UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2007
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____to ___
Commission file number: 001-32356
streetTRACKS® GOLD TRUST
SPONSORED BY WORLD GOLD TRUST SERVICES, LLC(Exact Name of Registrant as Specified in Its Charter)
Incorporation or Organization)
Identification No.)c/o World Gold Trust Services, LLC
444 Madison Avenue, 3rd Floor
New York, New York 10022(Address of Principal Executive Offices)
(212) 317-3800
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of February 5, 2008 the Registrant had 205,700,000 shares outstanding.
streetTRACKS® GOLD TRUST
INDEX
December 31, 2007 and 2006
December 31, 2007 and 2006
Results of Operationsi
streetTRACKS® GOLD TRUST
PART I - FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Unaudited Condensed Statements of Condition
at December 31, 2007 and September 30, 2007
2007
2007(1) ASSETSSee notes to the unaudited condensed financial statements
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streetTRACKS® GOLD TRUST
Unaudited Condensed Statements of Operations
For the three months ended December 31, 2007 and 2006.
Ended
Dec-31,
2007
Ended
Dec-31,
2006 REVENUESSee notes to the unaudited condensed financial statements
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streetTRACKS® GOLD TRUST
Unaudited Condensed Statements of Cash Flows
For the three months ended December 31, 2007 and 2006
Ended
Dec-31,
2007
Ended
Dec-31
2006 INCREASE / DECREASE IN CASH FROM OPERATIONS:
Ended
Dec-31,
2007
Ended
Dec-31
2006 Reconciliation of net Gain to net cash provided by operating activitiesSee notes to the unaudited condensed financial statements
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streetTRACKS® GOLD TRUST
Unaudited Condensed Statements of Changes in Shareholders’ Deficit
For the three months ended December 31, 2007 and for the year ended September 30, 2007
Ended
Dec-31, 2007
Sep-30, 2007 Shareholders’ Deficit - Opening BalanceSee notes to the unaudited condensed financial statements
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streetTRACKS® GOLD TRUST
Notes to the Unaudited Condensed Financial Statements
1. Organization
The streetTRACKS® Gold Trust (the ‘‘Trust’’) is an investment trust formed on November 12, 2004 (Date of Inception), under New York law pursuant to a trust indenture. The fiscal year end for the Trust is September 30th. The Trust holds gold and is expected from time to time to issue shares (‘‘Shares’’) (in minimum blocks of 100,000 Shares, also referred to as ‘‘Baskets’’) in exchange for deposits of gold and to distribute gold in connection with redemption of Baskets. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.
Effective December 13, 2007, the listing of the streetTRACKS® Gold Trust and the trading of the streetTRACKS® Gold Shares was transferred from the New York Stock Exchange, Inc. (‘‘NYSE’’) to its affiliated exchange NYSE Arca, Inc. (‘‘NYSE Arca’’), pursuant to the request of NYSE Euronext, Inc. to transfer all exchange traded funds trading on the NYSE to NYSE Arca.
The statements of condition at December 31, 2007 and September 30, 2007 and the statements of changes in shareholders’ deficit for the three months ended December 31, 2007 and the year ended September 30, 2007 and the statements of operations and of cash flows for the three months ended December 31, 2007 and 2006 have been prepared on behalf of the Trust without audit. In the opinion of management of the sponsor of the Trust, World Gold Trust Services, LLC (the ‘‘Sponsor’’), all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of and for the three months ended December 31, 2007 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007. The results of operations for the three months ended December 31, 2007 are not necessarily indicative of the operating results for the full year.
2. Significant accounting policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires those responsible for preparing financial statements to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Trust.
2.1. Valuation of Gold
Gold is held by HSBC Bank USA, N.A. (the ‘‘Custodian’’), on behalf of the Trust and is valued, for financial statement purposes, at the lower of cost or market. The cost of gold is determined according to the average cost method and the market value is based on the London Fix used to determine the Net Asset Value of the Trust. Realized gains and losses on sales of gold, or gold distributed for the redemption of shares, are calculated on a trade date basis using average cost.
The table below summarizes the impact of unrealized gains or losses on the Trust’s gold holdings as of December 31, 2007 and September 30, 2007:
2007
2007 Investment in gold - average cost5
streetTRACKS® GOLD TRUST
Notes to the Unaudited Condensed Financial Statements
2. Significant accounting policies (continued)
The Trust recognizes the diminution in value of the investment in gold which arises from market declines on an interim basis. Increases in the value of the same investment in gold through market price recoveries in later interim periods of the same fiscal year are recognized in the later interim period. Increases in value recognized on an interim basis may not exceed the previously recognized diminution in value.
2.2 Gold receivable
Gold receivable represents the quantity of gold covered by contractually binding orders for the creation of shares where the gold has not yet been transferred to the Trust’s account. Generally, ownership of the gold is transferred within three days of the trade date. As of December 31, 2007 and September 30, 2007 there was no gold receivable.
2.3 Creations and Redemptions of Shares
The Trust will create and redeem Shares from time to time, but only in one or more Baskets (a Basket equals a block of 100,000 Shares). The Trust issues Shares in Baskets to certain authorized participants (‘‘Authorized Participants’’) on an ongoing basis. The creation and redemption of Baskets will only be made in exchange for the delivery to the Trust or the distribution by the Trust of the amount of gold and any cash represented by the Baskets being created or redeemed, the amount of which will be based on the combined net asset value of the number of Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received.
As the Shares of the Trust are redeemable at the option of the Authorized Participants only in Baskets, the Trust has classified the Shares as Redeemable Shares on the Statement of Financial Condition. The Trust records the redemption value, which represents its maximum obligation, as Redeemable Shares with the difference from cost as an offsetting amount to Shareholders’ Equity/(Deficit). Changes in the shares for the three months ended December 31, 2007 and for the year ended September 30, 2007, are as follows:
Dec-31,
2007
Sep-30,
2007 Number of Redeemable Shares:
Dec-31,
2007
Sep-30,
2007 Redeemable shares:2.4 Revenue Recognition Policy
The Bank of New York (the ‘‘Trustee’’), will, at the direction of the Sponsor or in its own discretion, sell the Trust’s gold as necessary to pay the Trust’s expenses. When selling gold to pay expenses, the
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streetTRACKS® GOLD TRUST
Notes to the Unaudited Condensed Financial Statements
2. Significant accounting policies (continued)
Trustee will endeavor to sell the smallest amounts of gold needed to pay expenses in order to minimize the Trust’s holdings of assets other than gold. Unless otherwise directed by the Sponsor, when selling gold the Trustee will endeavor to sell at the price established by the London PM Fix. The Trustee will place orders with dealers (which may include the Custodian) through which the Trustee expects to receive the most favorable price and execution of orders. The Custodian may be the purchaser of such gold only if the sale transaction is made at the next London gold price fix (either AM or PM) following the sale order. A gain or loss is recognized based on the difference between the selling price and the average cost of the gold sold.
2.5 Income Taxes
The Trust is classified as a ‘‘grantor trust’’ for US federal income tax purposes. As a result, the Trust itself will not be subject to US federal income tax. Instead, the Trust’s income and expenses will ‘‘flow through’’ to the Shareholders, and the Trustee will report the Trust’s proceeds, income, deductions, gains, and losses to the Internal Revenue Service on that basis.
3 Investment in Gold
The following represents the changes in ounces of gold and the respective values for the three months ended December 31, 2007 and for the year ended September 30, 2007:
Dec-31,
2007
Sep-30,
2007 Ounces of Gold:4 Related Parties - Sponsor, Trustee, Custodian and Marketing Agent Fees
Fees are paid to the Sponsor as compensation for services performed under the Trust Indenture and for services performed in connection with maintaining the Trust’s website and marketing the Shares. The Sponsor’s fee is payable monthly in arrears and is accrued daily at an annual rate equal to 0.15% of the adjusted net asset value (‘‘ANAV’’) of the Trust, subject to reduction as described below. The Sponsor will receive reimbursement from the Trust for all of its disbursements and expenses incurred in connection with the Trust.
Fees are paid to the Trustee, as compensation for services performed under the Trust Indenture. The Trustee’s fee is payable monthly in arrears and is accrued daily at an annual rate equal to 0.02% of the ANAV of the Trust, subject to a minimum fee of $500,000 and a maximum fee of $2 million per year. The Trustee’s fee is subject to modification as determined by the Trustee and the Sponsor in good
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streetTRACKS® GOLD TRUST
Notes to the Unaudited Condensed Financial Statements
4 Related Parties - Sponsor, Trustee, Custodian and Marketing Agent Fees (continued)
faith to account for significant changes in the Trust’s administration or the Trustee’s duties. The Trustee will charge the Trust for its expenses and disbursements incurred in connection with the Trust (including the expenses of the Custodian paid by the Trustee), exclusive of fees of agents for services to be performed by the Trustee, and for any extraordinary services performed by the Trustee for the Trust.
Affiliates of the Trustee may from time to time act as Authorized Participants or purchase or sell gold or Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
Fees are paid to the Custodian under the Allocated Bullion Account Agreement as compensation for its custody services. Under the Allocated Bullion Account Agreement, the Custodian is entitled to a fee that is accrued daily at an annual rate equal to 0.10% of the average daily aggregate value of the gold held in the Trust’s allocated gold account (Trust Allocated Account) and the Trust’s unallocated gold account (Trust Unallocated Account), payable in monthly installments in arrears. Effective April 1, 2006, the Custodian’s fee is computed at an annual rate equal to 0.10% of the average daily aggregate value of the first 4.5 million ounces of gold held in the Trust Allocated Account and the Trust Unallocated Account and 0.06% of the average daily aggregate value of all gold held in the Trust Allocated Account and the Trust Unallocated Account in excess of 4.5 million ounces. The Custodian does not receive a fee under the Unallocated Bullion Account Agreement.
The Custodian and its affiliates may from time to time act as Authorized Participants or purchase or sell gold or Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
Fees are paid to the marketing agent for the Trust, State Street Global Markets, LLC (the ‘‘Marketing Agent’’) by the Trustee from the assets of the Trust as compensation for services performed pursuant to the agreement between the Sponsor and the Marketing Agent (the ‘‘Marketing Agent Agreement’’). The Marketing Agent’s fee is payable monthly in arrears and is accrued daily at an annual rate equal to 0.15% of the ANAV of the Trust, subject to reduction as described below.
The Marketing Agent and its affiliates may from time to time act as Authorized Participants or purchase or sell gold or Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
For seven years from the date of the Trust Indenture or until the earlier termination of the Marketing Agent Agreement, if at the end of any month during this period the estimated ordinary expenses of the Trust exceed an amount equal to 0.40% per year of the daily ANAV of the Trust for such month, the fees payable to the Sponsor and the Marketing Agent from the assets of the Trust for such month will be reduced by the amount of such excess in equal shares up to the amount of their fees. Investors should be aware that if the gross value of the Trust’s assets is less than approximately $388 million, the ordinary expenses of the Trust will be accrued at a rate greater than 0.40% per year of the daily ANAV of the Trust, even after the Sponsor and the Marketing Agent have completely reduced their combined fees of 0.30% per year of the daily ANAV of the Trust. This amount is based on the estimated ordinary expenses of the Trust described in ‘‘Business of the Trust—Trust Expenses’’ in the 10-K for the fiscal year ended September 30, 2007 and may be higher if the Trust’s actual ordinary expenses exceed those estimates. Additionally, if the Trust incurs unforeseen expenses that cause the total ordinary expenses of the Trust to exceed 0.70% per year of the daily ANAV of the Trust, the ordinary expenses will accrue at a rate greater than 0.40% per year of the daily ANAV of the Trust, even after the Sponsor and the Marketing Agent have completely reduced their combined fees of 0.30% per year of the daily ANAV of the Trust.
Upon the end of the seven year period or the earlier termination of the Marketing Agent Agreement, the fee reduction will expire and the estimated ordinary expenses of the Trust which are payable from
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streetTRACKS® GOLD TRUST
Notes to the Unaudited Condensed Financial Statements
4 Related Parties - Sponsor, Trustee, Custodian and Marketing Agent Fees (continued)
the assets of the Trust each month may be more than they would have been during the period when the fee reduction is in effect, thus reducing the Net Asset Value (‘‘NAV’’) of the Trust more rapidly than if the fee reduction was in effect and adversely affecting the value of the Shares.
For the three months ended December 31, 2007 the fees payable to the Sponsor and the Marketing Agent from the assets of the Trust were reduced by $159,433. For the year ended September 30, 2007, the comparable reduction in fees was $399,922.
Amounts Payable to Related parties and other accounts payable
2007
2007 Payable to Custodian5 Concentration of Risk
In accordance with Statement of Position No. 94-6, Disclosure of Certain Significant Risks and Uncertainties, the Trust’s sole business activity is the investment in gold. Several factors could affect the price of gold: (i) global gold supply and demand, which is influenced by such factors as forward selling by gold producers, purchases made by gold producers to unwind gold hedge positions, central bank purchases and sales, and production and cost levels in major gold-producing countries such as South Africa, the United States and Australia; (ii) investors’ expectations with respect to the rate of inflation; (iii) currency exchange rates; (iv) interest rates; (v) investment and trading activities of hedge funds and commodity funds; and (vi) global or regional political, economic or financial events and situations. In addition, there is no assurance that gold will maintain its long-term value in terms of purchasing power in the future. In the event that the price of gold declines, the Sponsor expects the value of an investment in the Shares to decline proportionately. Each of these events could have a material affect on the Trust’s financial position and results of operations.
6 Indemnification
The Sponsor and its shareholders, members, directors, officers, employees, affiliates and subsidiaries are indemnified from the Trust and held harmless against certain losses, liabilities or expenses incurred in the performance of its duties under the Trust Indenture without gross negligence, bad faith, willful misconduct, willful malfeasance or reckless disregard of the indemnified party’s obligations and duties under the Trust Indenture. Such indemnity includes payment from the Trust of the costs and expenses incurred in defending against any claim or liability under the Trust Indenture. Under the Trust Indenture, the Sponsor may be able to seek indemnification from the Trust for payments it makes in connection with the Sponsor’s activities under the Trust Indenture to the extent its conduct does not disqualify it from receiving such indemnification under the terms of the Trust Indenture. The Sponsor will also be indemnified from the Trust and held harmless against any loss, liability or expense arising under the Distribution Agreement with the Purchaser, the Marketing Agent Agreement or any agreement entered into with an Authorized Participant which provides the procedures for the creation and redemption of Baskets and for the delivery of gold and any cash required for creations and redemptions insofar as such loss, liability or expense arises from any untrue statement or alleged untrue statement of a material fact contained in any written statement provided to the Sponsor by the Trustee. Any amounts payable to the Sponsor are secured by a lien on the Trust.
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streetTRACKS® GOLD TRUST
Notes to the Unaudited Condensed Financial Statements
6 Indemnification (continued)
The Sponsor has agreed to indemnify certain parties against certain liabilities and to contribute to payments that such parties may be required to make in respect of those liabilities. The Trustee has agreed to reimburse such parties, solely from and to the extent of the Trust’s assets, for indemnification and contribution amounts due from the Sponsor in respect of such liabilities to the extent the Sponsor has not paid such amounts when due. The Sponsor has agreed that, to the extent the Trustee pays any amount in respect of the reimbursement obligations described in the preceding sentence, the Trustee, for the benefit of the Trust, will be subrogated to and will succeed to the rights of the party so reimbursed against the Sponsor.
7 Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (‘‘FASB’’) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes. The interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Specifically, the pronouncement prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on the related derecognition, classification, interest and penalties, accounting for interim periods, disclosure and transition of uncertain tax positions. The interpretation is effective for fiscal years beginning after December 15, 2006. Accordingly, the interpretation will be effective for the Trust’s fiscal year ending September 30, 2008 and was adopted as of October 1, 2007. The Sponsor has evaluated the effects of the interpretation and does not believe that it has a significant effect on the financial position or results of operations of the Trust.
In September 2006, Statement of Financial Accounting Standards (‘‘SFAS’’) No. 157, Fair Value Measurements, was issued by the FASB and is effective for fiscal years beginning after November 15, 2007, SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. Accordingly, the SFAS 157 will be effective for the Trust’s fiscal year ending September 30, 2009 and will be adopted as of October 1, 2008. At this time, the impact to the Trust’s financial statements has not been determined.
In February 2007, SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, was issued by the FASB, which allows companies to elect to measure certain financial assets and liabilities at fair value. The fair value election can be made on an instrument by instrument basis but is irrevocable once made. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with earlier application permitted. Accordingly, SFAS 159 will be effective for the Trust’s fiscal year ending September 30, 2009 and will be adopted as of October 1, 2008. At this time, the impact to the Trust’s financial statements has not been determined.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the financial statements and notes included in Item 1 of Part I of this Quarterly Report. The discussion and analysis which follows may contain trend analysis and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 which reflect our current views with respect to future events and financial results. Words such as ‘‘anticipate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘believe,’’ ‘‘seek,’’ ‘‘outlook’’ and ‘‘estimate’’ as well as similar words and phrases signify forward-looking statements. streetTRACKS® Gold Trust’s forward-looking statements are not guarantees of future results and conditions and important factors, risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements.
Trust Overview
streetTRACKS® Gold Trust is an investment trust that was formed on November 12, 2004 (Date of Inception). The Trust issues baskets of shares, or Baskets, in exchange for deposits of gold and distributes gold in connection with the redemption of Baskets. The investment objective of the Trust is for the shares to reflect the performance of the price of gold bullion, less the expenses of the Trust’s operations. The shares are designed to provide investors with a cost effective and convenient way to invest in gold.
Investing in the Shares does not insulate the investor from certain risks, including price volatility. The following chart illustrates the movement in the price of the Shares against the corresponding gold price (per 1/10 of an oz. of gold):
Valuation of Gold, Definition of Net Asset Value (‘‘NAV’’) and Adjusted Net Asset Value (‘‘ANAV’’)
As of the London PM Fix on each day that the NYSE Arca is open for regular trading or, if there is no London PM Fix on such day or the London PM Fix has not been announced by 12:00 PM New York time on such day, as of 12:00 PM New York time on such day (the ‘‘Evaluation Time’’), the Bank of New York, the Trustee, evaluates the gold held by the Trust and determines both the ANAV and the NAV of the Trust.
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At the Evaluation Time, the Trustee values the Trust’s gold on the basis of that day’s London PM Fix or, if no London PM Fix is made on such day or has not been announced by the Evaluation Time, the next most recent London gold price fix (AM or PM) determined prior to the Evaluation Time will be used, unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for evaluation. In the event the Trustee and the Sponsor determine that the London PM Fix or last prior London ‘‘fix’’ is not an appropriate basis for evaluation of the Trust’s gold, they will identify an alternative basis for such evaluation to be employed by the Trustee.
Once the value of the gold has been determined, the Trustee subtracts all estimated accrued but unpaid fees (other than the fees to be computed by reference to the value of the ANAV of the Trust or custody fees computed by reference to the value of gold held in the Trust), expenses and other liabilities of the Trust from the total value of the gold and all other assets of the Trust (other than any amounts credited to the Trust’s reserve account, if established). The resulting figure is the ANAV of the Trust. The ANAV of the Trust is used to compute the fees of the Trustee, the Sponsor and the Marketing Agent.
To determine the Trust’s NAV, the Trustee subtracts from the ANAV of the Trust the amount of estimated accrued but unpaid fees computed by reference to the value of the ANAV of the Trust and computed by reference to the value of the gold held in the Trust (i.e., the fees of the Trustee, the Sponsor, the Marketing Agent and the Custodian). The Trustee determines the NAV per Share by dividing the NAV of the Trust by the number of shares outstanding as of the close of trading on the NYSE Arca.
Gold acquired, or disposed of, by the Trust is recorded at average cost. The table below summarizes the impact of unrealized gains or losses on the Trust’s gold holdings at December 31, 2007 and September 30, 2007:
2007
2007 Investment in gold - average costCritical Accounting Policy
Valuation of Gold
Gold is held by the Custodian on behalf of the Trust and is valued, for financial statement purposes, at the lower of cost or market. The cost of gold is determined according to the average cost method and the market value is based on the London Fix used to determine the Net Asset Value of the Trust. Realized gains and losses on sales of gold, or gold distributed for the redemption of shares, are calculated on a trade date basis using average cost.
Review of Financial Results
Financial Highlights
except per share, are in 000’s of US$)
Ended
Dec-31, 2007
Ended
Dec-31, 2006 Total Gain on goldThe Trust’s total gain on gold for the three months ending December 31, 2007 of $129,833 is made up of a gain of $3,631 on the sale of gold to pay expenses plus a gain of $126,202 on gold distributed on the redemption of shares.
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The Trust’s total gain on gold for the three months ending December 31, 2006 of $5,130 is made up of a gain of $1,373 on the sale of gold to pay expenses plus a gain of $3,757 on gold distributed on the redemption of shares.
Selected Supplemental Data - For the three months ended December 31, 2007 and for the year ended September 30, 2007.
Ended
Dec-31,
2007
Ended
Sep-30,
2007 Ounces of Gold:
represented by each shareResults of Operations
In the three months ended December 31, 2007, 22,400,000 shares (224 Baskets) were created in exchange for 2,213,522 ounces of gold (there was no gold receivable), 6,000,000 shares (60 Baskets) were redeemed in exchange for 592,915 ounces of gold and 17,789 ounces of gold were sold to pay expenses.
As at December 31, 2007 the amount of gold owned by the Trust was 20,186,914 ounces (there was no gold receivable) with a market value of $16,886,353,580 (cost − $12,044,968,722) based on the London AM Fix on December 31, 2007 (in accordance with the Trust Indenture).
In the year ended September 30, 2007 92,100,000 shares (921 Baskets) were created in exchange for 9,121,736 ounces of gold (there was no gold receivable), 29,300,000 shares (293 Baskets) were redeemed in exchange for 2,901,748 ounces of gold and 58,390 ounces of gold were sold to pay expenses.
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As at September 30, 2007 the amount of gold owned by the Trust was 18,584,096 ounces (there was no gold receivable) with a market value of $13,807,983,397 (cost – $10,644,489,575).
Cash flow from operations
The Trust had no cash flow from operations in the three months ended December 31, 2007, and 2006. Cash received in respect of gold sold to pay expenses in the three months ended December 31, 2007 and 2006 was the same as those expenses, resulting in zero cash balances at December 31, 2007 and 2006.
Cash Resources and Liquidity
At December 31, 2007 the Trust did not have any cash balances. When selling gold to pay expenses, the Trustee endeavors to sell the exact amount of gold needed to pay expenses in order to minimize the Trust’s holdings of assets other than gold. As a consequence, we expect that the Trust will not record any cash flow from its operations and that its cash balance will be zero at the end of each reporting period.
Analysis of Movements in the Price of Gold
As movements in the price of gold are expected to directly affect the price of the Trust’s shares, investors should understand what the recent movements in the price of gold have been. Investors, however, should also be aware that past movements in the gold price are not indicators of future movements. This section identifies recent trends in the movements of the gold price and discusses some of the important events that have influenced these movements.
The following chart provides historical background on the price of gold. The chart illustrates movements in the price of gold in US dollars per ounce over the period from January 1, 2003 to December 31, 2007, and is based on the London PM Fix.
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The average, high, low and end-of-period gold prices for the period from the inception of the Trust on November 12, 2004, through December 31, 2007, based on the London PM Fix, were:
period
business
day(1) November 12, 2004 to December 31, 2004The upward price trend that began in 2001 has continued for much of the period since the inception of the Trust on November 12, 2004. After reaching a peak of $725.00 at the London PM Fix on May 12, 2006, gold corrected down to a low of $560.75 at the PM Fix on October 6, 2006. The reason most often cited for the correction was a concern among investors that monetary authorities, especially in the U.S., would move to counter the threat of rising inflation by aggressively raising interest rates. These concerns quickly ebbed, however, and as the dollar continued to fall, the gold price rallied from the October 2006 low. In the event, the US authorities reduced interest rates in response to the subprime mortgage lending problems, and the rise in gold continued. The price subsequently recovered to $836.50 by the end of December 2007. The average for the three months to December 31, 2007, was $787.41.
Cautionary Statement Regarding Forward-Looking Information and Risk Factors
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are predictions and actual events or results may differ materially from those expressed in our forward-looking statements. Risks and uncertainties may cause our actual results to differ materially from those expressed in our forward-looking statements. These uncertainties and other factors include, but are not limited to, the following:
The value of the Shares relates directly to the value of the gold held by the Trust and fluctuations in the price of gold could materially adversely affect an investment in the Shares.
The Shares are designed to mirror as closely as possible the price of gold bullion, and the value of the Shares relates directly to the value of the gold held by the Trust, less the Trust’s liabilities (including
15
estimated accrued but unpaid expenses). The price of gold has fluctuated widely over the past several years. Several factors may affect the price of gold, including:
In addition, investors should be aware that there is no assurance that gold will maintain its long term value in terms of purchasing power in the future. In the event that the price of gold declines, the Sponsor expects the value of an investment in the Shares to decline proportionately.
The sale of gold by the Trust to pay expenses reduces the amount of gold represented by each Share on an ongoing basis irrespective of whether the trading price of the Shares rises or falls in response to changes in the price of gold.
Each outstanding Share represents a fractional, undivided interest in the gold held by the Trust. As the Trust does not generate any income and as the Trust regularly sells gold over time to pay for its ongoing expenses, the amount of gold represented by each Share will gradually decline over time. This is true even if additional Shares are issued in exchange for additional deposits of gold into the Trust, as the amount of gold required to create Shares will proportionately reflect the amount of gold represented by the Shares outstanding at the time of creation. Assuming a constant gold price, the trading price of the Shares is expected to gradually decline relative to the price of gold as the amount of gold represented by the Shares gradually declines. The Shares will only maintain their original price if the price of gold increases.
Investors should be aware that the gradual decline in the amount of gold represented by the Shares will occur regardless of whether the trading price of the Shares rises or falls in response to changes in the price of gold.
Readers are urged to review the Risk Factors section contained in the Trust’s annual report on Form 10-K for a description of other risks and uncertainties that may affect an investment in our shares.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Disclosure controls and procedures. Under the supervision and with the participation of the Sponsor, World Gold Trust Services, LLC, including its chief executive officer and chief financial officer, we carried out an evaluation of the effectiveness of the design and operation of our company’s disclosure controls and procedures. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Internal control over financial reporting. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION:
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
There have been no material changes in our risk factors since we last reported under Part I, Item 1A, in our Annual Report on Form 10-K for the year ended September 30, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
As of the date of the formation of the Trust on November 12, 2004, the NAV of the Trust, which represents the value of the gold deposited into the Trust, was $13,081,500, and the NAV per Share was $43.60. Since formation and through December 31, 2007, 2,579 Baskets (257,900,000 Shares) have been created, including 23 Baskets (2,300,000 Shares) issued in connection with the initial public offering of our Shares on November 18, 2004 (Registration No. 333-105202). As of February 5, 2008, 205,700,000 Shares were outstanding and the estimated NAV per Share as determined by the Trustee for February 5, 2008 was $91.17.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits listed on the accompanying Exhibit Index, and such Exhibit Index, are filed or incorporated by reference as a part of this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities* indicated thereunto duly authorized.
Sponsor of the Equity Gold Trust
(Registrant)
James E. Burton
Managing Director
(principal executive officer)
James Lowe
Chief Financial Officer and Treasurer
(principal financial officer and
principal accounting officer)Date: February 6, 2008
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EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
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