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iShares S&P GSCI Commodity-Indexed Trust - Quarter Report: 2010 September (Form 10-Q)

Form 10-Q for iShares S&P GSCI Commodity-Indexed Trust
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended September 30, 2010

 

¨ 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)

 

 

 

Delaware  

51-6573369 (Registrant)

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

Intermediary Investor and Exchange-Traded Products Department

(Address of principal executive offices)

(415) 670-2000

(Registrant and Co-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 and Co-Registrant (1) have 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 and Co-Registrant were required to file such reports), and (2) have 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 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 Exchange Act).    Yes  ¨     No  x

 

 

 


Table of Contents

 

Table of Contents

 

          Page  

PART I – FINANCIAL INFORMATION

  

Item 1.

   Financial Statements      1   
   iShares® S&P GSCI™ Commodity-Indexed Trust   
   Statements of Financial Condition at September 30, 2010 (Unaudited) and December 31, 2009      1   
   Statements of Operations (Unaudited) for the three and nine months ended September 30, 2010 and 2009      2   
   Statements of Changes in Shareholders’ Capital for the nine months ended September 30, 2010 (Unaudited) and the year ended December 31, 2009      3   
   Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2010 and 2009      4   
   Notes to Financial Statements (Unaudited)      5   
   iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC   
   Statements of Financial Condition at September 30, 2010 (Unaudited) and December 31, 2009      10   
   Statements of Operations (Unaudited) for the three and nine months ended September 30, 2010 and 2009      11   
   Statements of Changes in Members’ Equity for the nine months ended September 30, 2010 (Unaudited) and the year ended December 31, 2009      12   
   Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2010 and 2009      13   
   Schedule of Investments (Unaudited) at September 30, 2010      14   
   Notes to Financial Statements (Unaudited)      15   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      21   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      24   

Item 4.

   Controls and Procedures      24   

PART II – OTHER INFORMATION

  

Item 1.

   Legal Proceedings      25   

Item 1A.

   Risk Factors      25   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      26   

Item 3.

   Defaults Upon Senior Securities      27   

Item 5.

   Other Information      27   

Item 6.

   Exhibits      28   

SIGNATURES

     30   


Table of Contents

 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Financial Condition

At September 30, 2010 (Unaudited) and December 31, 2009

 

     September 30,
2010
     December 31,
2009
 

Assets

     

Current Assets

     

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

   $ 1,538,189,774       $ 1,759,350,446   
                 

Total Assets

   $ 1,538,189,774       $ 1,759,350,446   
                 

Liabilities and Shareholders’ Capital

     

Current Liabilities

     

Commitments and Contingent Liabilities (Notes 6 and 7)

   $ —         $ —     

Redeemable capital Shares, no par value, unlimited amount authorized (at redemption value) – 51,100,000 issued and outstanding at September 30, 2010 and 55,550,000 issued and outstanding at December 31, 2009

     1,538,189,774         1,759,350,446   
                 

Total Shareholders’ Capital

     1,538,189,774         1,759,350,446   
                 

Total Liabilities and Shareholders’ Capital

   $ 1,538,189,774       $ 1,759,350,446   
                 

See notes to financial statements.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Operations (Unaudited)

For the three and nine months ended September 30, 2010 and 2009

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

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

        

Interest

   $ 579,566      $ 719,795      $ 1,355,212      $ 2,110,373   
                                

Total investment income

     579,566        719,795        1,355,212        2,110,373   
                                

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

        

Management fee

     2,955,159        2,883,449        9,152,889        5,756,174   

Brokerage commissions and fees

     —          —          349        2,173   
                                

Total expenses

     2,955,159        2,883,449        9,153,238        5,758,347   
                                

Net investment loss

     (2,375,593     (2,163,654     (7,798,026     (3,647,974
                                

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

        

Net realized gain on short-term investments

     1,474        59,113        1,377        193,117   

Net realized loss on futures contracts

     (45,447,318     —          (78,543,024     (8,007,881

Net change in unrealized appreciation/depreciation on futures contracts

     166,464,848        (30,296,729     (6,014,549     85,034,119   
                                

Net realized and unrealized gain (loss)

     121,019,004        (30,237,616     (84,556,196     77,219,355   
                                

Net gain (loss)

   $ 118,643,411      $ (32,401,270   $ (92,354,222   $ 73,571,381   
                                

Net gain (loss) per Share

   $ 2.20      $ (0.65   $ (1.69   $ 2.02   

Weighted-average Shares outstanding

     53,824,457        49,768,813        54,768,864        36,352,198   

See notes to financial statements.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Changes in Shareholders’ Capital

For the nine months ended September 30, 2010 (Unaudited)

and the year ended December 31, 2009

 

     Nine Months
Ended
September 30, 2010
    Year Ended
December 31, 2009
 

Shareholders’ capital, beginning of period

   $ 1,759,350,446      $ 466,237,257   

Contributions

     134,445,356        1,141,869,162   

Redemptions

     (263,251,806     (51,374,866

Net investment loss

     (7,798,026     (6,640,299

Net realized gain on short-term investments

     1,377        192,935   

Net realized loss on futures contracts

     (78,543,024     (9,748,137

Net change in unrealized appreciation/depreciation on futures contracts

     (6,014,549     218,814,394   
                

Shareholders’ capital, end of period

   $ 1,538,189,774      $ 1,759,350,446   
                

Net asset value per Share, end of period

   $ 30.10      $ 31.67   

See notes to financial statements.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2010 and 2009

 

     Nine Months Ended
September 30,
 
     2010     2009  

Cash flows from operating activities

    

Net gain (loss)

   $ (92,354,222   $ 73,571,381   

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

    

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

     221,160,672        (1,176,847,944
                

Net cash provided by (used in) operating activities

     128,806,450        (1,103,276,563
                

Cash flows from financing activities

    

Contributions

     134,445,356        1,141,869,161   

Redemptions

     (263,251,806     (38,592,598
                

Net cash provided by (used in) financing activities

     (128,806,450     1,103,276,563   
                

Net increase in cash and cash equivalents

     —          —     
                

Cash and cash equivalents

    

Beginning of period

     —          —     
                

End of period

   $ —        $ —     
                

See notes to financial statements.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Unaudited)

September 30, 2010

1 - Organization

The iShares® S&P GSCI™ Commodity-Indexed Trust, or 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., or “BAMII,” is the “Sponsor” of the Trust and “Manager” of the iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC, or 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 (the “Trust Agreement”), among the Sponsor, the Trustee and Wilmington Trust Company (the “Delaware Trustee”). The Trust issues units of beneficial interest, or “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, or “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, or “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 accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

the notes thereto should be read in conjunction with the Trust’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2009 as filed with the SEC on February 26, 2010.

Neither the Trust nor the Investing Pool is 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 financial statements in conformity with 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.

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

At September 30, 2010, 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. 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.

 

D. 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 4:15 p.m., New York City 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 4:15 p.m., New York City time, that day. The NAV is calculated each day on which NYSE Arca is open for regular trading, as soon as practicable after 4:15 p.m., New York City time.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

E. 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.

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, and some other types of market participants, are required to deposit cash margin with their futures commission 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 processes (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 September 30, 2010, the Trust had 51,100,000 Shares outstanding.

4 - Trust Expenses

The Trust is not expected to 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 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.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

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 period from January 1, 2010 to September 30, 2010. The net investment income (loss) and total expense ratios are calculated using average net asset value. The net asset value presentation is calculated using daily Shares outstanding. The net investment income (loss) and total expense ratios have been annualized and include the allocation of net investment income (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.

 

Net asset value per Share, beginning of period

   $ 31.67   

Net investment loss

     (0.14

Realized and unrealized loss

     (1.43
        

Net decrease in net assets from operations

     (1.57
        

Net asset value per Share, end of period

   $ 30.10   
        

Ratio to average net assets:

  

Net investment loss (i)

     (0.64 )% 

Expenses (i)

     0.75

Total return, at net asset value (ii)

     (4.96 )% 

 

(i) : Percentage is annualized.
(ii): Percentage is not annualized.

9 - Investment Valuation

In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, the Trust values investments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1     Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Trust has the ability to access as of the measurement date;
Level 2     Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active;
Level 3     Inputs that are unobservable for the asset or liability.

Substantially all of the net assets of the Trust consist of its interests in the Investing Pool, which are measured at fair value. Interests in the Investing Pool are classified as Level 2, as there are no active markets for interests in the Investing Pool, while all significant inputs for the value of the Investing Pool are directly observable to the Trust. At September 30, 2010 and December 31, 2009, the fair value of the Trust’s interests in the Investing Pool equaled $1,538,189,774 and $1,759,350,446, respectively.

 

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iShares® S&P GSCI™ Commodity-Indexed Trust

Notes to the Financial Statements (Unaudited) (Continued)

September 30, 2010

 

 

Disclosure regarding fair value measurements relating to the Investing Pool’s investment portfolio can be found in Note 10 of the Investing Pool’s Notes to Financial Statements.

10 - Subsequent Events

In connection with the preparation of the financial statements of the Trust as of and for the period ended September 30, 2010, management has evaluated the impact of all subsequent events on the Trust through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.

 

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

Statements of Financial Condition

At September 30, 2010 (Unaudited) and December 31, 2009

 

     September 30,
2010
     December 31,
2009
 

Assets

     

Current Assets

     

Cash and cash equivalents

   $ 337,023,979       $ 46,820,169   

Short-term investments, at fair value (Note 2D)

     1,478,083,441         1,722,340,589   

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

     18,910,840         —     

Interest receivable

     227         80   
                 

Total Assets

   $ 1,834,018,487       $ 1,769,160,838   
                 

Liabilities and Members’ Equity

     

Current Liabilities

     

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

   $ —         $ 8,708,040   

Payable for investment securities purchased

     294,866,840         —     

Management fee payable

     946,542         1,086,220   
                 

Total Liabilities

     295,813,382         9,794,260   
                 

Commitments and Contingent Liabilities (Notes 6 and 7)

     —           —     

Members’ Equity

     

General member

     15,331         16,132   

Limited member

     1,538,189,774         1,759,350,446   
                 

Total Members’ Equity

     1,538,205,105         1,759,366,578   
                 

Total Liabilities and Members’ Equity

   $ 1,834,018,487       $ 1,769,160,838   
                 

See notes to financial statements.

 

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

Statements of Operations (Unaudited)

For the three and nine months ended September 30, 2010 and 2009

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2010     2009     2010     2009  

Investment Income

        

Interest

   $ 579,572      $ 719,802      $ 1,355,225      $ 2,110,406   
                                

Total investment income

     579,572        719,802        1,355,225        2,110,406   
                                

Expenses

        

Management fee

     2,955,187        2,883,477        9,152,974        5,756,252   

Brokerage commissions and fees

     —          —          349        2,173   
                                

Total expenses

     2,955,187        2,883,477        9,153,323        5,758,425   
                                

Net investment loss

     (2,375,615     (2,163,675     (7,798,098     (3,648,019
                                

Realized and Unrealized Gain (Loss)

        

Net realized gain on short-term investments

     1,474        59,114        1,377        193,120   

Net realized loss on futures contracts

     (45,447,760     —          (78,543,776     (8,008,024

Net change in unrealized appreciation/depreciation on futures contracts

     166,466,401        (30,296,990     (6,014,526     85,035,244   
                                

Net realized and unrealized gain (loss)

     121,020,115        (30,237,876     (84,556,925     77,220,340   
                                

Net gain (loss)

   $ 118,644,500      $ (32,401,551   $ (92,355,023   $ 73,572,321   
                                

See notes to financial statements.

 

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

Statements of Changes in Members’ Equity

For the nine months ended September 30, 2010 (Unaudited)

and the year ended December 31, 2009

 

     General
Member
    Limited
Member
    Total
Members’
Equity
 

Members’ equity, December 31, 2009

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

Contributions

     —          134,445,356        134,445,356   

Redemptions

     —          (263,251,806     (263,251,806

Net investment loss

     (72     (7,798,026     (7,798,098

Net realized gain on short-term investments

     —          1,377        1,377   

Net realized loss on futures contracts

     (752     (78,543,024     (78,543,776

Net change in unrealized appreciation/depreciation on futures contracts

     23        (6,014,549     (6,014,526
                        

Members’ equity, September 30, 2010

   $ 15,331      $ 1,538,189,774      $ 1,538,205,105   
                        
     General
Member
    Limited
Member
    Total
Members’
Equity
 

Members’ equity, December 31, 2008

   $ 14,018      $ 466,237,257      $ 466,251,275   

Contributions

     —          1,141,869,162        1,141,869,162   

Redemptions

     —          (51,374,866     (51,374,866

Net investment loss

     (73     (6,640,299     (6,640,372

Net realized gain on short-term investments

     3        192,935        192,938   

Net realized loss on futures contracts

     (159     (9,748,137     (9,748,296

Net change in unrealized appreciation/depreciation on futures contracts

     2,343        218,814,394        218,816,737   
                        

Members’ equity, December 31, 2009

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

See notes to financial statements.

 

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

Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2010 and 2009

 

     Nine Months Ended
September 30,
 
     2010     2009  

Cash flows from operating activities

    

Net gain (loss)

   $ (92,355,023   $ 73,572,321   

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

    

Purchases of short-term investments

     (5,227,655,310     (2,719,348,531

Sales/maturities of short-term investments

     5,473,200,382        1,588,894,244   

Accretion of discount

     (1,286,547     (2,049,271

Net realized gain on short-term investments

     (1,377     (193,120

Change in operating assets and liabilities:

    

Receivable for variation margin on open futures contracts

     (18,910,840     (48,992,640

Interest receivable

     (147     1,286   

Payable for variation margin on open futures contracts

     (8,708,040     —     

Payable for investment securities purchased

     294,866,840        —     

Management fee payable

     (139,678     729,307   
                

Net cash provided by (used in) operating activities

     419,010,260        (1,107,386,404
                

Cash flows from financing activities

    

Contributions

     134,445,356        1,141,869,161   

Redemptions

     (263,251,806     (38,592,598
                

Net cash provided by (used in) financing activities

     (128,806,450     1,103,276,563   
                

Net increase (decrease) in cash and cash equivalents

     290,203,810        (4,109,841
                

Cash and cash equivalents

    

Beginning of period

     46,820,169        29,361,898   
                

End of period

   $ 337,023,979      $ 25,252,057   
                

See notes to financial statements.

 

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

Schedule of Investments (Unaudited)

At September 30, 2010

 

Face Amount

    

Security Description

   Fair Value  
  

United States Treasury Bills

  
  $365,000,000      

0.10% – 0.15% due 10/14/10

   $ 364,980,952   
  280,000,000      

0.15% due 10/28/10

     279,969,550   
  190,000,000      

0.12% – 0.14% due 11/04/10

     189,975,161   
  176,584,000      

0.15% due 12/02/10

     176,538,383   
  171,822,000      

0.15% due 1/06/11

     171,752,555   
  295,000,000      

0.13% due 2/03/11

     294,866,840   
           
  

Total United States Treasury Bills – 96.09%*

   $ 1,478,083,441   
           

 

* Percentage is based on members’ equity.

See notes to financial statements.

 

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

Notes to Financial Statements (Unaudited)

September 30, 2010

1 - Organization

The iShares® S&P GSCI™ Commodity-Indexed Investing Pool LLC, or 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, or “S&P GSCI-ER,” listed on the Chicago Mercantile Exchange, or the “CME,” called Commodity Excess Return Futures, or “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, or 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, or “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.

 

B. Investment in CERFs

CERFs are futures contracts listed on the CME that have a term of approximately five years after listing and 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 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 instrument. As a result, all changes in the fair value are reflected in the Statements of Operations.

 

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

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

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.

 

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.

 

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 4:15 p.m., New York City time, on each day on which NYSE Arca is open for regular trading, as soon as practicable after that time.

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.

 

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

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

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 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 the period from January 1, 2010 to September 30, 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.

 

Ratio to average net assets:

  

Net investment loss (i)

     (0.64 )% 

Expenses (i)

     0.75

Total return (ii)

     (5.16 )% 

 

(i) : Percentage is annualized.
(ii): Percentage is not annualized.

 

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

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

 

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 nine months ended September 30, 2010 and the year ended December 31, 2009, the average month-end notional amount of open CERFs were $1,630,011,466 and $1,185,141,292, respectively.

As of September 30, 2010, the open CERFs were as follows:

 

Contracts

 

Expiration Date

 

Current Notional Amount

 

Net Unrealized Loss

36,367   March 2011   $1,537,233,090   $(119,204,419)

As of December 31, 2009, the open CERFs were as follows:

 

Contracts

 

Expiration Date

 

Current Notional Amount

 

Net Unrealized Loss

39,582   March 2011   $1,752,295,140   $(113,189,893)

The following table shows the variation margin on open futures contracts, by risk exposure category, on the Statements of Financial Condition as of September 30, 2010 and December 31, 2009:

 

    

Asset Derivatives

   Fair Value     

Liability Derivatives

   Fair Value  

September 30, 2010

                       

Commodity contracts

   Receivable for variation margin on open futures contracts    $ 18,910,840       Payable for variation margin on open futures contracts    $ —     

December 31, 2009

                       

Commodity contracts

   Receivable for variation margin on open futures contracts    $ —         Payable for variation margin on open futures contracts    $ 8,708,040   

 

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

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

 

The following table shows the effect of the futures contracts, by risk exposure category, on the Statements of Operations for the nine months ended September 30, 2010 and 2009:

 

Nine Months Ended

September 30, 2010

 

Statements of Operations Location

   Realized Gain (Loss)     Change in Unrealized
Appreciation/Depreciation
 

Commodity contracts

  Net realized loss on futures contracts    $ (78,543,776   $ —     
  Net change in unrealized appreciation/depreciation on futures contracts      —          (6,014,526

Nine Months Ended

September 30, 2009

                

Commodity contracts

  Net realized loss on futures contracts    $ (8,008,024   $ —     
  Net change in unrealized appreciation/depreciation on futures contracts      —          85,035,244   

10 - Investment Valuation

In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, the Investing Pool values investments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

Level 1     Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Investing Pool has the ability to access as of the measurement date;
Level 2     Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active;
Level 3     Inputs that are unobservable for the asset or liability.

Investments in CERFs are measured at fair value using CME settlement prices for CERFs. CERFs are classified as Level 1 investments, as CME settlement prices are quoted prices for identical assets in active markets. At September 30, 2010 and December 31, 2009, the fair value of CERFs equaled $1,537,233,090 and $1,752,295,140, respectively.

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. This margin collateral, in the form of short-term investments in U.S. Treasury bills, is valued at fair value. U.S. Treasury bills are classified as Level 2 investments, as these trade in markets that are not considered active, but whose values are based on inputs such as quoted market prices, dealer quotations or valuations provided by alternative pricing sources that are supported by observable inputs. At September 30, 2010 and December 31, 2009, the fair value of short-term investments equaled $1,478,083,441 and $1,722,340,589, respectively.

 

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

Notes to Financial Statements (Unaudited) (Continued)

September 30, 2010

 

 

11 - Subsequent Events

In connection with the preparation of the financial statements of the Investing Pool as of and for the period ended September 30, 2010, management has evaluated the impact of all subsequent events on the Investing Pool through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements.

 

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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 to financial statements included in Item 1 of Part I of this Form 10-Q. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as “may,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. None of the 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

The iShares® S&P GSCI™ Commodity-Indexed Trust, or the “Trust,” is a Delaware statutory trust that 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, or the “Investing Pool.” The Investing Pool holds long positions in futures contracts, called “CERFs,” on the S&P GSCI™ Excess Return Index, or “S&P GSCI-ER,” listed on the Chicago Mercantile Exchange, or “CME,” and posts margin in the form of cash or short-term or similar securities, referred to as “Short-Term Securities,” to collateralize its CERF positions. It is the objective of the Trust that the performance of the Shares will correspond generally to the performance of the S&P GSCI™ Total Return Index, 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. BlackRock Asset Management International Inc., or “BAMII,” is the “Sponsor” of the Trust and the “Manager” of the Investing Pool. BlackRock Institutional Trust Company, N.A. is the “Trustee” of the Trust. Wilmington Trust Company, a Delaware banking corporation, serves as the “Delaware Trustee” of the Trust. The Trust and the Investing Pool are commodity pools, as defined in the regulations of the Commodity Futures Trading Commission, or the “CFTC,” and are operated by BAMII, a commodity pool operator registered with the CFTC. Neither the Trust nor the Investing Pool is an investment company registered under the Investment Company Act of 1940, as amended.

The Trust intends to offer Shares on a continuous basis. 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, at the discretion of the Sponsor, Short-Term Securities in lieu of cash) with a value equal to the net asset value per Basket on the date the creation or redemption order is received. Only certain institutions, called “Authorized Participants,” that enter into an agreement with the Trust may purchase or redeem Baskets. Shareholders who are not Authorized Participants have no right to redeem their Shares; they may redeem their Shares only through an Authorized Participant and only in Baskets.

Shares of the Trust trade on NYSE Arca under the symbol “GSG.”

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 exceed that number of Shares, and accordingly stopped accepting further creation orders temporarily. The Trust resumed accepting creation orders on April 27, 2010.

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

The Trustee determines the net asset value of the Trust and the net asset value per Share, or NAV, as of 4:15 p.m., New York City time, on each business day on which NYSE Arca is open for regular trading, as soon as practicable after that time. 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.

 

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

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

Once the value of the CERFs and interest earned on any assets posted as margin and any other assets of the Investing Pool 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 interests in the Investing Pool (“Investing Pool Interests”) and provides this information to the Trustee.

Once the value of the Trust’s Investing Pool Interests has been determined and provided to the Trustee, the Trustee subtracts all accrued expenses and other liabilities of the Trust from the total value of the assets of the Trust, in each case as of the calculation time. The resulting amount is the net asset value of the Trust. The Trustee determines the NAV by dividing the net asset value of the Trust by the number of Shares outstanding at the time the calculation is made. Shares to be delivered under a creation order are considered to be outstanding for purposes of determining the NAV if the applicable creation order was received by the Trustee prior to 2:40 p.m., New York City 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 City time (or, on any day on which the CME is scheduled to close early, prior to the close of trading of CERFs on the CME on such day), on the date of calculation.

Results of Operations

The Quarter Ended September 30, 2010

Net Asset Value of the Trust

The Trust’s net asset value increased from $1,522,591,519 at June 30, 2010 to $1,538,189,774 at September 30, 2010. The increase in the Trust’s net asset value was primarily due to an increase in the price of CERFs during the quarter from $392.00 at June 30, 2010 to $422.70 at September 30, 2010, a 7.83% increase. The increase in the Trust’s net asset value was partially offset by a decrease in outstanding Shares, which fell from 54,450,000 at June 30, 2010 to 51,100,000 at September 30, 2010 due to 5,600,000 Shares (112 Baskets) being redeemed and 2,250,000 Shares (45 Baskets) being created during the quarter.

The Nine Months Ended September 30, 2010

Net Asset Value of the Trust

The Trust’s net asset value decreased from $1,759,350,446 at December 31, 2009 to $1,538,189,774 at September 30, 2010. The decrease in the Trust’s net asset value was primarily from a decrease in outstanding Shares, which fell from 55,550,000 at December 31, 2009 to 51,100,000 at September 30, 2010 due to 9,150,000 Shares (183 Baskets) being redeemed and 4,700,000 Shares (94 Baskets) being created during the period. The decrease in the Trust’s net asset value was also affected by a decrease in the price of CERFs during the period from $442.70 at December 31, 2009 to $422.70 at September 30, 2010, a 4.52% decrease.

 

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Liquidity and Capital Resources

The Trust’s sole asset as of September 30, 2010 was its investment in the Investing Pool. The Investing Pool’s assets consist of CERFs, cash and Short-Term Securities that are posted as collateral for the Investing Pool’s CERF positions. The Trust and the Investing Pool do not anticipate any further need for liquidity because creations and redemptions of Shares generally occur in kind and ordinary expenses are met by cash on hand. Interest earned on the assets posted as collateral is paid to the Investing Pool and is used to pay the fixed fee to the Manager and purchase additional CERFs, or, in the discretion of the Sponsor, distributed to Shareholders. In exchange for a fee based on the net asset value of the Investing Pool, the Sponsor and the Manager have assumed most of the ordinary expenses incurred by the Trust and the Investing Pool. In the case of an extraordinary expense and/or insufficient interest income to cover ordinary expenses, however, the Investing Pool could be forced to liquidate its CERF positions to pay such expenses. As of September 30, 2010, the market for CERFs had not developed significant liquidity and the Investing Pool represented substantially all of the long-side open interest in CERFs. In addition, it is expected that Goldman, Sachs & Co. or its accountholders may represent, directly or indirectly, a substantial portion of the short-side interest in such market. The existence of such a limited number of market participants could cause or exacerbate losses to the Trust if the Trust were required to liquidate its CERF positions.

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

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

Market Risk

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

Credit Risk

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

Off-Balance Sheet Arrangements and Contractual Obligations

The Trust and the Investing Pool have not used, nor do they expect to use, special purpose entities to facilitate off-balance sheet financing arrangements. The Trust and the Investing Pool have no loan guarantee arrangements or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services that are in the interest 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 Investing Pool’s application of accounting policies. In addition, please refer to Note 2 to the financial statements of the Trust and the Investing Pool for further discussion of the Trust’s and the Investing Pool’s accounting policies.

 

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Item 3. 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 September 30, 2010, the Investing Pool’s open CERF positions (long) were as follows:

 

Number of Contracts:

     36,367   

Expiration Date:

     March 2011   

Weighted-Average Price per Contract:

   $ 455.48   

Fair Value:

   $ 1,537,233,090   

Fair value is calculated using the settlement price for the CERFs on the CME on September 30, 2010, which was $422.70 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 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.

Item 4. 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 the 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 Securities Exchange Act of 1934, as amended, 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. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

There were no changes in the Trust’s and Investing Pool’s internal control over financial reporting that occurred during 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.

 

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes to Risk Factors since last reported in Part I, Item 1A of the registrants’ Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on February 26, 2010, except as set forth below.

Regulatory developments with respect to the futures and over-the-counter 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.

A number of bills have been introduced in Congress in response to high energy and commodity prices. These bills generally target perceived excessive speculation in commodities and commodity indices, including by institutional “index funds,” on regulated futures markets and in the over-the-counter derivatives markets. These bills include a broad range of measures intended to limit speculation, including possible increases in the margin levels required for regulated futures contracts; imposing, or tightening existing, speculative position limits applicable to regulated futures and over-the-counter derivatives positions; transferring from U.S. futures exchanges to the CFTC the authority to establish certain speculative position limits; imposing aggregate speculative position limits across regulated futures, over-the-counter positions and certain contracts traded on non-U.S. exchanges; eliminating or narrowing existing exemptions from speculative position limits; restricting the access of certain classes of investors to futures markets and over-the-counter derivatives markets; and imposing additional reporting requirements on market participants, such as the Investing Pool.

Some of these measures have been addressed in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which was signed into law on July 21, 2010. Under the Dodd-Frank Act, the CFTC will be required to establish speculative position limits on futures and options on physical commodities (including energy) and economically equivalent over-the-counter derivatives. The Dodd-Frank Act will also require the CFTC to establish aggregate position limits for contracts based on the same underlying commodity, including certain contracts traded on non-U.S. exchanges. The Dodd-Frank Act also significantly narrows the availability of the bona fide hedging exemptions to a narrower category of commercial market participants and hedging strategies. Although the CFTC may exempt persons, contracts or transactions or classes thereof from the speculative position limit requirements, regulatory action pursuant to the Dodd-Frank Act may impose new limitations on the size of positions that may be taken with respect to CERFs, or on the size of positions that may be carried by the Investing Pool’s Clearing FCM. Such position limits may adversely affect the value of the Shares or liquidity in the market for them.

The CFTC also proposed regulations in early 2010 that would impose new federal speculative position limits on futures and option contracts on certain energy commodities, in addition to the limits and accountability levels currently set by U.S. futures exchanges. The CFTC withdrew this proposal on August 18, 2010 in light of the requirements to set position limits under the Dodd-Frank Act. These proposed regulations would have applied such federal energy position limits to institutional “index funds” in the same manner as such limits are applied to traditional speculative investors and would have restricted institutional “index funds” from continuing to rely on existing exchange risk management exemptions once their positions reach the higher level of the new federal limits. The proposed regulations would also have imposed position limits based on the percentage of open interest a trader’s positions represents. Although the proposed federal energy position limits would not generally have applied to futures and option contracts based on “diversified commodity indexes” such as CERFs, the CFTC requested comment on the application of position limits and position limit exemptions to index funds. It is therefore possible that future regulatory action by the CFTC (including regulatory action pursuant to the requirements of the Dodd-Frank Act) will further restrict the maximum number of CERFs that the Investing Pool will be permitted to own. See also “Risk Factors—Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Investing Pool”.

Certain 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 and the correlation between the price of the Shares and the net asset value of the Trust. It is impossible to predict which measures will be adopted or precisely how they will ultimately affect the value of your Shares. However, if adopted, such measures could adversely affect the value of your Shares.

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

 

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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, comply with position limits or 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.

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 10,000 contracts. The Investing Pool has obtained a risk management exemption from these position limits that should permit the Investing Pool to hold up to 70,000 contracts until December 31, 2010. 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 may be taken with respect to 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. Such events could force the Investing Pool to sell CERFs, or encourage market participants to sell or redeem their Shares. Such events may also affect the liquidity of the Shares and the correlation between the price of the Shares and the net asset value of the Trust. See also “Risk Factors—Regulatory developments with respect to the futures and over-the-counter 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—Regulatory developments with respect to the futures and over-the-counter 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”.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) None.

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 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 its clearing futures commission merchant 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) 5,600,000 Shares (112 Baskets) have been redeemed during the quarter ended September 30, 2010.

 

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Periods

   Total Number of
Shares Redeemed
     Average Price
Per Share
 

07/01/10 to 07/31/10

     —         $ —     

08/01/10 to 08/31/10

     3,500,000         29.38   

09/01/10 to 09/30/10

     2,100,000         29.24   
           

Total

     5,600,000       $ 29.32   
           

Item 3. Defaults Upon Senior Securities

None.

Item 5. Other Information

None.

 

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Item 6. Exhibits

 

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.
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
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

 

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101.DEF*    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*    XBRL Taxonomy Extension Label Linkbase Document
101.PRE*    XBRL Taxonomy Extension Presentation Linkbase Document

 

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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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.

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: November 8, 2010

/s/    Geoffrey D. Flynn                        

Geoffrey D. Flynn
Chief Operating Officer and Chief Financial Officer
(Principal financial and accounting officer)
Date: November 8, 2010

 

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

 

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