution may occur at a time when you are suffering a loss on your investment in the Shares and may upset the overall maturity and timing of your investment portfolio.

 

28


The Shares may not provide anticipated benefits of diversification from other asset classes.

Historically, the performance of physical commodity futures prices generally has not been correlated to the performance of financial asset classes, such as stocks and bonds. Non-correlation means that there is no statistically significant relationship, positive or negative, between the past performance of futures contracts on physical commodities, on the one hand, and stocks or bonds, on the other hand. Despite this lack of correlation, Shares cannot be expected to be automatically profitable during unfavorable periods for the stock or bond markets, or automatically unprofitable during favorable periods for the stock or bond markets. The commodity futures markets are fundamentally different from the securities markets in that for every gain in commodity futures trading, there is an equal and offsetting loss. The performance of the Shares may reflect positive or negative correlation to one or more financial asset classes, in which case any investment strategy relying on the absence of any such correlation may not be successful.

The liquidity of the Shares may be affected by the withdrawal from participation of Authorized Participants or by the suspension of issuance, transfers or redemptions of Shares by the Trustee.

If one or more Authorized Participants withdraw from participation, it may become more difficult to create or redeem Baskets, which may reduce the liquidity of the Shares. If it becomes more difficult to create or redeem Baskets, the correlation between the price of the Shares and the NAV may be affected, which may affect the trading market for the Shares. Having fewer participants in the market for the Shares could also adversely affect the ability to arbitrage any price difference between the CERFs and the Shares, which may affect the trading market and liquidity of the Shares.

In addition, the Trustee has the power to suspend the delivery of Shares, registration of transfers of Shares and surrenders of Shares for the purpose of withdrawing Trust property generally, or to refuse a particular deposit, transfer or withdrawal at any time, if the Trustee or the Sponsor determines that it is advisable to do so for any reason. From August 24, 2009 to April 26, 2010, the Trust suspended the issuance of new Shares because the Trust could not invest the proceeds of new issuances in additional CERF positions due to restrictions on speculative position limits imposed by the CME. The liquidity of the Shares and the correlation between the value of the Shares and the level of the Index may be adversely affected in the event of any such suspension of issuance, transfer or redemption.

The lack of an active trading market for the Shares may result in losses on your investment at the time of disposition of your Shares.

Although the Shares are listed on NYSE Arca, there can be no guarantee that an active trading market for the Shares will develop or be maintained. If you need to sell your Shares at a time when no active market for them exists, the price you receive for your Shares, assuming that you are able to sell them, will likely be lower than that you would receive if an active market did exist.

You may be adversely affected by redemption orders that are subject to postponement, suspension or rejection under certain circumstances.

The Trustee may suspend the right of redemption or postpone the redemption settlement date for such periods as it or the Sponsor deems to be necessary for any reason. In addition, the Trustee has the absolute right to reject any redemption order, for reasons including, among others, (1) the related order not being in proper form as described in the Authorized Participant Agreement, (2) market conditions or other circumstances that make transactions in or delivery of the Shares or the CERFs impossible or impractical, (3) a determination by the Trustee that the acceptance of the related order would have adverse tax or other consequences to the Trust, the Investing Pool or the Shareholders, or (4) circumstances that would cause the acceptance of the related order to result in a violation of law in the opinion of counsel to the Trustee, the Sponsor, the Trust Administrator or the Processing Agent. For example, the resulting delay may adversely affect the value of the redemption proceeds if the NAV declines during the period of the delay. Under the Authorized Participant Agreement, the Trustee disclaims any liability that may result from any such suspension, postponement or rejection.

 

29


Competition from other commodities-related investments could limit the market for, and reduce the liquidity of, the Shares.

Demand for the Shares will be affected by the attractiveness of an investment in the Shares relative to other investment vehicles, including other commodity pools, hedge funds, traditional debt and equity securities issued by companies in the commodities industry, other securities backed by or linked to commodities, and direct investments in commodities or commodity futures contracts. Market, financial and other conditions or factors may make it more attractive to invest in other investment vehicles or to invest in such commodities directly, which could limit the market for, and reduce the liquidity of, the Shares.

The price of the Shares could decrease if unanticipated operational or trading problems arise.

If the processes of creation and redemption of Shares encounter any unanticipated difficulties, potential market participants who would otherwise be willing to purchase or redeem Baskets to take advantage of any arbitrage opportunity arising from discrepancies between the price of the Shares and the price of the underlying CERFs may choose not to do so. If this is the case, the price of the Shares may vary from the price of the CERFs and may trade at a discount to their NAV. In addition, in some circumstances, such as the failure of the registration statement covering the Shares to be effective, the Trust may be unable to create or redeem Shares, which may have similar consequences.

Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Investing Pool.

The CME imposes speculative position limits on market participants trading in CERFs, including the Investing Pool, that typically prohibit any person from holding a position of more than 45,000 contracts. The Investing Pool has obtained a risk management exemption from these position limits that should permit the Investing Pool to hold up to 105,000 contracts. If the Investing Pool is unable to obtain further exemptions, or if the exemption that the Investing Pool obtained expires, is revoked or modified or cannot be renewed for any reason, then the Trust’s ability to issue new Baskets or reinvest income in additional CERFs may be limited to the extent these activities would cause the Investing Pool to exceed the then-applicable position limit. The Investing Pool may also be required to liquidate any existing contracts in excess of the then-applicable position limits or take other actions with potentially adverse effects on the liquidity or value of the Shares.

Additionally, future legislative or regulatory action (including regulatory action pursuant to the requirements of the Dodd-Frank Act) may impose new limitations on the size of positions that the Investing Pool may take in CERFs or the CME may reduce its position limits applicable to CERFs and/or impose limitations on the size of positions that may be carried by the Investing Pool’s Clearing FCM or other market participants, adversely affecting the liquidity and price of CERFs and the underlying futures. Such events could force the Investing Pool to sell CERFs, or encourage market participants to sell or redeem their Shares. The CFTC has proposed that any risk management exemptions granted by designated contract markets, such as the exemption applicable to the Investing Pool’s position in CERFs, would be subject to CFTC review and approval. As a result, if adopted, the maximum position in CERFs permitted to be held by the Investing Pool could be significantly reduced in size, which could in turn require the Investing Pool to liquidate some or all of its positions in CERFs. Any such reduction could affect the liquidity of CERFs and adversely impact the price of the Shares as well as the correlation between the price of the Shares and the net asset value of the Trust. See also “Risk Factors Relating to Commodities Markets—Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.”

Exchanges may also take steps, such as requiring liquidation of open positions, in the case of disorderly markets, market congestion and other market disruptions. These actions could require the Investing Pool to liquidate all or part of its CERF positions or require holders of positions in the futures contracts underlying the S&P GSCI-ER to liquidate their positions. This could affect the level of the Index and the NAV. See also “Risk Factors Relating to Commodities Markets—Regulatory developments with respect to the

 

30


futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.”

As a Shareholder, you will not have the rights normally associated with ownership of common shares.

Shareholders are not entitled to the same rights as owners of shares issued by a corporation. By acquiring Shares, you are not acquiring the right to elect directors, to receive dividends, to vote on certain matters regarding the Trust or to take other actions normally associated with the ownership of common shares.

Additionally, as described under “Business of the Trust and the Investing Pool” and “Description of the Shares, the Trust Agreement and the Investing Pool Agreement,” the Sponsor and the Trustee will exercise substantial control over the Trust’s activities, and the Manager will exercise substantial control over the Investing Pool’s activities. Among other things, the Trust Agreement authorizes the Sponsor to determine whether to make distributions to Shareholders, gives the Trustee oversight over NAV calculations and the creation and redemption process and gives the Manager the right to liquidate the Investing Pool if it deems such liquidation advisable. The Sponsor and the Trustee may amend the provisions of the Trust Agreement, including in a manner adverse to Shareholders, without Shareholder consent, and the Manager and the Trust may amend the provisions of the Investing Pool Agreement, including to change the assets through which the Trust seeks to achieve its investment objective, which may alter the nature of an investment in, and the performance of, the Shares.

The Trust Agreement provides that in the case of a conflict of interest between the Trustee, the Sponsor and their affiliates, on the one hand, and the holders of Shares, on the other, the Trustee and the Sponsor will resolve such conflict considering the relevant interests of each party (including their own interests) and related benefits and burdens, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. The Trust Agreement further provides that in the absence of bad faith by the Trustee or the Sponsor, such a resolution will not constitute a breach of the Trust Agreement or any duty or obligation of the Trustee or the Sponsor.

As a Shareholder, you will not have the protections normally associated with the ownership of shares in an investment company registered under the Investment Company Act.

Neither the Trust nor the Investing Pool is registered as an investment company for purposes of United States federal securities laws, and neither is subject to regulation by the SEC as an investment company. Consequently, Shareholders will not have the regulatory protections provided to investors in investment companies registered under the Investment Company Act. For example, the provisions of the Investment Company Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under limited circumstances) and limit sales loads will not apply to the Trust or the Investing Pool. BlackRock Asset Management International Inc., as the Sponsor and the Manager, is registered with the CFTC as a commodity pool operator, and BlackRock Fund Advisors, as the Advisor, is registered with the CFTC as a commodity trading advisor. The CFTC therefore has jurisdiction over these entities and regulatory authority over certain activities of the Trust and the Investing Pool. The nature and degree of this regulation differs from the regulatory scheme imposed under the Investment Company Act.

Competing claims over ownership of relevant intellectual property rights could adversely affect the Trust, the Investing Pool or an investment in the Shares.

While the Sponsor believes that it has all the intellectual property rights needed to operate the Trust and the Investing Pool in the manner described in this annual report, third parties may allege or assert ownership of intellectual property rights that may be related to the design, structure and operation of the Trust, the Investing Pool or the Index. To the extent any claims of such ownership are brought or any proceedings are instituted to assert such claims, the negotiation, litigation or settlement of such claims, the issuance of any restraining orders or injunctions, or the ultimate disposition of such claims in a court of law, may adversely affect the Trust, the Investing Pool and the value of the Shares. For example, such actions could result in expenses or damages payable by the Trust or the Investing Pool or the suspension of activities or dissolution of the Trust or the Investing Pool.

 

31


The value of the Shares will be adversely affected if the Trust is required to indemnify the Sponsor or if the Investing Pool is required to indemnify the Manager.

Under the Trust Agreement, the Sponsor has the right to be indemnified by 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 it, which would reduce the net asset value of the Trust and the value of the Shares. Likewise, under the Investing Pool Agreement, the Manager and agents of the Investing Pool have the right to be indemnified by the Investing Pool for any liability or expense they incur without gross negligence, bad faith or willful misconduct on their part. That means the Manager may require the assets of the Investing Pool to be sold in order to cover losses or liabilities suffered by it, which would reduce the net asset value of the Investing Pool and thereby affect the net asset value of the Trust and the value of the Shares.

Regulatory changes or actions may affect the Shares.

The futures markets are subject to comprehensive regulation. In addition, the CFTC and the exchanges are authorized to take extraordinary actions in the event of a market emergency, including, for example, implementing retroactively speculative position limits or higher margin requirements, establishing daily price limits and suspending trading. The regulation of futures transactions in the United States is subject to modification by government, exchange and judicial action. The effect of any future regulatory change on the Trust or the Investing Pool could be substantial and adverse. See also “Risk Factors Relating to Commodity Markets—Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares” and “Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Investing Pool.”

NYSE Arca may halt trading in the Shares, which would adversely impact your ability to sell your Shares.

The Shares are listed for trading on NYSE Arca under the symbol “GSG.” Trading in the Shares may be halted due to market conditions or, in light of NYSE Arca rules and procedures, for reasons that, in the view of NYSE Arca, make trading in the Shares inadvisable, or in the event certain information about the Index, the value of the Shares and the NAV is not made available as required by such rules and procedures. In addition, trading generally on NYSE Arca is subject to trading halts caused by extraordinary market volatility pursuant to “circuit breaker” rules that require trading to be halted for a specified period based on a specified market decline. There can be no assurance that the requirements necessary to maintain the listing of the Shares will continue to be met or will remain unchanged. The Trust will be dissolved if the Shares are delisted from NYSE Arca and are not approved for listing on another national securities exchange within five business days of their delisting.

Risk Factors Relating to Conflicts of Interest

The relationships between the Sponsor and the Trustee and the Manager and the Advisor and the proprietary and managed trading activities of the Sponsor and its affiliates could conflict with your interests as a Shareholder.

The Sponsor is an affiliate of the Trustee and therefore may have a conflict of interest with respect to its oversight of the Trustee. In particular, the Sponsor, which has authority to remove the Trustee in its discretion, has an incentive not to exercise this authority, even when it is in the best interests of the Shareholders to do so, because of the affiliation between the entities. The Trustee is authorized to appoint an unaffiliated Trust Administrator or agent to carry out all or some of its duties under the Trust Agreement, but it can terminate or replace the Trust Administrator or agent at any time, and it is not required to delegate any of its duties to an unaffiliated third party.

The Manager is an affiliate of the Advisor and therefore may have a similar conflict of interest with respect to its oversight of the Advisor. For example, although the Manager has the authority to terminate the Investing Pool’s advisory agreement with the Advisor, it has an incentive not to exercise this authority, even when it is in the best interests of the Shareholders to do so, because of the affiliation between the entities.

 

32


As described elsewhere in this annual report, in return for paying certain amounts that would otherwise be considered ordinary operating expenses of the Trust and the Investing Pool, the Manager receives an allocation from the Investing Pool that accrues daily at an annualized rate equal to 0.75% of the net asset value of the Investing Pool and is payable monthly in arrears. The allocation received by the Manager from the Investing Pool may be higher than the amount the Investing Pool would negotiate with an unaffiliated third party manager on an arms-length basis.

In addition, BAMII, as Sponsor and Manager, and its affiliates (including the Trustee and the Advisor) will collectively exercise substantial control over the Trust and the Investing Pool. To the extent the interests of BAMII and its affiliates conflict with those of the Trust and the Shareholders, the risks associated with such conflicts may be greater than they would otherwise be for a party that cannot exercise such control over the Trust and the Investing Pool. The Trust Agreement provides that in the case of a conflict of interest between the Trustee, the Sponsor and their affiliates, on the one hand, and the holders of Shares, on the other, the Trustee and the Sponsor will resolve such conflict considering the relevant interests of each party (including their own interests) and related benefits and burdens, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. The Trust Agreement further provides that in the absence of bad faith by the Trustee or the Sponsor, such a resolution will not constitute a breach of the Trust Agreement or any duty or obligation of the Trustee or the Sponsor.

BAMII and its affiliates may also engage in trading activities relating to the CERFs, the components of the Index or the S&P GSCI-ER or other derivative instruments related to those indices that are not for the account of, or on behalf of, the Trust, the Investing Pool or the Shareholders and that may compete with trading activity in the Shares. These activities may present a conflict between the Shareholders’ interest in the Shares and the interest of BAMII and its affiliates in their proprietary accounts, in facilitating transactions, including derivatives transactions, for their customers’ accounts and in accounts under their management. These trading activities could be adverse to the interests of the Shareholders. Moreover, BAMII and its affiliates have published and in the future expect to publish research reports with respect to commodities markets. This research may express opinions or provide recommendations that are inconsistent with purchasing or holding Shares. The research should not be viewed as a recommendation or endorsement of the Shares in any way, and investors must make their own independent investigation of the merits of this investment. Any of these activities by BAMII and its affiliates may affect the level of the S&P GSCI-ER or its components and, therefore, the value of the CERFs and the price of the Shares.

Proprietary trading and other activities by Goldman, Sachs & Co. and its affiliates could conflict with your interests as a Shareholder.

Activities conducted by Goldman, Sachs & Co. and its affiliates may conflict with your interests as a Shareholder. For example, the Advisor may execute a substantial amount, and potentially all, of the purchases and sales of CERFs through Goldman, Sachs & Co., as the Investing Pool’s Clearing FCM. In addition, it is expected that Goldman, Sachs & Co. or its accountholders will represent, directly or indirectly, a substantial portion of the short-side market for CERFs. Further, Goldman, Sachs & Co. and its affiliates actively trade futures contracts and options on futures contracts on the commodities that underlie the S&P GSCI™, over-the-counter contracts on these commodities, the underlying commodities included in the S&P GSCI™ and other instruments and derivative products based on the S&P GSCI™ and the S&P GSCI-ER. Any of these activities of Goldman, Sachs & Co. or its affiliates could adversely affect the level of the S&P GSCI-ER or CERFs, directly or indirectly, by affecting the price of the underlying commodities and, therefore, the value of the S&P GSCI-ER, CERFs and the price of the Shares.

Goldman, Sachs & Co. and its affiliates may also issue or underwrite other securities or financial or derivative instruments with returns indexed to the S&P GSCI™, the S&P GSCI-ER or the Index, which would compete with the Shares. By introducing competing products into the marketplace, Goldman, Sachs & Co. and its affiliates could adversely affect the price of the Shares. To the extent that Goldman, Sachs & Co. or its affiliates serve as issuer, agent or underwriter of those securities or other similar instruments, their interests with respect to those products may be adverse to your interests as a Shareholder.

 

33


Risk Factors Relating to Taxes

Please refer to “United States Federal Income Tax Consequences” for information on the potential U.S. federal income tax consequences of the purchase, ownership and disposition of the Shares.

The Internal Revenue Service (“IRS”) could take the position that CERFs must be taxed under special “mark-to-market” rules that would require gain to be taken into account on an annual basis.

Futures contracts that require a person such as the Investing Pool to make an initial deposit of 100% margin and that do not require or permit the payment by that person of additional variation margin are a novel form of futures contract. Consequently, no statutory, judicial or administrative authority addresses the characterization of a CERF owned by the Investing Pool or the U.S. federal income tax consequences of an investment in the CERFs by the Investing Pool. The Investing Pool has received an opinion that, while there is no authority on point, the CERFs held by the Investing Pool will not be treated as regulated futures contracts within the meaning of section 1256 of the United States Internal Revenue Code of 1986, as amended (the “Code”) because the CERFs are not contracts with respect to which the amount required to be deposited and the amount which may be withdrawn depends on a system of marking to market. You should be aware that an opinion is not binding on the IRS or a court. Accordingly, it is possible that the IRS or a court would reach the conclusion that the CERFs should be treated as regulated futures contracts within the meaning of section 1256 of the Code. In that case, the timing, amount, character, holding period or other material aspects of your income, gain, loss or expense from an investment in the Shares could be significantly affected. In particular, you would be taxable on any gain on the CERFs on an annual mark-to-market basis, regardless of the fact that the CERFs have expirations of several years at the time of listing.

Your tax liability could exceed cash distributions on your Shares.

You will be required to pay U.S. federal income taxes on your allocable share of the Trust’s and the Investing Pool’s income, without regard to the receipt of cash distributions on the Shares. There is no obligation to make distributions on the Shares. Accordingly, it is anticipated that you will not receive cash distributions sufficient to cover your allocable share of such taxable income or even the tax liability resulting from that income.

The IRS could adjust or reallocate items of income, gain, deduction, loss and credit with respect to the Shares if the IRS does not accept the assumptions or conventions utilized by the Trust or the Investing Pool.

The U.S. tax rules that apply to partnerships are complex and their application is not always clear. Moreover, the rules generally were not written for, and in some respects are difficult to apply to, publicly traded interests in partnerships. In addition, the Trust will report tax information to you on IRS Schedule K-1 with respect to the Shares. Reporting on IRS Schedule K-1 may be somewhat more complex than comparable reporting on IRS Form 1099. Investors in the Shares should consult their tax advisors in determining how to use the information reported on schedule K-1 to complete their income tax returns. The Trust and the Investing Pool will apply certain assumptions and conventions intended to comply with the intent of the rules and to report income, gain, deduction, loss and credit to investors in a manner that reflects the investors’ economic gains and losses, but these assumptions and conventions may not comply with all aspects of the applicable Treasury regulations. It is possible therefore that the IRS will successfully assert that these assumptions or conventions do not satisfy the technical requirements of the Code or the Treasury regulations and will require that items of income, gain, deduction, loss and credit be adjusted or reallocated in a manner that could be adverse to you.

You may recognize timing mismatches in connection with the “rolling” of the Investing Pool’s position in CERFs from an expiring CERF into a newly listed CERF.

Timing mismatches may arise from an investment in Shares because of the fact that the Investing Pool generally invests in CERFs that have the same expiration date. If the Investing Pool effects a roll of its position in CERFs from an expiring CERF into a newly listed CERF through a sale or disposition of an expiring CERF or by having an expiring CERF terminate while held by the Investing Pool, the Investing Pool may recognize in the taxable year of the roll substantial amounts of gains or losses depending on whether

 

34


the CERFs have appreciated or depreciated in value since the date that the Investing Pool acquired such CERFs. Any gain or loss recognized with respect to a CERF will be treated as capital gain or loss and will be treated as long-term gain or loss if at the time of the disposition or expiration the Investing Pool has held the CERFs for more than six months. Because you will be treated as a beneficial owner of an interest in a partnership, you will be required to include in income the Investing Pool’s gains or losses that are allocated to you pursuant to the Investing Pool Agreement for the Trust’s and the Investing Pool’s taxable year ending with or within your taxable year. Capital losses are deductible only to the extent of any capital gains, plus in the case of non-corporate taxpayers only, ordinary income of up to $3,000 per year. Capital losses of non-corporate taxpayers can be carried forward until they are used. Taxpayers other than individuals can carry capital losses back three years and forward five years. Consequently, if you are a corporate taxpayer that recognizes significant losses in connection with a roll, a timing mismatch may arise if you recognize gains from CERFs in later years, as you may carry capital losses forward only a specified number of years.

If the Trust were to fail to qualify as a partnership for U.S. federal income tax purposes, the Trust’s income and items of deduction would not pass through to the Shareholders, the Trust would be required to pay tax at corporate rates on any portion of the Trust’s net income that does not constitute tax-exempt income, and distributions by the Trust to the Trust’s Shareholders would be taxable dividends to the extent of the Trust’s earnings and profits.

It is expected that the Trust will operate and be classified as a partnership for U.S. federal income tax purposes. So long as the Trust qualifies as a partnership, it will be able to pass through its income, including the Trust’s tax-exempt income, if any, and deductions to the Shareholders. The Trust’s qualification as a partnership for U.S. federal income tax purposes depends on the application of a number of complex Code provisions, for some of which there is a lack of direct authority. In general, if a partnership is treated as “publicly traded,” as defined in the Code, it will be treated as a corporation for U.S. federal income tax purposes. It is expected that the Trust will be treated as a publicly traded partnership. A publicly traded partnership will, however, be taxed as a partnership, and not as a corporation for U.S. federal income tax purposes, so long as 90% or more of its gross income for each taxable year constitutes “qualifying income” within the meaning of Section 7704(d) of the Code and the partnership is not required to register under the Investment Company Act. This exception is referred to as the “qualifying income exception.” Qualifying income generally includes interest (other than certain contingent interest and interest derived in the conduct of a financial or insurance business), dividends, real property rents, and income from certain commodities transactions.

If less than 90% of the Trust’s gross income for any tax year constitutes qualifying income, for any reason, other than a failure that is determined to be inadvertent and that is cured within a reasonable time after discovery, or if the Trust is required to register under the Investment Company Act, the Trust’s items of income and deduction would not pass through to the Trust’s Shareholders and the Trust’s Shareholders would be treated for U.S. federal income tax purposes as stockholders in a corporation. The Trust would be required to pay income tax at corporate rates on its net taxable income. Distributions by the Trust to its Shareholders would constitute dividend income taxable to such holders to the extent of the Trust’s earnings and profits and the payment of these distributions would not be deductible by the Trust. These consequences could have a material adverse effect on the Trust, and its Shareholders and the value of the Shares.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Not applicable.

 

35


Item 3. Legal Proceedings.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

 

36


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

a) On December 27, 2007, the Shares commenced trading on NYSE Arca under the symbol “GSG.” Prior to that, the Shares were traded on the NYSE, also under the symbol “GSG,” since their initial public offering on July 19, 2006. For each of the quarters during the fiscal years ended December 31, 2012 and 2011, the high and low sale prices of the Shares as reported for transactions on NYSE Arca were as follows:

 

     Years Ended December 31,  
     2012      2011  
     High      Low      High      Low  

First Quarter

   $ 36.43       $ 33.38       $ 37.85       $ 33.35   

Second Quarter

   $ 35.39       $ 28.47       $ 39.34       $ 33.05   

Third Quarter

   $ 35.35       $ 30.33       $ 36.06       $ 30.19   

Fourth Quarter

   $ 34.28       $ 31.88       $ 34.27       $ 29.75   

The number of Shareholders of record of the registrant as of January 31, 2013 was approximately 106,474.

The Trust made no distributions to Shareholders during the fiscal years ended December 31, 2012 and 2011. The Trust has no obligation to make periodic distributions to Shareholders.

There is no public trading market for the Investing Pool Interests.

b) As described in the Trust’s first registration statement on Form S-1 (No. 333-126810), which was declared effective on July 19, 2006, proceeds received by the Trust from the issuance and sale of Shares to Authorized Participants generally consist of long positions in CERFs and cash or short-term or similar securities, referred to as “Short-Term Securities,” in lieu of cash. Such proceeds are delivered to the Investing Pool in return for interests in the Investing Pool. These assets are held on behalf of the Investing Pool in an account with the Clearing FCM until withdrawn in connection with redemptions of Shares or liquidated to pay expenses and liabilities of the Trust and the Investing Pool not assumed by the Sponsor or the Manager.

c) 3,600,000 Shares (72 Baskets) were redeemed during the fourth quarter of the year ended December 31, 2012.

 

Period

   Total Number of
Shares  Redeemed
     Average Price
Per  Share
 

10/01/12 to 10/31/12

     1,200,000       $ 34.13   

11/01/12 to 11/30/12

     1,050,000         32.67   

12/01/12 to 12/31/12

     1,350,000         32.14   
  

 

 

    

Total

     3,600,000         32.96   
  

 

 

    

 

37


Item 6. Selected Financial Data.

Financial Highlights (for the years ended December 31, 2012, 2011, 2010, 2009 and 2008)

(Dollar amounts in $000’s, except for per Share amounts)

iShares® S&P GSCI™ Commodity-Indexed Trust

 

     December 31,  
     2012     2011     2010     2009     2008  

Total assets, at period end

   $ 1,167,589      $ 1,313,292      $ 1,799,880      $ 1,759,350      $ 466,237   

Total gain (loss) on sales of investments and futures contracts

   $ (14,331   $ 166,006      $ (102,880   $ (9,555   $ 16,571   

Net gain (loss)

   $ (13,741   $ (37,704   $ 118,572      $ 202,619      $ (375,172

Weighted-average Shares outstanding

     38,855,874        46,673,836        53,999,863        41,228,356        12,680,191   

Net gain (loss) per Share

   $ (0.35   $ (0.81   $ 2.20      $ 4.91      $ (29.59

Net cash flows

   $ —        $ —        $ —        $ —        $ —     
iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC     
     December 31,  
     2012     2011     2010     2009     2008  

Total assets, at period end

   $ 1,168,351      $ 1,314,700      $ 1,801,008      $ 1,769,161      $ 466,518   

Total gain (loss) on sales of investments and futures contracts

   $ (14,331   $ 166,007      $ (102,881   $ (9,555   $ 16,572   

Net gain (loss)

   $ (13,742   $ (37,705   $ 118,573      $ 202,621      $ (375,184

Net cash flows

   $ 110      $ (1,568   $ 1,461   $ (1,260 )*    $ 1,042

 

* Amounts for the years ended December 31, 2010, 2009, and 2008 have been reclassified to conform with current financial statement presentation.

 

38


Item 7. 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 with this report. 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 Sponsor, the Manager, the Trustee or the Delaware Trustee assumes responsibility for the accuracy or completeness of any forward-looking statements. None of 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

As described in Part I above, it is the objective of the Trust that the performance of the Shares correspond generally to the performance of the S&P GSCI™ Total Return Index, or 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. During the period beginning July 10, 2006 (commencement of operations) and ending on December 31, 2012 (the Trust’s most recent fiscal year-end), the Trust’s investment in the Investing Pool grew from $7,358,911 at July 10, 2006 to $1,167,588,732 at December 31, 2012. Outstanding Shares in the Trust grew from 150,000 Shares at July 10, 2006 to 35,550,000 Shares at December 31, 2012.

The following chart shows the daily valuation of CERFs for the period from June 30, 2006 to December 31, 2012:

 

LOGO

 

39


Results of Operations

The Year Ended December 31, 2012

The Trust’s net asset value decreased from $1,313,291,939 at December 31, 2011 to $1,167,588,732 at December 31, 2012. The decrease in the Trust’s net asset value was primarily due to a decrease in outstanding Shares, which fell from 39,750,000 at December 31, 2011 to 35,550,000 at December 31, 2012 due to 1,750,000 Shares (35 Baskets) being created and 5,950,000 Shares (119 Baskets) being redeemed during the year. The decrease in the Trust’s net asset value was slightly offset by an increase in the price of the March 2014 CERFs from $474.80 at December 31, 2011 to $475.30 at December 31, 2012, a 0.11% increase.

Net loss for the year was $13,741,405, resulting from a net investment loss of $8,786,838 and net realized and unrealized losses of $4,972,567 allocated from the Investing Pool. For the year ended December 31, 2012, the Trust had a net realized loss of $1,661 on short-term investments and net realized and unrealized losses of $4,970,906 on futures contracts allocated from the Investing Pool. Other than the Management fee of $9,733,509 and brokerage commissions and fees of $4,950 allocated from the Investing Pool, the Trust had no expenses during the year.

The Year Ended December 31, 2011

The Trust’s net asset value decreased from $1,799,879,995 at December 31, 2010 to $1,313,291,939 at December 31, 2011. The decrease in the Trust’s net asset value was primarily due to a decrease in outstanding Shares, which fell from 52,700,000 at December 31, 2010 to 39,750,000 at December 31, 2011 due to 2,600,000 Shares (52 Baskets) being created and 15,550,000 Shares (311 Baskets) being redeemed during the year. The Trust’s net asset value was also affected by a decrease in the price of the March 2014 CERFs. The average purchase price of March 2014 CERFs entered into by the Investing Pool was $501.91 while the price of March 2014 CERFs at December 31, 2011 was $474.80, a 5.40% decrease.

This decrease in the Trust’s net asset value was partially offset when in February 2011, the Investing Pool began trading in CERFs expiring in March 2014 in connection with the rolling process from CERFs expiring in March 2011. The March 2011 CERFs increased in price from $480.40 at December 31, 2010 to a final sale price of $510.80 in February 2011, a 6.33% increase. For the year ended December 31, 2011, the Trust had a net realized gain on futures contracts of $165,820,763 and brokerage commissions and fees of $761,166 allocated from the Investing Pool primarily in connection with the rolling process.

The Year Ended December 31, 2010

The Trust’s net asset value grew from $1,759,350,446 at December 31, 2009 to $1,799,879,995 at December 31, 2010. The increase in the Trust’s net asset value resulted primarily from an increase in the price of March 2011 CERFs during the year from $442.70 at December 31, 2009 to $480.40 at December 31, 2010, an 8.52% increase. The Trust’s net asset value was also affected by a decrease in outstanding Shares, which fell from 55,550,000 at December 31, 2009 to 52,700,000 at December 31, 2010 due to 8,400,000 Shares (168 Baskets) being created and 11,250,000 Shares (225 Baskets) being redeemed during the year.

Liquidity and Capital Resources

The Trust’s sole asset as of December 31, 2012 was its investment in the Investing Pool. The Investing Pool’s assets consist of CERFs and 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. For the year ended December 31, 2012, interest income was $969,633, while the fixed fee totaled $9,733,635. For the year ended December 31, 2011, interest income was $1,649,867, while the fixed fee totaled $12,186,111. For the year ended December 31, 2010, interest income was $1,971,686, while the fixed fee totaled $12,260,196. A prolonged decline in interest rates

 

40


could materially affect the amount of interest paid to the Investing Pool. 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 December 31, 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 will 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 the Clearing FCM. 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. See also “Risk Factors—Risk Factors Related to CERFs and the S&P GSCI-ER—The Investing Pool’s Clearing FCM or the CME Clearing House could fail, which could expose the Investing Pool greater risk.”

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.

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

 

41


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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative Disclosure

The Trust and Investing Pool are exposed to commodity price risk through the Investing Pool’s holdings of CERFs. The following table provides information about the Investing Pool’s futures contract positions, which are sensitive to changes in commodity prices. As of December 31, 2012, the Investing Pool’s open CERF positions (long) were as follows:

 

Number of Contracts:

     24,520   

Expiration Date:

     March 2014   

Weighted-Average Price per Contract:

   $ 501.61   

Notional Amount (Fair Value):

   $ 1,165,435,600   

The notional amount is calculated using the settlement price for the CERFs expiring in March 2014 on the CME on December 31, 2012, which was $475.30 per contract, and the $100 multiplier applicable under the contract terms.

Qualitative Disclosure

As described herein, it is the objective of the Trust, through its investment in the Investing Pool that the performance of the Shares will correspond generally to the performance of the Index, before the payment of expenses and liabilities. The Index itself is intended to reflect the performance of a diversified group of physical commodities, including energy commodities, precious and industrial metal commodities, agricultural commodities and livestock commodities. The Trust obtains this exposure to commodity prices through the Investing Pool’s CERF positions. As a result, fluctuations in the value of the CERFs are expected to directly affect the value of the Shares.

Neither the Trust nor the Investing Pool will engage in any activities designed to obtain a profit from, or ameliorate losses caused by, changes in the value of the CERFs, any commodities underlying the Index or the S&P GSCI-ER, or any assets posted as margin. Because of the 100% margin requirement applicable to the Investing Pool’s CERF positions, the market risk associated with the Investing Pool’s CERF position is limited to the amount of cash and Short-Term Securities posted as margin. The Investing Pool’s exposure to market risk may be influenced by a number of factors, including the lack of liquidity of the CERF market and activities of other market participants.

 

42


Item 8. Financial Statements and Supplementary Data.

Quarterly Income Statements*

(Dollar amounts in $000’s, except for per Share amounts)

* Certain totals may not sum due to rounding.

iShares® S&P GSCI™ Commodity-Indexed Trust

 

     Three Months Ended (Unaudited)     Year Ended
December 31,
2012
 
     March 31,
2012
    June 30,
2012
    September 30,
2012
    December 31,
2012
   

Investment Income Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

          

Interest

   $ 99      $ 268      $ 318      $ 285      $ 970   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     99        268        318        285        970   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

          

Management fee

     2,588        2,403        2,441        2,302        9,734   

Brokerage commissions and fees

     —          4        —          1        5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     2,588        2,406        2,441        2,304        9,738   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment loss

     (2,488     (2,138     (2,123     (2,019     (8,769
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and Unrealized Gain (Loss) Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

          

Net realized gain (loss) on short-term investments

     (3     1        —          (0     (2

Net realized loss on futures contracts

     —          (9,700     (55     (4,574     (14,329

Net change in unrealized appreciation/depreciation on futures contracts

     79,399        (166,782     136,070        (39,328     9,358   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     79,396        (176,481     136,014        (43,902     (4,973
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss)

   $ 76,907      $ (178,619   $ 133,891      $ (45,921   $ (13,741
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) per Share

   $ 1.92      $ (4.50   $ 3.45      $ (1.24   $ (0.35

Weighted-average Shares outstanding

     40,011,538        39,680,769        38,782,065        37,063,587        38,855,874   

 

43


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

 

     Three Months Ended (Unaudited)     Year Ended
December 31,
2012
 
     March 31,
2012
    June 30, 2012     September 30,
2012
    December 31,
2012
   

Investment Income

          

Interest

   $ 99      $ 268      $ 318      $ 285      $ 970   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     99        268        318        285        970   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

          

Management fee

     2,588        2,403        2,441        2,302        9,734   

Brokerage commissions and fees

     —          4        —          1        5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     2,588        2,407        2,441        2,304        9,739   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment loss

     (2,488     (2,138     (2,123     (2,019     (8,769
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and Unrealized Gain (Loss)

                                                                                                                                  

Net realized gain (loss) on short-term investments

     (3     1        —          (0     (2

Net realized loss on futures contracts

     —          (9,700     (55     (4,574     (14,330

Net change in unrealized appreciation/depreciation on futures contracts

     79,400        (166,784     136,071        (39,328     9,359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     79,397        (176,483     136,016        (43,903     (4,973
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss)

   $ 76,908      $ (178,621   $ 133,893      $ (45,922   $ (13,742
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

44


iShares® S&P GSCI™ Commodity-Indexed Trust

 

     Three Months Ended (Unaudited)     Year Ended
December 31,
2011
 
     March 31,
2011
    June 30,
2011
    September 30,
2011
    December 31,
2011
   

Investment Income Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

          

Interest

   $ 742      $ 589      $ 262      $ 57      $ 1,650   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     742        589        262        57        1,650   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

          

Management fee

     3,511        3,392        2,789        2,493        12,186   

Brokerage commissions and fees

     755        3        1        1        761   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     4,267        3,395        2,790        2,495        12,947   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment loss

     (3,525     (2,807     (2,528     (2,438     (11,297
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and Unrealized Gain (Loss) Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

          

Net realized gain on short-term investments

     20        138        25        2        185   

Net realized gain (loss) on futures contracts

     176,380        4,717        (7,899     (7,377     165,821   

Net change in unrealized appreciation/depreciation on futures contracts

     13,828        (176,183     (149,212     119,154        (192,413
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     190,229        (171,329     (157,086     111,779        (26,407
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss)

   $ 186,704      $ (174,135   $ (159,614   $ 109,341      $ (37,704
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss) per Share

   $ 3.47      $ (3.52   $ (5.10   $ 2.72      $ (0.81

Weighted-average Shares outstanding

     53,761,111        49,417,033        31,321,196        40,201,667        46,673,836   

 

45


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

 

     Three Months Ended (Unaudited)     Year Ended
December 31,
2011
 
     March 31,
2011
    June 30, 2011     September 30,
2011
    December 31,
2011
   

Investment Income

          

Interest

   $ 742      $ 589      $ 262      $ 57      $ 1,650   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investment income

     742        589        262        57        1,650   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

          

Management fee

     3,511        3,392        2,789        2,493        12,186   

Brokerage commissions and fees

     755        3        1        1        761   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     4,267        3,395        2,791        2,495        12,947   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment loss

     (3,525     (2,807     (2,528     (2,438     (11,297
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Realized and Unrealized Gain (Loss)

                                                                                                                                  

Net realized gain on short-term investments

     20        138        25        2        185   

Net realized gain (loss) on futures contracts

     176,382        4,717        (7,899     (7,377     165,822   

Net change in unrealized appreciation/depreciation on futures contracts

     13,829        (176,185     (149,213     119,155        (192,415
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     190,231        (171,331     (157,088     111,780        (26,408
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net gain (loss)

   $ 186,706      $ (174,137   $ (159,616   $ 109,342      $ (37,705
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

46


See Index to Financial Statements on page F-1 for a list of the financial statements being filed herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

There have been no changes in accountants and no disagreements with accountants during the year ended December 31, 2012.

Item 9A. Controls and Procedures.

The duly authorized officers of the Sponsor and Manager performing functions equivalent to those a principal executive officer and principal financial officer of the Trust and the Investing Pool would perform if the Trust and the Investing Pool had any officers, and with the participation of the Trustee and the Investing Pool Administrator, have evaluated the effectiveness of the Trust’s and Investing Pool’s disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust and Investing Pool were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the reports that the Trust and the Investing Pool file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to the duly authorized officers of the Sponsor and Manager performing functions equivalent to those a principal executive officer and principal financial officer of the Trust and the Investing Pool would perform if the Trust and the Investing Pool had any officers, as appropriate to allow timely decisions regarding required disclosure.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

Management’s Report on Internal Control over Financial Reporting

The Sponsor’s and Manager’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Trust’s and Investing Pool’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Trust’s and Investing Pool’s assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Trust’s and Investing Pool’s receipts and expenditures are being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Trust’s and Investing Pool’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The principal executive officer and principal financial officer of the Sponsor and Manager assessed the effectiveness of the Trust’s and Investing Pool’s internal control over financial reporting as of December 31, 2012. Their assessment included an evaluation of the design of the Trust’s and Investing Pool’s internal control over financial reporting and testing of the operational effectiveness of

 

47


their internal control over financial reporting. In making its assessment, the Sponsor’s and Manager’s management has utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control – Integrated Framework. Based on their assessment and those criteria, the principal executive officer and principal financial officer of the Sponsor and Manager conclude that the Trust and Investing Pool maintained effective internal control over financial reporting as of December 31, 2012.

The effectiveness of the Trust’s and Investing Pool’s internal control over financial reporting as of December 31, 2012 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited and reported on the financial statements included in this annual report, as stated in their reports which are included herein.

Changes in Internal Control over Financial Reporting

There were no changes in the Trust’s and Investing Pool’s internal control over financial reporting that occurred during the Trust’s and Investing Pool’s fourth fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Trust’s and Investing Pool’s internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

 

48


PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Not applicable.

Item 11. Executive Compensation.

Not applicable.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Securities Authorized for Issuance under Equity Compensation Plans

Not applicable.

Security Ownership of Certain Beneficial Owners and Management

Not applicable.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Not applicable.

Item 14. Principal Accounting Fees and Services.

(1) to (4). Fees for services performed by PricewaterhouseCoopers LLP for the years ended December 31, 2012 and 2011 were:

 

     2012      2011  

Audit fees

   $ 84,300       $ 86,499   

Audit-related fees

     2,500         —     

Tax fees

     356,580         519,176   

All other fees

     —           —     
  

 

 

    

 

 

 
   $ 443,380       $ 605,675   
  

 

 

    

 

 

 

PricewaterhouseCoopers LLP provides certain tax compliance and reporting services to the Trust, including processing beneficial ownership information as it relates to the preparation of tax reporting packages and the subsequent delivery of related information to the IRS. Services also include assistance with tax reporting and related information using a web-based tax package product developed by PricewaterhouseCoopers LLP and a toll-free tax package support help line.

(5) The Registrants have no boards of directors, and as a result, have no audit committee and no pre-approval policies or procedures with respect to fees paid to PricewaterhouseCoopers LLP.

(6) None of the hours expended on PricewaterhouseCoopers LLP’s engagement to audit the Registrants’ financial statements for the year ended December 31, 2012 were attributable to work performed by persons other than the principal accountant’s full-time, permanent employees.

 

49


PART IV

Item 15. Exhibits, Financial Statement Schedules.

a)(1) See Index to Financial Statements on Page F-1 for a list of the financial statements being filed as part of this report.

a)(2) Schedules have been omitted since they are either not required, not applicable, or the information has otherwise been included.

a)(3)

 

Exhibit No.

  

Description

3.1    Restated Certificate of Trust of iShares® S&P GSCI™ Commodity-Indexed Trust is incorporated by reference to Exhibit 3.1(i) to the registrants’ Current Report on Form 8-K filed with the Securities and Exchange Commission on May 9, 2007
3.2    Amended and Restated Certificate of Formation of iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC is incorporated by reference to Exhibit 3.2(i) to the registrants’ Current Report on Form 8-K filed with the Securities and Exchange Commission on May 9, 2007
4.1    Amended and Restated Trust Agreement is incorporated by reference to Exhibit 4.1 to the registrants’ Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2007
4.2    Limited Liability Company Agreement is incorporated by reference to Exhibit 4.2 to the registrants’ Registration Statement on Form S-1 (Nos. 333-126810, 333-126810-01) filed with the Securities and Exchange Commission on July 14, 2006
4.3    Form of Authorized Participant Agreement is incorporated by reference to Exhibit 4.3 to the registrants’ Registration Statement on Form S-1 (Nos. 333-142259, 333-142259-01) filed with the Securities and Exchange Commission on December 27, 2007
4.4    Amendment, dated December 27, 2007, to the Amended and Restated Trust Agreement is incorporated by reference to Exhibit 4.1 to the registrants’ Current Report on Form 8-K filed with the Securities and Exchange Commission on December 27, 2007
4.5    Amendment, dated December 27, 2007, to the Limited Liability Company Agreement is incorporated by reference to Exhibit 4.2 to the registrants’ Current Report on Form 8-K filed with the Securities and Exchange Commission on December 27, 2007
10.1    Investment Advisory Agreement is incorporated by reference to Exhibit 10.1 to the registrants’ Registration Statement on Form S-1 (Nos. 333-126810, 333-126810-01) filed with the Securities and Exchange Commission on July 14, 2006
10.2    Form of Sublicense Agreement is incorporated by reference to Exhibit 10.2 to the registrants’ Registration Statement Form S-1 (Nos. 333-126810, 333-126810-01) filed with the Securities and Exchange Commission on May 26, 2006
10.3    Form of Sublicense Agreement is incorporated by reference to Exhibit 10.3 to the registrants’ Registration Statement Form S-1 (Nos. 333-126810, 333-126810-01) filed with the Securities and Exchange Commission on May 26, 2006
10.4    Form of Futures Commission Merchant Agreement is incorporated by reference to Exhibit 10.4 to the registrants’ Registration Statement Form S-1 (Nos. 333-126810, 333-126810-01) filed with the Securities and Exchange Commission on May 26, 2006
23.1    Consent of PricewaterhouseCoopers LLP
31.1    Certification by Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, for iShares® S&P GSCI™ Commodity-Indexed Trust
31.2    Certification by Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, for iShares® S&P GSCI™ Commodity-Indexed Trust
31.3    Certification by Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, for iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC
31.4    Certification by Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, for iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC
32.1    Certification by Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

50


32.2    Certification by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

51


iShares S&P GSCI™ Commodity-Indexed Trust

iShares S&P GSCI™ Commodity-Indexed Investing Pool LLC

Financial Statements

Index

 

     Page  

iShares® S&P GSCI™ Commodity-Indexed Trust

  

Report of Independent Registered Public Accounting Firm

     F-2   

Statements of Financial Condition at December 31, 2012 and 2011

     F-3   

Statements of Operations for the years ended December 31, 2012, 2011 and 2010

     F-4   

Statements of Changes in Shareholders’ Capital for the years ended December  31, 2012, 2011 and 2010

     F-5   

Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010

     F-6   

Notes to Financial Statements

     F-7   

iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

  

Report of Independent Registered Public Accounting Firm

     F-11   

Statements of Financial Condition at December 31, 2012 and 2011

     F-12   

Statements of Operations for the years ended December 31, 2012, 2011 and 2010

     F-13   

Statements of Changes in Members’ Equity for the years ended December 31, 2012, 2011 and 2010

     F-14   

Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010

     F-15   

Schedule of Investments at December 31, 2012

     F-16   

Notes to Financial Statements

     F-17   

 

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Sponsor, Trustee and Shareholders of

iShares® S&P GSCICommodity-Indexed Trust:

In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of iShares® S&P GSCI™ Commodity-Indexed Trust (the “Trust”) at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Sponsor’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these financial statements and on the Trust’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A trust’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A trust’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the trust; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the trust are being made only in accordance with authorizations of management and directors of the trust; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the trust’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Francisco, California

February 28, 2013

 

F-2


PART I - FINANCIAL INFORMATION

iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Financial Condition

At December 31, 2012 and 2011

 

     December 31,  
     2012      2011  

Assets

     

Current Assets

     

Investment in iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

   $ 1,167,588,732       $ 1,313,291,939   
  

 

 

    

 

 

 

Total Assets

   $ 1,167,588,732       $ 1,313,291,939   
  

 

 

    

 

 

 

Liabilities and Shareholders’ Capital

     

Current Liabilities

     

Commitments and Contingent Liabilities (Note 7)

   $ —         $ —     

Redeemable capital Shares, no par value, unlimited amount authorized (at redemption value) – 35,550,000 issued and outstanding at December 31, 2012 and 39,750,000 issued and outstanding at December 31, 2011

     1,167,588,732         1,313,291,939   
  

 

 

    

 

 

 

Total Shareholders’ Capital

     1,167,588,732         1,313,291,939   
  

 

 

    

 

 

 

Total Liabilities and Shareholders’ Capital

   $ 1,167,588,732       $ 1,313,291,939   
  

 

 

    

 

 

 

See notes to financial statements.

 

F-3


iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Operations

For the years ended December 31, 2012, 2011 and 2010

 

     Years Ended December 31,  
     2012     2011     2010  

Investment Income Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

      

Interest

   $ 969,621      $ 1,649,850      $ 1,971,668   
  

 

 

   

 

 

   

 

 

 

Total investment income

     969,621        1,649,850        1,971,668   
  

 

 

   

 

 

   

 

 

 

Expenses Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

      

Management fee

     9,733,509        12,185,979        12,260,081   

Brokerage commissions and fees

     4,950        761,166        549   
  

 

 

   

 

 

   

 

 

 

Total expenses

     9,738,459        12,947,145        12,260,630   
  

 

 

   

 

 

   

 

 

 

Net investment loss

     (8,768,838     (11,297,295     (10,288,962
  

 

 

   

 

 

   

 

 

 

Realized and Unrealized Gain (Loss) Allocated from iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

      

Net realized gain (loss) on short-term investments

     (1,661     184,876        3,317   

Net realized gain (loss) on futures contracts

     (14,329,369     165,820,763        (102,883,332

Net change in unrealized appreciation/depreciation on futures contracts

     9,358,463        (192,412,661     231,740,632   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (4,972,567     (26,407,022     128,860,617   
  

 

 

   

 

 

   

 

 

 

Net gain (loss)

   $ (13,741,405   $ (37,704,317   $ 118,571,655   
  

 

 

   

 

 

   

 

 

 

Net gain (loss) per Share

   $ (0.35   $ (0.81   $ 2.20   

Weighted-average Shares outstanding

     38,855,874        46,673,836        53,999,863   

See notes to financial statements.

 

F-4


iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Changes in Shareholders’ Capital

For the years ended December 31, 2012, 2011 and 2010

 

     2012     2011     2010  

Shareholders’ Capital, Beginning of Period

   $ 1,313,291,939      $ 1,799,879,995      $ 1,759,350,446   

Contributions

     60,395,586        90,651,034        249,730,155   

Redemptions

     (192,357,388     (539,534,773     (327,772,261

Net investment loss

     (8,768,838     (11,297,295     (10,288,962

Net realized gain (loss) on short-term investments

     (1,661     184,876        3,317   

Net realized gain (loss) on futures contracts

     (14,329,369     165,820,763        (102,883,332

Net change in unrealized appreciation/depreciation on futures contracts

     9,358,463        (192,412,661     231,740,632   
  

 

 

   

 

 

   

 

 

 

Shareholders’ Capital, End of Period

   $ 1,167,588,732      $ 1,313,291,939      $ 1,799,879,995   
  

 

 

   

 

 

   

 

 

 

Net Asset Value per Share, End of Period

   $ 32.84      $ 33.04      $ 34.15   

See notes to financial statements.

 

F-5


iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Cash Flows

For the years ended December 31, 2012, 2011 and 2010

 

     Years Ended December 31,  
     2012     2011     2010  

Cash Flows from Operating Activities

      

Net gain (loss)

   $ (13,741,405   $ (37,704,317   $ 118,571,655   

Adjustments to reconcile net gain (loss) to net cash provided by operating activities:

      

(Increase) decrease in investment in iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

     145,703,207        486,588,056        (40,529,549
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     131,961,802        448,883,739        78,042,106   
  

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities

      

Contributions

     60,395,586        90,651,034        249,730,155   

Redemptions

     (192,357,388     (539,534,773     (327,772,261
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (131,961,802     (448,883,739     (78,042,106
  

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents

      

Beginning of period

     —          —          —     
  

 

 

   

 

 

   

 

 

 

End of period

   $ —        $ —        $ —     
  

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

F-6


iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements

December 31, 2012

1 - Organization

The iShares® S&P GSCI™ Commodity-Indexed Trust (the “Trust”) was organized as a Delaware statutory trust on July 7, 2006 and commenced operations on July 10, 2006. Prior to May 9, 2007, the Trust was known as the iShares® GSCI® Commodity-Indexed Trust. BlackRock Asset Management International Inc. (“BAMII”) is the “Sponsor” of the Trust and “Manager” of the iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC (the “Investing Pool”). BlackRock Institutional Trust Company, N.A. is the “Trustee” of the Trust. The Trust is governed by the Amended and Restated Trust Agreement, dated as of September 12, 2007 (as amended, the “Trust Agreement”), among the Sponsor, the Trustee and Wilmington Trust Company (the “Delaware Trustee”). The Trust issues units of beneficial interest (“Shares”) representing fractional undivided beneficial interests in its net assets. Substantially all of the net assets of the Trust consist of its holdings of the limited liability company interests of a commodity pool which are the only securities in which the Trust may invest. That commodity pool, iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC, holds long positions in futures contracts on the S&P GSCI™ Excess Return Index listed on the Chicago Mercantile Exchange called Commodity Excess Return Futures (“CERFs”) 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. Margin has to be posted at the time the CERF position is established.

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 before payment of the Trust’s and the Investing Pool’s expenses.

The Trust and the Investing Pool are each 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. BAMII is an indirect subsidiary of BlackRock, Inc.

The Trustee has the absolute right to reject any creation order, including, without limitation, creation orders that the Trustee has determined would have adverse tax or other consequences to the Trust, its shareholders or the Investing Pool. The Trust disclosed through a filing on Form 8-K on August 21, 2009 that the Trustee expected to reject any creation orders for Shares of the Trust upon the Trust reaching Shares outstanding of approximately 55,900,000 in order to continue to manage the assets of the Trust and the Investing Pool consistent with their investment objective. The Trust received creation orders on August 24, 2009 that would have exceeded that number of Shares, and accordingly stopped accepting further creation orders temporarily. The Trust resumed accepting creation orders on April 27, 2010.

The Trust is not an investment company registered under the Investment Company Act of 1940, as amended.

2 - Summary of Significant Accounting Policies

 

A. Basis of Accounting

The following is a summary of significant accounting policies consistently followed by the Trust in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and these differences could be material.

 

B. Investment in the Investing Pool

The Trust’s investment in the Investing Pool is valued at an amount equal to the value of the Trust’s capital account in the Investing Pool, which is measured at fair value.

 

F-7


iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Continued)

December 31, 2012

 

The financial statements of the Investing Pool should be read in conjunction with the Trust’s financial statements.

At December 31, 2012, the Trust owned 99.99% of the Investing Pool’s net assets. Because the Trust invests substantially all of its assets in the Investing Pool, the accounting policies of the Investing Pool, including the Investing Pool’s security valuation policies, will directly affect the recorded value of the Trust’s investment in the Investing Pool. The Trust also receives a daily allocation of its respective income, expenses and net realized and unrealized gains and losses in proportion to its investment in the Investing Pool.

 

C. Valuation

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures defines fair value as the price the Trust would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Trust’s policy is to value its investments at fair value. The Trust records its investment in the Investing Pool at fair value based on the Trust’s proportionate interest in the net assets of the Investing Pool. Disclosure regarding valuation of the Investing Pool’s investment portfolio can be found in Note 10 of the Investing Pool’s Notes to Financial Statements.

 

D. Income Taxes

The Trust is not an association taxable as a corporation for federal, state and local income tax purposes.

No provision for federal, state, and local income taxes has been made in the accompanying financial statements because the Trust is not subject to income taxes. Shareholders are individually responsible for their own tax payments on their proportionate share of gains, losses, credits, or deductions.

 

E. Calculation of Net Asset Value

The net asset value of the Trust on any given day is obtained by subtracting the Trust’s accrued expenses and other liabilities on that day from the value of (1) the Trust’s equity investment in the Investing Pool and (2) any other assets of the Trust, as of 4:00 p.m. (New York time) that day. The Trustee determines the net asset value per Share (the “NAV”) by dividing the net asset value of the Trust on a given day by the number of Shares outstanding or deemed to be outstanding at 4:00 p.m. (New York time) that day. The NAV is calculated each day on which NYSE Arca, Inc. (“NYSE Arca”) is open for regular trading, as soon as practicable after 4:00 p.m. (New York time).

 

F. Distributions

Interest and distributions received by the Investing Pool on the assets posted as margin may be used to acquire additional CERFs or, in the discretion of the Sponsor, distributed to Shareholders. The Trust is under no obligation to make periodic distributions to Shareholders.

 

G. Recent Accounting Standard

In December 2011, the FASB issued guidance to enhance current disclosure requirements on offsetting of certain assets and liabilities and enable financial statement users to compare financial statements prepared under U.S. GAAP and International Financial Reporting Standards (IFRS). The new disclosures are required for investments and derivative financial instruments subject to master netting agreements or similar agreements and require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the statement of assets and liabilities. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar agreements. The guidance is effective for financial statements for fiscal years beginning after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Trust’s financial statements and disclosures.

3 - Offering of the Shares

Shares are issued and redeemed continuously in one or more blocks of 50,000 Shares in exchange for a combination of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash). The baskets of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash) are transferred to or from the Investing Pool in exchange for limited liability company interests in the Investing Pool. In addition, the Investing Pool is required to deposit cash margin with its futures commission

 

F-8


iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Continued)

December 31, 2012

 

merchant with a value equal to 100% of the value of each CERF position at the time it is established.

Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. The Trust transacts only with registered broker-dealers that have entered into a contractual arrangement with the Trust and the Sponsor governing, among other matters, the creation and redemption of Shares (such authorized broker-dealers are the “Authorized Participants”). Authorized Participants may redeem their Shares (as well as Shares on behalf of other investors) at any time on any business day in one or more blocks of 50,000 Shares. Redemptions of Shares in exchange for baskets of CERFs and cash (or, in the discretion of the Sponsor, Short-Term Securities in lieu of cash) are treated as sales for financial statement purposes.

On April 27, 2010, the Trust resumed accepting creation orders. Creation of new Shares of the Trust had been suspended since August 24, 2009.

On December 31, 2012, the Trust had 35,550,000 Shares outstanding.

4 - Trust Expenses

The Trust is not expected to directly bear any ordinary recurring expenses. The Sponsor has agreed to pay the following administrative, operational and marketing expenses: (1) the fees of the Trustee, Delaware Trustee, Trust administrator and processing agent, (2) NYSE Arca listing fees, (3) printing and mailing costs, (4) audit fees, (5) tax reporting costs, (6) license fees, and (7) up to $100,000 per annum in legal fees. The Sponsor has also paid the costs of the Trust’s organization and the initial sales of the Shares, including applicable SEC registration fees.

5 - Related Parties

The Sponsor, the Manager and the Trustee are considered to be related parties to the Trust. The Trustee’s fee is paid by the Sponsor and is not a separate expense of the Trust. The Manager is paid by the Investing Pool and that fee is an indirect expense of the Trust.

6 - Indemnification

The Sponsor and its shareholders, directors, officers, employees, affiliates (as such term is defined under the United States Securities Act of 1933, as amended) and subsidiaries are entitled to be indemnified by the Trust and held harmless against any loss, liability or expense arising out of or in connection with the performance of their obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust Agreement and incurred without their (1) negligence, bad faith, willful misconduct or willful malfeasance or (2) reckless disregard of their obligations and duties under the Trust Agreement.

7 - Commitments and Contingent Liabilities

In the normal course of business, the Trust may enter into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred.

8 - Net Asset Value and Financial Highlights

The Trust is presenting the following net asset values and financial highlights related to investment performance and operations for a Share outstanding for the years ended December 31, 2012, 2011 and 2010. The net investment income (loss) and total expense ratios are calculated using average net assets. The net asset value presentation is calculated using daily Shares outstanding. The net

 

F-9


iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Continued)

December 31, 2012

 

investment loss and total expense ratios have been annualized and include the allocation of net investment loss and expenses from the Investing Pool. The total return is based on the change in net asset value of a Share during the period. An investor’s return and ratios may vary based on the timing of capital transactions.

 

     Years Ended December 31,  
     2012     2011     2010  

Net asset value per Share, beginning of period

   $ 33.04      $ 34.15      $ 31.67   

Net investment loss

     (0.23     (0.24     (0.19

Realized and unrealized gain (loss)

     0.03        (0.87     2.67   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

     (0.20     (1.11     2.48   
  

 

 

   

 

 

   

 

 

 

Net asset value per Share, end of period

   $ 32.84      $ 33.04      $ 34.15   
  

 

 

   

 

 

   

 

 

 

Ratio to average net assets:

      

Net investment loss

     (0.68 )%      (0.70 )%      (0.63 )% 

Expenses

     0.75     0.80 %(a)      0.75

Total return, at net asset value

     (0.61 )%      (3.25 )%      7.83

 

(a)

The ratio of expenses to average net assets includes brokerage commissions and fees in connection with the roll of CERFs which expired in March 2011. Excluding such brokerage commissions and fees, the ratio of expenses to average net assets for the year ended December 31, 2011 would have been 0.75%.

 

F-10


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Manager and Members of

iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC:

In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC (the “Investing Pool”) at December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Investing Pool maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Sponsor’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on these financial statements and on the Investing Pool’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Francisco, California

February 28, 2013

 

F-11


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Statements of Financial Condition

At December 31, 2012 and 2011

 

     December 31,  
     2012      2011  

Assets

     

Current Assets

     

Cash and cash equivalents

   $ 204,654       $ 94,645   

Cash and cash equivalents held at FCM (restricted)

     53,468,750         27,248,073   

Short-term investments held at FCM (restricted)

     1,111,734,878         1,287,357,438   

Receivable for variation margin on open future contracts (Note 9)

     2,942,400         —     

Interest receivable

     161         60   
  

 

 

    

 

 

 

Total Assets

   $ 1,168,350,843       $ 1,314,700,216   
  

 

 

    

 

 

 

Liabilities and Members’ Equity

     

Current Liabilities

     

Payable for variation margin on open futures contracts (Note 9)

   $ —         $ 552,020   

Management fee payable

     745,492         839,539   
  

 

 

    

 

 

 

Total Liabilities

     745,492         1,391,559   
  

 

 

    

 

 

 

Commitments and Contingent Liabilities (Note 7)

     —           —     

Members’ Equity

     

General member

     16,619         16,718   

Limited member

     1,167,588,732         1,313,291,939   
  

 

 

    

 

 

 

Total Members’ Equity

     1,167,605,351         1,313,308,657   
  

 

 

    

 

 

 

Total Liabilities and Members’ Equity

   $ 1,168,350,843       $ 1,314,700,216   
  

 

 

    

 

 

 

See notes to financial statements.

 

F-12


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Statements of Operations

For the years ended December 31, 2012, 2011 and 2010

 

     Years Ended December 31,  
     2012     2011     2010  

Investment Income

      

Interest

   $ 969,633      $ 1,649,867      $ 1,971,686   
  

 

 

   

 

 

   

 

 

 

Total investment income

     969,633        1,649,867        1,971,686   
  

 

 

   

 

 

   

 

 

 

Expenses

      

Management fee

     9,733,635        12,186,111        12,260,196   

Brokerage commissions and fees

     4,950        761,166        549   
  

 

 

   

 

 

   

 

 

 

Total expenses

     9,738,585        12,947,277        12,260,745   
  

 

 

   

 

 

   

 

 

 

Net investment loss

     (8,768,952     (11,297,410     (10,289,059
  

 

 

   

 

 

   

 

 

 

Realized and Unrealized Gain (Loss)

      

Net realized gain (loss) on short-term investments

     (1,661     184,878        3,317   

Net realized gain (loss) on futures contracts

     (14,329,560     165,822,260        (102,884,326

Net change in unrealized appreciation/depreciation on futures contracts

     9,358,669        (192,414,720     231,742,984   
  

 

 

   

 

 

   

 

 

 

Net realized and unrealized gain (loss)

     (4,972,552     (26,407,582     128,861,975   
  

 

 

   

 

 

   

 

 

 

Net gain (loss)

   $ (13,741,504   $ (37,704,992   $ 118,572,916   
  

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

F-13


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Statements of Changes in Members’ Equity

For the years ended December 31, 2012, 2011 and 2010

 

     General
Member
    Limited
Member
    Total
Members’
Equity
 

Members’ Equity, December 31, 2011

   $ 16,718      $ 1,313,291,939      $ 1,313,308,657   

Contributions

     —          60,395,586        60,395,586   

Redemptions

     —          (192,357,388     (192,357,388

Net investment loss

     (114     (8,768,838     (8,768,952

Net realized loss on short-term investments

     —          (1,661     (1,661

Net realized loss on futures contracts

     (191     (14,329,369     (14,329,560

Net change in unrealized appreciation/depreciation on futures contracts

     206        9,358,463        9,358,669   
  

 

 

   

 

 

   

 

 

 

Members’ Equity, December 31, 2012

   $ 16,619      $ 1,167,588,732      $ 1,167,605,351   
  

 

 

   

 

 

   

 

 

 
     General
Member
    Limited
Member
    Total
Members’
Equity
 

Members’ Equity, December 31, 2010

   $ 17,393      $ 1,799,879,995      $ 1,799,897,388   

Contributions

     —          90,651,034        90,651,034   

Redemptions

     —          (539,534,773     (539,534,773

Net investment loss

     (115     (11,297,295     (11,297,410

Net realized gain on short-term investments

     2        184,876        184,878   

Net realized gain on futures contracts

     1,497        165,820,763        165,822,260   

Net change in unrealized appreciation/depreciation on futures contracts

     (2,059     (192,412,661     (192,414,720
  

 

 

   

 

 

   

 

 

 

Members’ Equity, December 31, 2011

   $ 16,718      $ 1,313,291,939      $ 1,313,308,657   
  

 

 

   

 

 

   

 

 

 
     General
Member
    Limited
Member
    Total
Members’
Equity
 

Members’ Equity, December 31, 2009

   $ 16,132      $ 1,759,350,446      $ 1,759,366,578   

Contributions

     —          249,730,155        249,730,155   

Redemptions

     —          (327,772,261     (327,772,261

Net investment loss

     (97     (10,288,962     (10,289,059

Net realized gain on short-term investments

     —          3,317        3,317   

Net realized loss on futures contracts

     (994     (102,883,332     (102,884,326

Net change in unrealized appreciation/depreciation on futures contracts

     2,352        231,740,632        231,742,984   
  

 

 

   

 

 

   

 

 

 

Members’ Equity, December 31, 2010

   $ 17,393      $ 1,799,879,995      $ 1,799,897,388   
  

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

F-14


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Statements of Cash Flows

For the years ended December 31, 2012, 2011 and 2010

 

     Years Ended December 31,  
     2012     2011     2010  

Cash Flows from Operating Activities

      

Net gain (loss)

   $ (13,741,504   $ (37,704,992   $ 118,572,916   

Adjustments to reconcile net gain (loss) to net cash provided by operating activities:

      

Purchases of short-term investments

     (5,256,609,540     (5,987,702,482     (6,498,387,354

Sales/maturities of short-term investments

     5,433,119,245        6,389,945,318        6,534,781,614   

Accretion of discount

     (888,806     (1,590,656     (1,875,094

Net realized (gain) loss on short-term investments

     1,661        (184,878     (3,317

Change in operating assets and liabilities:

      

Cash and cash equivalents held at FCM (restricted)

     (26,220,677     49,087,411        (29,717,081

Receivable for variation margin on open futures contracts

     (2,942,400     35,184,200        (35,184,200

Interest receivable

     (101     254        (234

Payable for variation margin on open futures contracts

     (552,020     552,020        (8,708,040

Management fee payable

     (94,047     (270,649     23,968   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     132,071,811        447,315,546        79,503,178   
  

 

 

   

 

 

   

 

 

 

Cash Flows from Financing Activities

      

Contributions

     60,395,586        90,651,034        249,730,155   

Redemptions

     (192,357,388     (539,534,773     (327,772,261
  

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (131,961,802     (448,883,739     (78,042,106
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     110,009        (1,568,193     1,461,072   
  

 

 

   

 

 

   

 

 

 

Cash and Cash Equivalents

      

Beginning of period

     94,645        1,662,838        201,766   
  

 

 

   

 

 

   

 

 

 

End of period

   $ 204,654      $ 94,645      $ 1,662,838   
  

 

 

   

 

 

   

 

 

 

See notes to financial statements.

 

F-15


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Schedule of Investments

At December 31, 2012

 

Face Amount

    

Security Description

   Fair Value  
  

United States Treasury bills:

  
  $435,000,000      

0.09% due 3/07/13

   $ 434,929,313   
  259,500,000      

0.05% due 3/21/13

     259,471,812   
  417,446,000      

0.08% due 5/02/13

     417,333,753   
     

 

 

 
  

Total United States Treasury bills - 95.21%(a)

   $ 1,111,734,878   
     

 

 

 

 

(a) 

Percentage is based on members’ equity.

 

As of December 31, 2012, the open CERF’s were as follows:

 

Contracts

 

Expiration Date

 

Current Notional Amount

 

Net Unrealized Loss

24,520   March 2014   $1,165,435,600   $64,502,960

See notes to financial statements.

 

F-16


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Notes to Financial Statements

December 31, 2012

1 - Organization

The iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC (the “Investing Pool”) is a limited liability company organized under the laws of the State of Delaware on July 7, 2006 and commenced operations on July 10, 2006. Prior to May 9, 2007, the Investing Pool was known as the iShares® GSCI® Commodity-Indexed Investing Pool LLC. BlackRock Asset Management International Inc. (the “Manager”) is responsible for the administration of the Investing Pool. The Investing Pool holds long positions in futures contracts on the S&P GSCI™ Excess Return Index (“S&P GSCI-ER”) listed on the Chicago Mercantile Exchange (the “CME”) called Commodity Excess Return Futures (“CERFs”) 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 Investing Pool that its performance will correspond generally to the performance of the S&P GSCI™ Total Return Index (the “Index”) before payment of the Investing Pool’s expenses.

The Investing Pool is a commodity pool, as defined in the regulations of the Commodity Futures Trading Commission (the “CFTC”) and is operated by the Manager, a commodity pool operator registered with the CFTC. The Manager is an indirect subsidiary of BlackRock, Inc. BlackRock Fund Advisors (the “Advisor”), an indirect subsidiary of BlackRock, Inc., serves as the commodity trading advisor of the Investing Pool and is registered with the CFTC.

The Investing Pool is not an investment company registered under the Investment Company Act of 1940, as amended.

2 - Summary of Significant Accounting Policies

 

A. Basis of Accounting

The following is a summary of significant accounting policies consistently followed by the Investing Pool in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates and these differences could be material.

Certain amounts in the financial statements for the prior year have been reclassified to conform to the current financial statement presentation.

 

B. Investment in CERFs

CERFs are futures contracts listed on the CME whose settlement at expiration is based on the value of the S&P GSCI-ER at that time. The terms of the CERFs require the Investing Pool to deposit initial margin with a value equal to 100% of the value of each CERF position at the time the position is established, thereby making those positions unleveraged. Because of this, additional variation margin payments are not required. Although daily variation margins are not required, daily fluctuations in the value of the CERFs are recorded as an unrealized gain or loss. When a CERF is closed, the Investing Pool records a realized gain or loss based on the difference between the value of the CERF at the time it was opened and the value at the time it was closed. The Investing Pool will deposit with the clearing futures commission merchant (“FCM”) the required margin for the CERFs in the form of cash or Short-Term Securities. CERFs are derivative instruments valued at fair value, which the Manager has determined to be that day’s announced CME settlement price for the CERF. If there is no announced CME settlement price for the CERF on that day, the Manager will use the most recently announced CME settlement price unless the Manager determines that the price is inappropriate as a basis for the valuation of the CERFs. The Investing Pool’s investment in the CERFs has not been designated as a hedging

 

F-17


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Notes to Financial Statements (Continued)

December 31, 2012

 

instrument. As a result, all changes in the fair value are reflected in the Statements of Operations.

The investment objective of the Investing Pool is to seek investment results that correspond generally to the performance of the Index before payment of the Investing Pool’s expenses through holdings of long positions in CERFs.

For futures contracts, counterparty credit risk is mitigated because futures contracts are exchange-traded and the exchange’s clearing house acts as central counterparty to all exchange-traded futures contracts (although customers continue to have credit exposure to the clearing member who holds their account).

Please refer to Note 9 for additional disclosures regarding the Investing Pool’s investments in CERFs.

 

C. Cash and Cash Equivalents

The Investing Pool defines cash and cash equivalents to be highly liquid investments with original maturities of three months or less.

As of December 31, 2012 and December 31, 2011, the Investing Pool had cash and cash equivalents held at its clearing FCM of $53,468,750 and $27,248,073 respectively, which were posted as margin to collateralize its CERF positions.

 

D. Short-Term Investments

Short-term investments on the Statements of Financial Condition consist principally of short-term fixed income securities with original maturities of one year or less. These investments are valued at fair value.

As of December 31, 2012 and December 31, 2011, the Investing Pool had short-term investments held at its clearing FCM of $1,111,734,878 and $1,287,357,438 respectively, which were posted as margin to collateralize its CERF positions.

 

E. Securities Transactions, Income and Expense Recognition

Securities transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined using the specific identification method. Other income and expenses are recognized on the accrual basis.

 

F. Income Taxes

The Investing Pool is not an association taxable as a corporation and is treated as a partnership for federal, state and local income tax purposes.

No provision for federal, state, and local income taxes has been made in the accompanying financial statements because the Investing Pool is not subject to income taxes. Holders of interests in the Investing Pool are individually responsible for their own tax payments on their proportionate share of gains, losses, credits, or deductions.

 

G. Calculation of Net Asset Value

The net asset value of the Investing Pool on any given day is obtained by subtracting the Investing Pool’s accrued expenses and other liabilities on that day from the value of the assets of the Investing Pool, calculated as of 4:00 p.m. (New York time) on each day on which NYSE Arca, Inc. (“NYSE Arca”) is open for regular trading, as soon as practicable after that time.

 

F-18


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Notes to Financial Statements (Continued)

December 31, 2012

 

H. Recent Accounting Standard

In December 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to enhance current disclosure requirements on offsetting of certain assets and liabilities and enable financial statement users to compare financial statements prepared under U.S. GAAP and International Financial Reporting Standards (IFRS). The new disclosures are required for investments and derivative financial instruments subject to master netting agreements or similar agreements and require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the statement of assets and liabilities. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar agreements. The guidance is effective for financial statements for fiscal years beginning after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Investing Pool’s financial statements and disclosures.

3 - Offering of the Investing Pool Interests

Interests in the Investing Pool (“Investing Pool Interests”) are issued only to and redeemable only by the iShares® S&P GSCI™ Commodity-Indexed Trust (the “Trust”) in exchange for a combination of CERFs and cash or Short-Term Securities in lieu of cash. The baskets of CERFs and cash or Short-Term Securities in lieu of cash are transferred to or from the Trust in exchange for Investing Pool Interests. Individual investors cannot purchase or redeem Investing Pool Interests. The Investing Pool transacts only with the Trust and the Manager.

Redemptions of Investing Pool Interests in exchange for CERFs and cash or Short-Term Securities in lieu of cash are treated as sales for financial statement purposes.

4 - Investing Pool Expenses

The Manager pays the amounts that would otherwise be considered the ordinary operating expenses, if any, of the Investing Pool. The Manager receives an allocation from the Investing Pool that accrues daily at an annualized rate equal to 0.75% of the net asset value of the Investing Pool.

5 - Related Parties

BlackRock Institutional Trust Company, N.A. is the “Administrator” of the Investing Pool. The Manager and the Administrator are considered to be related parties to the Trust and Investing Pool. The Advisor is considered to be a related party to the Investing Pool. The Administrator’s and Advisor’s fees are paid by the Manager from the Investing Pool’s expense allocation to the Manager and are not a separate expense of the Investing Pool.

6 - Indemnification

The Trust, the Manager and any officers, agents and delegates of the Investing Pool (the “Indemnitees”) are entitled to indemnification from the Investing Pool for any loss, damage, claim or expense (including reasonable attorney’s fees) incurred by any Indemnitee by reason of any act or omission performed or omitted by such Indemnitee on behalf of the Investing Pool, unless such act or omission is the result of such Indemnitee’s gross negligence, bad faith or willful misconduct, and provided that such indemnity shall be provided out of, and only to the extent of, the Investing Pool’s assets.

7 - Commitments and Contingent Liabilities

In the normal course of business, the Investing Pool may enter into contracts with service providers that contain general indemnification clauses. The Investing Pool’s maximum exposure under these arrangements is unknown as this would involve future

 

F-19


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Notes to Financial Statements (Continued)

December 31, 2012

 

claims that may be made against the Investing Pool that have not yet occurred.

8 - Financial Highlights

The Investing Pool is presenting the following financial highlights related to investment performance and operations for years ended December 31, 2012, 2011 and 2010. The net investment loss and total expense ratios are calculated using average net assets and have been annualized. The total return is based on the change in the net asset value during the period.

 

     Years Ended December 31,  
     2012     2011     2010  

Ratio to average net assets:

      

Net investment loss

     (0.68 )%      (0.70 )%      (0.63 )% 

Expenses

     0.75     0.80 %(a)      0.75

Total return

     (0.94 )%      (3.88 )%      7.54

 

(a) 

The ratio of expenses to average net assets includes brokerage commissions and fees in connection with the roll of CERFs which expired in March 2011. Excluding such brokerage commissions and fees, the ratio of expenses to average net assets for the year ended December 31, 2011 would have been 0.75%.

9 - Investing in CERFs

Substantially all of the Investing Pool’s assets are invested in CERFs. The CERFs’ settlement value at expiration is based on the value of S&P GSCI-ER at that time. Therefore, the value of the Investing Pool will fluctuate based upon the value of the S&P GSCI-ER and the prices of the commodities underlying the S&P GSCI-ER. The commodities markets have historically been extremely volatile. For the years ended December 31, 2012 and 2011, the average month-end notional amounts of open CERFs were $1,293,502,033 and $1,634,239,228, respectively.

 

F-20


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Notes to Financial Statements (Continued)

December 31, 2012

 

The following table shows the variation margin on open futures contracts, by risk exposure category, on the Statements of Financial Condition for as of December 31, 2012 and December 31, 2011:

 

    

Asset Derivatives

   Fair Value     

Liability Derivatives

   Fair Value  

December 31, 2012

                       

Commodity contracts

   Receivable for variation margin on open futures contracts    $ 2,942,400       Payable for variation margin on open futures contracts    $ —     

December 31, 2011

                       

Commodity contracts

   Receivable for variation margin on open futures contracts    $ —         Payable for variation margin on open futures contracts    $ 552,020   

The following table shows the effect of the futures contracts, by risk exposure category, on the Statements of Operations for the years ended December 31, 2012, 2011 and 2010:

 

December 31, 2012

  

Statements of
Operations Location

   Realized Gain (Loss)     Change in Unrealized
Appreciation/Depreciation
 

Commodity contracts

   Net realized gain (loss) on futures contracts    $ (14,329,560   $ —     
   Net change in unrealized appreciation/depreciation on futures contracts      —          9,358,669   

December 31, 2011

                 

Commodity contracts

   Net realized gain (loss) on futures contracts    $ 165,822,260      $ —     
   Net change in unrealized appreciation/depreciation on futures contracts      —          (192,414,720

December 31, 2010

                 

Commodity contracts

   Net realized gain (loss) on futures contracts    $ (102,884,326   $ —     
   Net change in unrealized appreciation/depreciation on futures contracts      —          231,742,984   

 

F-21


iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC

Notes to Financial Statements (Continued)

December 31, 2012

 

10 – Investment Valuation

FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures defines fair value as the price the Investing Pool would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Investing Pool’s policy is to value its investments at fair value.

Investments in CERFs are measured at fair value using the last reported CME settlement price for CERFs.

U.S. Treasury bills are valued at the last available bid price received from independent pricing services. In determining the value of a fixed income investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures.

Various inputs are used in determining the fair value of financial investments. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. The level of a value determined for a financial instrument within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:

 

Level 1

   

Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2

   

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

Level 3

   

Unobservable inputs that are unobservable for the asset or liability, including the Investing Pool’s assumptions used in determining the fair value of investments.

Fair value pricing could result in a difference between the prices used to calculate the Investing Pool’s net asset value and the prices used by the Investing Pool’s underlying index, which in turn could result in a difference between the Investing Pool’s performance and the performance of the Investing Pool’s underlying index.

The following table summarizes the valuation of the Investing Pool’s investments by the fair value hierarchy levels as of December 31, 2012 and 2011:

 

     Level 1     Level 2      Level 3      Total  

December 31, 2012

                          

CERFs(a)

   $ (64,502,960   $ —         $ —         $ (64,502,960

U.S. Treasury bills

     —          1,111,734,878         —           1,111,734,878   

December 31, 2011

                          

CERFs(a)

   $ (73,861,629   $ —         $ —         $ (73,861,629

U.S. Treasury bills

     —          1,287,357,438         —           1,287,357,438   

 

(a) 

CERFs are valued at unrealized appreciation (depreciation).

 

F-22


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant and co-registrant have duly caused this report to be signed on their behalf by the undersigned in the capacities* indicated, thereunto duly authorized.

For purposes of CFTC Rule 4.22(h), to the best of the knowledge and belief of the undersigned, the information contained in the CFTC Annual Report set forth herein is accurate and complete.

BlackRock Asset Management International Inc.

Sponsor of the iShares® S&P GSCI™ Commodity-Indexed Trust (registrant)

Manager of the iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC (co-registrant)

 

/s/    Michael A. Latham

Michael A. Latham
President and Chief Executive Officer
(Principal executive officer)

Date: February 28, 2013

 

/s/    Jack Gee

Jack Gee
Chief Operating Officer and Chief Financial Officer
(Principal financial and accounting officer)

Date: February 28, 2013

 

* The registrant is a trust and the co-registrant is a limited liability company, and the persons are signing in their capacities as officers and directors of BlackRock Asset Management International Inc., the Sponsor of the registrant and Manager of the co-registrant.