How do I buy iShares COMEX Gold Trust shares?

Individual investors buy and sell IAU through regular brokerage accounts on the AMEX, at market prices. Only registered broker-dealers (Authorized Participants) can create or redeem shares directly with the trust, in baskets of 50,000 shares, by delivering or receiving gold.

Why does the share price sometimes differ from the value of the gold it holds?

Shares can trade at a premium or discount to net asset value. Trading hours differ between the AMEX and major gold markets, and liquidity falls after the COMEX closes, which can widen spreads. Arbitrage by Authorized Participants is intended to limit these gaps.

How does the sponsor's fee affect my investment?

The sponsor's fee accrues at 0.40% of net asset value per year and is paid by selling gold, so each share gradually represents less gold. In 2005 this cost $988,058 and caused NAV per share to rise slightly less than the gold price.

Does the trust have any profit-making activity or hedging?

No. The trust is passive, does not sell gold to capture price changes, and does not hedge. Its reported net income mainly reflects non-cash gains on gold distributed for redemptions, so it is not a measure of investment return.

What could cause the trust to terminate or cause losses beyond normal gold price movements?

Holders of 75% of shares can terminate the trust, and the trust otherwise ends after 40 years. Losses can also occur from custodian liability limits (such as nuclear events or terrorism), low-purity gold deposits, trustee or sponsor indemnification claims that force gold sales, or liquidation at a low gold price.

IAU 10-K FY2005 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 2006. Cited figures are marked; the original filing is the authoritative source.

This 10-K covers the first fiscal period (January 21, 2005 through December 31, 2005) of the iShares COMEX Gold Trust (AMEX: IAU), a passive grantor trust sponsored by Barclays Global Investors, N.A. with The Bank of New York as trustee and The Bank of Nova Scotia as custodian.

The trust holds physical gold bullion and issues shares only in Baskets of 50,000 shares to registered Authorized Participants in exchange for gold, giving investors a low-cost, exchange-traded way to track the price of gold without handling bars or storage. Net assets grew from $6.4 million at inception to $368.3 million^a at year-end, with shares outstanding rising from 150,000 to 7,150,000. Net asset value per share rose about 20.7%, from $42.67 to $51.52, slightly underperforming the roughly 21.2% gain in the COMEX spot price, mainly because of the sponsor's fee.

The income statement is simple because the trust has no income from operations. Its only ordinary expense is a sponsor's fee accrued at 0.40% annually, which totaled $988,058^b (about 0.38% of average net assets). The trust covers this by selling gold.

The reported net income of $7.3 million^c, or $1.24 per weighted-average share, is mainly a non-cash gain of $8.25 million on gold distributed to meet redemptions, measured against average cost. It does not reflect investment profit or trading income. Under the lower-of-cost-or-market accounting policy, the gold is carried at $317.0 million, while the redemption-value fair value is $368.3 million.

The $51.4 million^d difference is shown as an unrealized gain outside reported net income, and it flows through shareholders' deficit of $(51.4) million. For investors, the filing emphasizes that the shares are passive and fully exposed to gold price moves, with no hedging or active management. Each share's gold content declines over time as the sponsor's fee and other expenses are paid through gold sales, so the price must rise just to hold value.

Other risks include trading premiums or discounts to NAV, reliance on authorized participants for arbitrage, possible losses from custodial or purity issues, and the fact that shareholders lack the protections of the Investment Company Act or the Commodity Exchange Act. Holders of 75% of shares can terminate the trust, and the trust has a 40-year term.

02—Key points

Key Highlights

Net assets grew from $6.4M at inception (Jan 21, 2005) to $368.3M at Dec 31, 2005, with shares outstanding rising from 150,000 to 7,150,000.
NAV per share rose 20.74% from $42.67 to $51.52, closely tracking the COMEX spot gold price, which rose 21.19% from $426.70 to $517.10.
Sponsor's fee of 0.40% annually totaled $988,058 (about 0.38% of average assets of $262.9M), the trust's only ordinary expense, paid by selling gold.
Reported net income of $7.3M ($1.24 per share) was driven mainly by an $8.25M realized gain on gold distributed for redemptions, not by trading or operating income.
Gold is carried at lower of cost or market ($317.0M) versus fair value of $368.3M; the $51.4M unrealized gain is recorded in shareholders' deficit rather than in net income.
Shares trade on AMEX under 'IAU' with a 2005 quarterly high of $52.66 and low of $41.30; about 137 holders of record as of March 24, 2006.
The trust is passive and unhedged, and its gold content per share erodes over time from fee-related sales, so gold must rise to maintain share value.

03—Questions

Frequently Asked Questions

How do I buy iShares COMEX Gold Trust shares?
Individual investors buy and sell IAU through regular brokerage accounts on the AMEX, at market prices. Only registered broker-dealers (Authorized Participants) can create or redeem shares directly with the trust, in baskets of 50,000 shares, by delivering or receiving gold.
Why does the share price sometimes differ from the value of the gold it holds?
Shares can trade at a premium or discount to net asset value. Trading hours differ between the AMEX and major gold markets, and liquidity falls after the COMEX closes, which can widen spreads. Arbitrage by Authorized Participants is intended to limit these gaps.
How does the sponsor's fee affect my investment?
The sponsor's fee accrues at 0.40% of net asset value per year and is paid by selling gold, so each share gradually represents less gold. In 2005 this cost $988,058 and caused NAV per share to rise slightly less than the gold price.
Does the trust have any profit-making activity or hedging?
No. The trust is passive, does not sell gold to capture price changes, and does not hedge. Its reported net income mainly reflects non-cash gains on gold distributed for redemptions, so it is not a measure of investment return.
What could cause the trust to terminate or cause losses beyond normal gold price movements?
Holders of 75% of shares can terminate the trust, and the trust otherwise ends after 40 years. Losses can also occur from custodian liability limits (such as nuclear events or terrorism), low-purity gold deposits, trustee or sponsor indemnification claims that force gold sales, or liquidation at a low gold price.

04—Continue

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