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iShares S&P GSCI Commodity-Indexed Trust - Quarter Report: 2019 September (Form 10-Q)

gsg20190930_10q.htm
 

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q


 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

or

 

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: 001-32947

 


iShares® S&P GSCI™ Commodity-Indexed Trust

(Exact name of registrant as specified in its charter)


 

Delaware 51-6573369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

c/o iShares Delaware Trust Sponsor LLC

400 Howard Street

San Francisco, California 94105

Attn: Product Management Team

iShares Product Research & Development

(Address of principal executive offices)(Zip Code)

 

(415) 670-2000

(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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☒ Accelerated filer ☐  
     
Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Shares

GSG

NYSE Arca, Inc.

 

As of November 5, 2019, the Registrant had 44,100,000 Shares outstanding.

 



 

 

 

 

Table of Contents 

 

Page

PART I – FINANCIAL INFORMATION

1

   

Item 1.

Financial Statements (Unaudited)

1

     
 

Statements of Assets and Liabilities at September 30, 2019 and December 31, 2018

1

     
 

Statements of Operations for the three and nine months ended September 30, 2019 and 2018

2

     
 

Statements of Changes in Net Assets for the nine months ended September 30, 2019 and 2018

3

     
 

Statements of Cash Flows for the nine months ended September 30, 2019 and 2018

5

     
 

Schedules of Investments at September 30, 2019 and December 31, 2018

6

     
 

Notes to Financial Statements

7

     

Item 2.

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

12

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

14

     

Item 4.

Controls and Procedures

14

   

PART II – OTHER INFORMATION

15

   

Item 1.

Legal Proceedings

15

     

Item 1A.

Risk Factors

15

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

     

Item 3.

Defaults Upon Senior Securities

16

     

Item 4.

Mine Safety Disclosures

16

     

Item 5.

Other Information

16

     

Item 6.

Exhibits

17

     

SIGNATURES

18

 

 

Table of Contents

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

iShares S&P GSCI™ Commodity-Indexed Trust

Statements of Assets and Liabilities (Unaudited)

At September 30, 2019 and December 31, 2018

 

   

September 30,

2019

   

December 31,

2018

 

Assets

               

Cash

  $ 19,903,516     $ 10,033,297  

Short-term investments(a)

    680,432,240       1,135,484,485  

Short-term investments held at the broker (restricted)(b)

    36,721,573       64,242,167  

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

          920,643  

Total Assets

    737,057,329       1,210,680,592  
                 

Liabilities

               

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

    10,756,308        

Sponsor’s fees payable

    506,485       805,937  

Brokerage commissions and fees payable

          8,046  

Total Liabilities

    11,262,793       813,983  
                 

Commitments and contingent liabilities (Note 7)

           
                 

Net Assets

  $ 725,794,536     $ 1,209,866,609  
                 

Shares issued and outstanding(c)

    48,300,000       86,500,000  

Net asset value per Share (Note 2G)

  $ 15.03     $ 13.99  

 


(a)

Cost of short-term investments: $680,278,975 and $1,135,426,788, respectively.

(b)

Cost of short-term investments held at the broker (restricted): $36,698,641 and $64,238,656, respectively.

(c)

No par value, unlimited amount authorized.

 

 

See notes to financial statements.

 

1

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iShares S&P GSCI™ Commodity-Indexed Trust

Statements of Operations (Unaudited)

For the three and nine months ended September 30, 2019 and 2018

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  

Investment Income

                               

Interest

  $ 4,581,353     $ 6,489,609     $ 18,314,221     $ 17,187,579  

Total investment income

    4,581,353       6,489,609       18,314,221       17,187,579  
                                 
Expenses                                

Sponsor’s fees

    1,580,894       2,630,732       6,038,091       8,016,035  

Brokerage commissions and fees

    230,142       334,654       826,731       1,052,459  

Total expenses

    1,811,036       2,965,386       6,864,822       9,068,494  

Net Investment income

    2,770,317       3,524,223       11,449,399       8,119,085  
                                 
Net Realized and Unrealized Gain (Loss)                                
Net realized gain (loss) from:                                

Short-term investments

    84,416       1,276       92,672       1,894  

Futures contracts

    19,053,123       (28,046,279 )     8,636,553       144,688,601  

Net realized gain (loss)

    19,137,539       (28,045,003 )     8,729,225       144,690,495  

Net change in unrealized appreciation/depreciation on:

                               

Short-term investments

    (238,588 )     (298,490 )     114,989       (94,606 )

Futures contracts

    (55,899,683 )     35,116,085       100,181,139       (7,297,022 )

Net change in unrealized appreciation/depreciation

    (56,138,271 )     34,817,595       100,296,128       (7,391,628 )

Net realized and unrealized gain (loss)

    (37,000,732 )     6,772,592       109,025,353       137,298,867  
                                 

Net increase (decrease) in net assets resulting from operations

  $ (34,230,415 )   $ 10,296,815     $ 120,474,752     $ 145,417,952  
                                 

Net increase (decrease) in net assets per Share(a)

  $ (0.63 )   $ 0.13     $ 1.75     $ 1.74  

 


(a)

Net increase (decrease) in net assets per Share based on average shares outstanding during the period.

 

 

See notes to financial statements.

 

2

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iShares S&P GSCI™ Commodity-Indexed Trust

Statements of Changes in Net Assets (Unaudited)

For the nine months ended September 30, 2019

 

   

Nine months Ended

 
   

September 30, 2019

 

Net Assets at December 31, 2018

  $ 1,209,866,609  
         

Operations:

       

Net investment income

    4,491,037  

Net realized gain

    1,925,332  

Net change in unrealized appreciation/depreciation

    163,896,481  

Net increase in net assets resulting from operations

    170,312,850  
         

Capital Share Transactions:

       

Contributions for Shares issued

    24,217,916  

Distributions for Shares redeemed

    (171,597,419 )

Net decrease in net assets from capital share transactions

    (147,379,503 )
         

Increase in net assets

    22,933,347  
         

Net Assets at March 31, 2019

  $ 1,232,799,956  
         

Operations:

       

Net investment income

    4,188,045  

Net realized loss

    (12,333,646 )

Net change in unrealized appreciation/depreciation

    (7,462,082 )

Net decrease in net assets resulting from operations

    (15,607,683 )
         

Capital Share Transactions:

       

Contributions for Shares issued

    891,320  

Distributions for Shares redeemed

    (341,748,867 )

Net decrease in net assets from capital share transactions

    (340,857,547 )
         

Decrease in net assets

    (356,465,230 )
         

Net Assets at June 30, 2019

  $ 876,334,726  
         

Operations:

       

Net investment income

    2,770,317  

Net realized gain

    19,137,539  

Net change in unrealized appreciation/depreciation

    (56,138,271 )

Net decrease in net assets resulting from operations

    (34,230,415 )
         

Capital Share Transactions:

       

Contributions for Shares issued

    86,473,964  

Distributions for Shares redeemed

    (202,783,739 )

Net decrease in net assets from capital share transactions

    (116,309,775 )
         

Decrease in net assets

    (150,540,190 )
         

Net Assets at September 30, 2019

  $ 725,794,536  
         

Shares issued and redeemed

       

Shares issued

    7,600,000  

Shares redeemed

    (45,800,000 )

Net decrease in Shares issued and outstanding

    (38,200,000 )

 

 

See notes to financial statements.

 

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iShares S&P GSCI™ Commodity-Indexed Trust

Statements of Changes in Net Assets (Unaudited)

For the nine months ended September 30, 2018

 

    Nine months Ended  
    September 30, 2018  
Net Assets at December 31, 2017   $ 1,393,408,765  
         
Operations:        

Net investment income

    1,681,744  

Net realized gain

    85,259,815  

Net change in unrealized appreciation/depreciation

    (61,275,920 )

Net increase in net assets resulting from operations

    25,665,639  
         

Capital Share Transactions:

       

Contributions for Shares issued

    92,570,265  

Distributions for Shares redeemed

    (75,516,227 )

Net increase in net assets from capital share transactions

    17,054,038  
         

Increase in net assets

    42,719,677  
         

Net Assets at March 31, 2018

  $ 1,436,128,442  
         

Operations:

       

Net investment income

    2,913,118  

Net realized gain

    87,475,683  

Net change in unrealized appreciation/depreciation

    19,066,697  

Net increase in net assets resulting from operations

    109,455,498  
         

Capital Share Transactions:

       

Contributions for Shares issued

    15,525,326  

Distributions for Shares redeemed

    (79,408,752 )

Net decrease in net assets from capital share transactions

    (63,883,426 )
         

Increase in net assets

    45,572,072  
         

Net Assets at June 30, 2018

  $ 1,481,700,514  
         

Operations:

       

Net investment income

    3,524,223  

Net realized loss

    (28,045,003 )

Net change in unrealized appreciation/depreciation

    34,817,595  

Net increase in net assets resulting from operations

    10,296,815  
         

Capital Share Transactions:

       

Contributions for Shares issued

    10,283,378  

Distributions for Shares redeemed

    (84,837,301 )

Net decrease in net assets from capital share transactions

    (74,553,923 )
         

Decrease in net assets

    (64,257,108 )
         

Net Assets at September 30, 2018

  $ 1,417,443,406  
         

Shares issued and redeemed

       

Shares issued

    7,050,000  

Shares redeemed

    (14,200,000 )

Net decrease in Shares issued and outstanding

    (7,150,000 )

 

 

See notes to financial statements.

 

4

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iShares S&P GSCI™ Commodity-Indexed Trust

Statements of Cash Flows (Unaudited)

For the nine months ended September 30, 2019 and 2018

 

   

Nine Months Ended

 
   

September 30,

 
   

2019

   

2018

 
Cash Flows from Operating Activities                

Net increase (decrease) in net assets resulting from operations

  $ 120,474,752     $ 145,417,952  

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:

               

Purchases of short-term investments

    (5,789,551,413 )     (10,559,997,975 )

Sales/maturities of short-term investments

    6,290,637,386       10,541,698,059  

Accretion of discount

    (18,305,473 )     (17,183,125 )

Net realized (gain) loss on short-term investments

    (92,672 )     (1,894 )

Net change in unrealized appreciation/depreciation on short-term investments

    (114,989 )     94,606  

Change in operating assets and liabilities:

               

Receivable for variation margin on open futures contracts

    920,643       (7,794,466 )

Payable for variation margin on open futures contracts

    10,756,308        

Sponsor’s fees payable

    (299,452 )     (2,908 )

Brokerage commissions and fees payable

    (8,046 )     14  

Net cash provided by (used in) operating activities

    614,417,044       102,230,263  
                 

Cash Flows from Financing Activities

               

Contributions for Shares issued

    111,583,200       121,642,369  

Distributions for Shares redeemed

    (716,130,025 )     (239,762,280 )

Net cash provided by (used in) financing activities

    (604,546,825 )     (118,119,911 )

Net increase (decrease) in cash

    9,870,219       (15,889,648 )
                 

Cash

               

Beginning of period

               

Unrestricted – cash

    10,033,297       41,786,279  
                 

End of period

               

Unrestricted – cash

  $ 19,903,516     $ 25,896,631  

 

 

See notes to financial statements.

 

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iShares S&P GSCI™ Commodity-Indexed Trust

Schedules of Investments (Unaudited)

At September 30, 2019 and December 31, 2018

 

September 30, 2019

 

Security Description

 

Face Amount

   

Fair Value

 

U.S. Treasury bills(a)(b):

               

2.10% due 10/01/19

  $ 65,000,000     $ 65,000,000  

1.93% – 2.07% due 10/08/19

    77,300,000       77,273,697  

2.02% due 10/22/19

    12,000,000       11,987,444  

1.87% due 10/24/19

    30,000,000       29,965,644  

2.38% due 11/14/19

    100,000,000       99,782,414  

1.89% – 2.12% due 11/21/19

    149,950,000       149,568,902  

2.13% due 11/29/19

    50,000,000       49,851,475  

1.96% due 12/12/19

    20,000,000       19,928,933  

2.07% due 12/19/19

    20,000,000       19,924,281  

1.87% due 01/16/20

    75,000,000       74,601,127  

1.87% due 01/23/20

    50,000,000       49,716,029  

1.88% – 1.93% due 02/06/20

    70,000,000       69,553,867  
Total U.S. Treasury bills (Cost: $716,977,616)             717,153,813  
                 
Total Investments – 98.81%             717,153,813  
Other Assets, Less Liabilities – 1.19%             8,640,723  
Net Assets – 100.00%           $ 725,794,536  

 


(a)

A portion of the above United States Treasury bills are posted as margin for the Trust’s Index Futures positions as described in Note 2D.

(b)

Rates shown are discount rates paid at the time of purchase.

 

As of September 30, 2019, the open S&P GSCI-ER futures contracts were as follows:

 

Number of Contracts   Expiration Date   Current Notional Amount    

Net Unrealized Appreciation

(Depreciation)

 
32,884

December 16, 2019

  $ 725,088,912     $ (16,342,110 )

 

December 31, 2018

 

Security Description   Face Amount     Fair Value  
U.S. Treasury bills(a)(b):                

2.08% – 2.25% due 01/03/19

  $ 16,000,000     $ 15,999,000  

2.32% due 01/08/19

    200,000,000       199,925,084  

2.30% due 01/10/19

    145,000,000       144,927,380  

2.29% due 01/15/19

    200,000,000       199,835,784  

2.30% – 2.33% due 01/22/19

    350,000,000       349,552,777  

2.28% due 01/24/19

    180,000,000       179,748,925  

2.40% due 01/29/19

    50,000,000       49,909,343  

2.41% due 02/14/19

    60,000,000       59,828,359  

Total U.S. Treasury bills (Cost: $1,199,665,444)

            1,199,726,652  
                 

Total Investments – 99.16%

            1,199,726,652  

Other Assets, Less Liabilities – 0.84%

            10,139,957  

Net Assets – 100.00%

          $ 1,209,866,609  

 


(a)

A portion of the above United States Treasury bills are posted as margin for the Trust’s Index Futures positions as described in Note 2D.

(b)

Rates shown are discount rates paid at the time of purchase.

 

As of December 31, 2018, the open S&P GSCI-ER futures contracts were as follows:

 

Number of Contracts   Expiration Date   Current Notional Amount    

Net Unrealized Appreciation

(Depreciation)

 
57,905

March 15, 2019

  $ 1,200,110,078     $ (116,523,249 )

 

 

See notes to financial statements.

 

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iShares S&P GSCI™ Commodity-Indexed Trust

Notes to Financial Statements (Unaudited)

September 30, 2019

 

 

1 - Organization

 

The iShares S&P GSCI™ Commodity-Indexed Trust (the “Trust”) is a Delaware statutory trust that was organized under the laws of the State of Delaware on July 7, 2006 and commenced operations on July 10, 2006. iShares Delaware Trust Sponsor LLC, a Delaware limited liability company, is the sponsor of the Trust (the “Sponsor”). The sole member and manager of the Sponsor is BlackRock Asset Management International Inc., a Delaware corporation. BlackRock Institutional Trust Company, N.A. is the trustee of the Trust (the “Trustee”). The Trust is governed by the Third Amended and Restated Trust Agreement, dated as of December 31, 2013 (the “Trust Agreement”), among the Sponsor, the Trustee and Wilmington Trust Company (the “Delaware Trustee”). The Trust issues units of beneficial interest (“Shares”) representing fractional undivided beneficial interests in its net assets.

 

The Trust holds long positions in exchange-traded index futures contracts of various expirations (“Index Futures”) on the S&P GSCI™ Excess Return Index (“S&P GSCI-ER”). In order to collateralize its Index Futures positions and to reflect the U.S. Treasury component of the S&P GSCI™ Total Return Index (the “Index”), the Trust also holds “Collateral Assets,” which consist of cash, U.S. Treasury securities or other short-term securities and similar securities that are eligible as margin deposits for those Index Futures positions. The Index Futures held by the Trust are listed on the Chicago Mercantile Exchange (the “CME”).

 

The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures. The Trust seeks to track the investment returns of the Index before payment of the Trust’s expenses and liabilities.

 

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

 

The accompanying unaudited financial statements were prepared in accordance with generally accepted accounting principles 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 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, 2018, as filed with the SEC on February 28, 2019.

 

The Trust qualifies as an investment company for accounting purposes and follows the accounting and reporting guidance under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies, but is not registered, and is not required to be registered, as an investment company under the Investment Company Act of 1940, as amended.

 

 

2 - Significant Accounting Policies

 

A.

Basis of Accounting

 

The following significant accounting policies are consistently followed by the Trust in the preparation of its 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.

 

Certain statements and captions in the financial statements for the prior periods have been changed to conform to the current financial statement presentation.

 

B.

Investment in Index Futures

 

The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures, including energy commodities, precious and industrial metal commodities, agricultural commodities and livestock commodities. The Trust seeks to track the investment returns of the Index before payment of the Trust’s expenses and liabilities.

 

The assets of the Trust consist of Index Futures and cash or other Collateral Assets used to satisfy applicable margin requirements for those Index Futures positions. Index Futures are exchange-traded index futures contracts on the S&P GSCI-ER, and are expected to include contracts of different terms and expirations. The Trust is expected to roll out of existing positions in Index Futures and establish new positions in Index Futures on an ongoing basis. When establishing positions in Index Futures, the Trust is required to deposit cash or other Collateral Assets with the broker as “initial margin.” On a daily basis, the Trust is obligated to pay, or entitled to receive, cash in an amount equal to the change in the daily settlement level of its Index Futures positions. Such payments or receipts are known as variation margin. Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statements of Assets and Liabilities. When an Index Futures contract is closed, the Trust records a realized gain or loss based on the difference between the value of the Index Futures contract at the time it was opened and the value at the time it was closed.

 

Index Futures are derivative instruments valued at fair value, which the Trustee has determined to be that day’s announced settlement price on the CME or any such other futures exchange listing Index Futures (the “Exchange”). If there is no announced settlement price for a particular Index Futures contract on that day, the Trustee will use the most recently announced settlement price unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for valuation. The Trust’s derivatives are not designated as hedges, and all changes in the fair value are reflected in the statements of operations.

 

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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 Trust’s investments in futures contracts.

 

C.

Cash

 

The Trust considers cash as currencies deposited in one or more bank account. Cash is presented on the Statement of Cash Flows as unrestricted cash.

 

D.

Short-Term Investments

 

Short-term investments on the statements of assets and liabilities consist principally of short-term fixed income securities with original maturities of one year or less. These investments are valued at fair value.

 

As of September 30, 2019 and December 31, 2018, the Trust had restricted short-term investments held at the broker of $36,721,573 and $64,242,167, respectively, which were posted as margin for the Trust’s Index Futures positions.

 

E.

Securities Transactions and Income Recognition

 

Securities transactions are accounted for on the trade date. Realized gains and losses on investment transactions are determined using the specific identification method. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized daily on the accrual basis.

 

F.

Income Taxes

 

The Trust 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 Trust is not subject to income taxes. Shareholders are individually responsible for their own tax payments on their proportionate share of income, gain, loss, deduction, expense and credit.

 

The Sponsor has analyzed the tax positions as of September 30, 2019, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

 

G.

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 Index Futures positions and Collateral Assets on that day, (2) the interest earned on those assets by the Trust and (3) any other assets of the Trust, as of 4:00 p.m. (New York time) that day. The Trustee determines the net asset value per Share (the “NAV”) by dividing the net asset value of the Trust on a given day by the number of Shares outstanding at the time the calculation is made. The NAV is calculated each day on which NYSE Arca, Inc. (“NYSE Arca”) is open for regular trading, as soon as practicable after 4:00 p.m. (New York time).

 

H.

Distributions

 

Interest and distributions received by the Trust on its assets may be used to acquire additional Index Futures and Collateral Assets 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 (the “Baskets”) in exchange for Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets in lieu of cash). Only registered broker-dealers who have entered into an authorized participant agreement with the Trust (each, an “Authorized Participant”) may purchase or redeem Baskets. Individual investors that are not Authorized Participants cannot purchase or redeem Shares in direct transactions with the Trust. Authorized Participants may redeem their Shares (as well as Shares on behalf of other investors) at any time before 2:40 p.m. (New York time) on any business day in one or more Baskets. Redemptions of Shares in exchange for baskets of Index Futures and cash (or, in the discretion of the Sponsor, other Collateral Assets in lieu of cash) are treated as sales for financial statement purposes.

 

It is possible that, from time to time, BlackRock and/or funds or other accounts managed by the Trustee or an affiliate (collectively, “Affiliates”) may purchase and hold Shares of the Trust. Affiliates reserve the right, subject to compliance with applicable law, to sell into the market or redeem Baskets through an Authorized Participant at any time some or all of the Shares of the Trust acquired for their own accounts. A large sale or redemption of Shares of the Trust by Affiliates could significantly reduce the asset size of the Trust, which might have an adverse effect on the Trust and the Shares that remain outstanding.

 

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4 - Trust Expenses

 

The Trust is responsible for paying any applicable brokerage commissions and similar transaction fees out of its assets in connection with the roll of Index Futures held by the Trust. These expenses are recorded as brokerage commissions and fees in the statements of operations as incurred.

 

The Sponsor pays the amounts that would otherwise be considered the ordinary operating expenses, if any, of the Trust. In return, the Sponsor receives a fee from the Trust that accrues daily at an annualized rate equal to 0.75% of the net asset value of the Trust, as calculated before deducting fees and expenses based on the value of the Trust’s assets.

 

The Sponsor has agreed under the Trust Agreement to pay the following administrative, operational and marketing expenses: (1) the fees of the Trustee, the Delaware Trustee, the Advisor, the Trust Administrator, the processing agent and their respective agents, (2) NYSE Arca listing fees, (3) printing and mailing costs, (4) audit fees, (5) fees for registration of the Shares with the SEC, (6) tax reporting costs, (7) license fees and (8) legal expenses relating to the Trust of up to $100,000 annually.

 

 

5 - Related Parties

 

The Sponsor, the Trustee and the Advisor are considered to be related parties to the Trust. The Trustee’s and Advisor’s fees are paid by the Sponsor and are not a separate expense of the Trust.

 

 

6 - Indemnification

 

The Trust Agreement provides that the Trustee shall indemnify the Sponsor, its directors, employees, delegees and agents against, and hold each of them harmless from, any loss, liability, claims, cost, expense or judgment of any kind whatsoever (including reasonable fees and expenses of counsel) (i) caused by the negligence or bad faith of the Trustee or (ii) arising out of any information furnished in writing to the Sponsor by the Trustee expressly for use in the registration statement, or any amendment thereto or periodic report, filed with the SEC relating to the Shares that is not materially altered by the Sponsor.

 

The Trust Agreement provides that the Sponsor and its shareholders, directors, officers, employees, affiliates (as such term is defined under the Securities Act of 1933, as amended) and subsidiaries and agents shall be indemnified from the Trust and held harmless against any loss, liability, claim, cost, expense or judgment of any kind whatsoever (including the reasonable fees and expenses of counsel) 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 or willful misconduct or (2) reckless disregard of their obligations and duties under the Trust Agreement.

 

The investment advisory agreement (the “Advisory Agreement”) between the Trust and the Advisor provides that the Advisor and its shareholders, directors, officers, employees, affiliates (as such term is defined under the Securities Act of 1933, as amended) and subsidiaries shall be indemnified from the Trust and held harmless against any loss, liability, cost, expense or judgment (including the reasonable fees and expenses of counsel) arising out of or in connection with the performance of its obligations under the Advisory Agreement or any actions taken in accordance with the provisions of the Advisory Agreement and incurred without their (1) negligence, bad faith or willful misconduct or (2) reckless disregard of their obligations and duties under the Advisory Agreement.

 

 

7 - Commitments and Contingent Liabilities

 

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

 

 

8 - Financial Highlights

 

The following financial highlights relate to investment performance and operations for a Share outstanding for the three and nine months ended September 30, 2019 and 2018.

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Net asset value per Share, beginning of period   $ 15.72     $ 17.93     $ 13.99     $ 16.32  
                                 

Net investment income(a)

    0.05       0.04       0.17       0.10  

Net realized and unrealized gain (loss)(b)

    (0.74 )     0.14       0.87       1.69  

Net increase (decrease) in net assets from operations

    (0.69 )     0.18       1.04       1.79  

Net asset value per Share, end of period

  $ 15.03     $ 18.11     $ 15.03     $ 18.11  
                                 

Total return, at net asset value(c)(d)

    (4.39 )%     1.00 %     7.43 %     10.97 %
                                 

Ratio to average net assets:

                               

Net investment income(e)

    1.32 %     1.01 %     1.42 %     0.76 %

Expenses(e)

    0.86 %     0.85 %     0.85 %     0.85 %

 


(a)

Based on average Shares outstanding during the period.

(b)

The amounts reported for a Share outstanding may not accord with the change in aggregate gains and losses on investments for each period due to the timing of Trust Share transactions in relation to the fluctuating fair values of the Trust’s underlying investments.

(c)

Based on the change in net asset value of a Share during the period.

(d)

Percentage is not annualized.

(e)

Percentage is annualized.

 

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9 - Investing in Index Futures

 

Substantially all of the Trust’s assets are invested in Index Futures. The Index Futures’ settlement value at expiration is based on the value of the S&P GSCI‑ER at that time. Therefore, the value of the Trust will fluctuate based upon the value of the S&P GSCI-ER and the prices of futures contracts and commodities underlying the S&P GSCI-ER. The commodities markets have historically been extremely volatile. For the nine months ended September 30, 2019 and the year ended December 31, 2018, the average month-end notional amounts of open Index Futures were $1,037,367,459 and $1,392,468,027, respectively.

 

The following table shows the variation margin on open futures contracts, by risk exposure category, on the statements of assets and liabilities as of September 30, 2019 and December 31, 2018:

 

   

Asset Derivatives

 

Fair Value

 

Liability Derivatives

 

Fair Value

 

September 30, 2019

                     

Commodity contracts

 

Receivable for variation margin on open futures contracts

  $  

Payable for variation margin on open futures contracts

  $ 10,756,308  
                       

December 31, 2018

                     

Commodity contracts

 

Receivable for variation margin on open futures contracts

  $ 920,643  

Payable for variation margin on open futures contracts

  $  

 

The following table shows the effect of the open futures contracts, by risk exposure category, on the statements of operations for the three months and nine months ended September 30, 2019 and 2018:

 

   

Statements of
Operations Location

 

Net Realized

Gain (Loss)

   

Net Change in Unrealized
Appreciation/Depreciation

 

Three Months Ended September 30, 2019

                   

Commodity contracts

 

Net realized gain (loss) from futures contracts

  $ 19,053,123     $  
   

Net change in unrealized appreciation/depreciation
on futures contracts

          (55,899,683

)

                     

Three Months Ended September 30, 2018

                   

Commodity contracts

 

Net realized gain (loss) from futures contracts

  $ (28,046,279

)

  $  
   

Net change in unrealized appreciation/depreciation
on futures contracts

          35,116,085  
                     

Nine Months Ended September 30, 2019

                   

Commodity contracts

 

Net realized gain (loss) from futures contracts

  $ 8,636,553     $  
   

Net change in unrealized appreciation/depreciation
on futures contracts

          100,181,139  
                     

Nine Months Ended September 30, 2018

                   

Commodity contracts

 

Net realized gain (loss) from futures contracts

  $ 144,688,601     $  
   

Net change in unrealized appreciation/depreciation
on futures contracts

          (7,297,022

)

 

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10 - Investment Valuation

 

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

 

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

 

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

 

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

 

 

Level 1

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

 

 

Level 2

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

 

 

Level 3

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

 

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

 

The following table summarizes the value of each of the Trust’s investments by the fair value hierarchy levels as of September 30, 2019 and December 31, 2018:

 

   

Level 1

   

Level 2

   

Level 3

    Total  

September 30, 2019

                               

Futures contracts(a)

  $ (16,342,110 )   $     $     $ (16,342,110 )

U.S. Treasury bills

          717,153,813               717,153,813  
                                 

December 31, 2018

                               

Futures contracts(a)

  $ (116,523,249 )   $     $     $ (116,523,249 )

U.S. Treasury bills

          1,199,726,652             1,199,726,652  

 


(a)

Shown at the unrealized appreciation (depreciation) on the contracts.

 

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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,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. These statements are based upon certain assumptions and analyses made by the Sponsor on the basis of its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. Whether or not actual results and developments will conform to the Sponsor’s expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed below, general economic, market and business conditions, changes in laws or regulations, including those concerning taxes, made by governmental authorities or regulatory bodies, and other world economic and political developments. Except as required by applicable disclosure laws, none of the Trust, the Sponsor, the Advisor, the Trustee or the Delaware Trustee is under a duty to update any of the 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 (the “Trust”) is a Delaware statutory trust that issues units of beneficial interest (“Shares”) representing fractional undivided beneficial interests in its net assets. The Trust holds long positions in exchange-traded index futures contracts of various expirations, or “Index Futures” on the S&P GSCI™ Excess Return Index (the “S&P GSCI-ER”), together with cash, U.S. Treasury securities or other short-term securities and similar securities that are eligible as margin deposits for the Trust’s Index Futures positions, referred to as “Collateral Assets.” The Index Futures held by the Trust are listed on the Chicago Mercantile Exchange (the “CME”). The Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures. The Trust seeks to track the investment returns of the S&P GSCI™ Total Return Index (the “Index”) before payment of the Trust’s expenses and liabilities.

 

iShares Delaware Trust Sponsor LLC, a Delaware limited liability company, is the sponsor of the Trust (the “Sponsor”). BlackRock Institutional Trust Company, N.A. is the “Trustee” of the Trust. The Trust is a commodity pool, as defined in the Commodity Exchange Act (the “CEA”) and the applicable regulations of the Commodity Futures Trading Commission (the “CFTC”), and is operated by the Sponsor, a commodity pool operator registered with the CFTC. BlackRock Fund Advisors (the “Advisor”), an indirect subsidiary of BlackRock, Inc., serves as the commodity trading advisor of the Trust and is registered with the CFTC. The Trust is not an investment company registered under the Investment Company Act of 1940, as amended. The Trust has delegated day-to-day administration of the Trust to the Trustee. The Trustee has delegated certain day-to-day administrative functions of the Trustee to State Street Bank and Trust Company (the “Trust Administrator”). Wilmington Trust Company, a Delaware trust company, serves as the “Delaware Trustee” of the Trust.

 

The Trust intends to offer Shares on a continuous basis. The Trust issues and redeems Shares only in one or more blocks of 50,000 Shares (“Baskets”). Only institutions that enter into an agreement with the Trust to become “Authorized Participants” may purchase or redeem Baskets, in exchange for Index Futures and Collateral Assets with an aggregate value equal to the net asset value per Share, or “NAV” of the Shares being purchased or redeemed. Owners of beneficial interests in Shares (“Shareholders”) who are not Authorized Participants have no right to redeem their Shares. In order to liquidate their investment in the Shares, Shareholders who are not Authorized Participants must generally sell their Shares in the secondary market, assuming that demand for their Shares exists. The price obtained by the Shareholders for the Shares may be less than the NAV of those Shares.

 

Shares of the Trust trade on NYSE Arca, Inc. (“NYSE Arca”) under the ticker symbol GSG.

 

Valuation of Index Futures; Computation of the Trust’s Net Asset Value

 

The Sponsor has the exclusive authority to determine the net asset value of the Trust and the NAV, which it has delegated to the Trustee under the Trust Agreement. The Trustee determines the net asset value of the Trust and the NAV as of 4:00 p.m. (New York time), on each Business Day on which NYSE Arca is open for regular trading, as soon as practicable after that time. A “Business Day” is a day (1) on which none of the following occurs: (a) NYSE Arca is closed for regular trading, (b) the Exchange is closed for regular trading or (c) the Federal Reserve wire transfer system is closed for cash wire transfers, or (2) that the Trustee determines that it is able to conduct business.

 

The Trustee values the Trust’s long positions in Index Futures on the basis of that day’s settlement prices for the Index Futures held by the Trust as announced by the applicable Exchange. The value of the Trust’s positions in any particular Index Futures contract equals the product of (1) the number of such Index Futures contracts owned by the Trust, (2) the settlement price of such Index Futures contract on the date of calculation and (3) the multiplier of such Index Futures contract. If there is no announced settlement price for a particular Index Futures contract on a Business Day, the Trustee uses the most recently announced settlement price unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for valuation. The daily settlement price for each Index Futures contract currently held by the Trust is established on each trading day, generally at 2:40 p.m. (New York time), by the CME Group Inc., and its designed contract markets, including the CME, CBOT (Board of Trade of the City of Chicago, Inc.), NYMEX (New York Mercantile Exchange), COMEX and KCBT (the “CME Group”) staff.

 

The Trustee values all other holdings of the Trust at (1) its current market value, if quotations for such property are readily available or (2) its fair value, as reasonably determined by the Trustee, if the current market value cannot be determined.

 

Once the value of the Index Futures, Collateral Assets of the Trust and interest earned on the Trust’s Collateral Assets has been determined, the Trustee subtracts all accrued expenses and liabilities of the Trust as of the time of calculation in order to calculate the net asset value of the Trust.

 

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Once the net asset value of the Trust has been calculated, the Trustee determines the NAV by dividing the net asset value of the Trust by the number of Shares outstanding at the time the calculation is made. Any changes to the NAV that may result from creation and redemption activity are not reflected in the NAV calculations for purposes of the Trust’s operations until the Business Day following the Business Day on which they occur, but are reflected in the Trust’s financial statements as of such first Business Day. Creation and redemption orders received after 2:40 p.m. (New York time) are not deemed to be received, and the related creation or redemption will not be deemed to occur, until the following Business Day. Subject to the approval of the Trustee, Baskets may be created solely for cash, but the related creation orders will be deemed received as of the following Business Day unless received by 10:00 a.m. (New York time). Orders are expected to settle by 11:00 a.m. (New York time) on the Business Day following the Business Day on which such orders are deemed to be received.

 

Results of Operations

 

The Quarter Ended September 30, 2019

 

The net asset value of the Trust decreased from $876,334,726 at June 30, 2019 to $725,794,536 at September 30, 2019. The decrease in the Trust’s net asset value resulted primarily from a net decrease in the number of outstanding Shares, which fell from 55,750,000 Shares at June 30, 2019 to 48,300,000 Shares at September 30, 2019, a consequence of 5,850,000 Shares (117 Basket) being created and 13,300,000 Shares (266 Baskets) being redeemed during the quarter. The Trust’s net asset value was also affected by a net decrease in net assets resulting from operations.

 

The 4.39% decrease in the NAV from $15.72 at June 30, 2019 to $15.03 at September 30, 2019 is directly related to the 4.68% decrease in the settlement price for the Index Futures. The NAV decreased slightly less than the settlement price for the Index Futures on a percentage basis due to interest income from U.S. Treasury bills.

 

Net decrease in net assets resulting from operations for the quarter ended September 30, 2019 was $34,230,415, resulting from a net investment income of $2,770,317 and a net realized and unrealized loss of $37,000,732. For the quarter ended September 30, 2019, the Trust had a net realized and unrealized loss of $154,172 on short-term investments and a net realized and unrealized loss of $36,846,560 on futures contracts. Other than the Sponsor’s fees of $1,580,894 and brokerage commissions and fees of $230,142, the Trust had no expenses during the quarter.

 

The Nine-Month Period Ended September 30, 2019

 

The net asset value of the Trust decreased from $1,209,866,609 at December 31, 2018 to $725,794,536 at September 30, 2019. The decrease in the Trust’s net asset value resulted primarily from a net decrease in the number of outstanding Shares, which fell from 86,500,000 Shares at December 31, 2018 to 48,300,000 Shares at September 30, 2019, a consequence of 7,600,000 Shares (152 Baskets) being created and 45,800,000 Shares (916 Baskets) being redeemed during the period. The decrease in the Trust’s net asset value was partially offset by a net increase in net assets resulting from operations.

 

The 7.43% increase in the NAV from $13.99 at December 31, 2018 to $15.03 at September 30, 2019 is directly related to the 6.39% increase in the settlement price for the Index Futures. The NAV increased slightly more than the settlement price for the Index Futures on a percentage basis due to interest income from U.S. Treasury bills.

 

Net increase in net assets resulting from operations for the period was $120,474,752, resulting from a net investment income of $11,449,399 and a net realized and unrealized gain of $109,025,353. For the nine months ended September 30, 2019, the Trust had a net realized and unrealized gain of $207,661 on short-term investments and a net realized and unrealized gain of $108,817,692 on futures contracts. Other than the Sponsor’s fees of $6,038,091 and brokerage commissions and fees of $826,731, the Trust had no expenses during the nine months.

 

Liquidity and Capital Resources

 

The Trust’s assets as of September 30, 2019 consist of Index Futures and Collateral Assets used to satisfy applicable margin requirements for those Index Futures positions. The Trust does 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 Trust and is used to pay the Sponsor’s fees and purchase additional Index Futures and Collateral Assets, or, in the discretion of the Sponsor, distributed to Shareholders. In exchange for a fee based on the net asset value of the Trust, the Sponsor has assumed most of the ordinary expenses incurred by the Trust. In the case of an extraordinary expense and/or insufficient interest income to cover ordinary expenses, however, the Trust could be forced to liquidate its positions in Index Futures and Collateral Assets to pay such expenses. As of September 30, 2019, the market for Index Futures had not developed significant liquidity and the Trust represented substantially all of the long-side open interest in Index Futures. In addition, it is expected that Goldman Sachs & Co. LLC 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 Index Futures 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 liquidity needs.

 

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

 

Market Risk

 

The Trust holds Index Futures positions and Collateral Assets to satisfy applicable margin requirements on those Index Futures positions. Because of this limited diversification of the Trust’s assets, fluctuations in the value of the Index Futures are expected to directly affect the value of the Shares. The value of the Index Futures is expected to track generally the S&P GSCI-ER, although this correlation may not be exact. The S&P GSCI-ER, in turn, reflects the value of a diversified group of commodities. The Trust’s exposure to market risk will be influenced by a number of factors, including the lack of liquidity of the Index Futures market and activities of other market participants.

 

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Credit Risk

 

When the Trust purchases or holds Index Futures, it is exposed to the credit risk of a default by the CME’s clearing house, which serves as the counterparty to each Index Futures position, and of a default by its clearing futures commission merchant. In the case of such a default, the Trust may be unable to recover amounts due to it on its Index Futures positions and Collateral Assets posted as margin. The Trust is also exposed to credit risk as a result of its ownership of U.S. Treasury bills.

 

Off-Balance Sheet Arrangements and Contractual Obligations

 

The Trust does not use and is not expected to use special purpose entities to facilitate off-balance sheet financing arrangements. The Trust does not have and is not expected to have loan guarantee arrangements or other off-balance sheet arrangements of any kind other than agreements entered into in the normal course of business, which may include indemnification provisions related to certain risks service providers undertake in performing services that are in the interest of the Trust. While the Trust’s exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Trust’s financial position.

 

Critical Accounting Policies

 

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s application of accounting policies. In addition, please refer to Note 2 to the financial statements of the Trust for further discussion of the Trust’s accounting policies.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Quantitative Disclosure

 

The Trust is exposed to commodity price risk through the Trust’s holdings of Index Futures. The following table provides information about the Trust’s futures contract positions, which are sensitive to changes in commodity prices. As of September 30, 2019, the Trust’s open Index Futures positions (long) were as follows:

 

Number of contracts:

    32,884  

Expiration date:

 

December 2019

 

Weighted-average price per contract:

  $ 225.47  

Notional amount (fair value):

  $ 725,088,912  

 

The notional amount is calculated using the settlement price for the Index Futures on the CME on September 30, 2019, which was $220.50 per contract, and the $100 multiplier applicable under the contract terms.

 

The Trust has non-trading market risk as a result of investing in short-term U.S. Treasury bills and such market risk is expected to be immaterial.

 

Qualitative Disclosure

 

As described herein, the Trust seeks to track the results of a fully collateralized investment in futures contracts on an index composed of a diversified group of commodities futures. The Trust seeks to track the investment returns of the Index before payment of the Trust’s 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 Trust’s Index Futures positions. As a result, fluctuations in the value of the Trust’s Index Futures are expected to directly affect the value of the Shares.

 

The Trust will not engage in any activities designed to obtain a profit from, or ameliorate losses caused by, changes in the level of the Index or the

S&P GSCI‑ER, or the value of any Collateral Assets. The Trust’s exposure to market risk may be influenced by a number of factors, including the lack of liquidity of the Index Futures market and activities of other market participants.

 

 

Item 4. Controls and Procedures

 

The duly authorized officers of the Sponsor performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, with the participation of the Trustee, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust 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 files or submits 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 performing functions equivalent to those a principal executive officer and principal financial officer of the Trust would perform if the Trust 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.

 

There were no changes in the Trust’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 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 the Risk Factors last reported under Part I, Item 1A of the registrants’ Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019, except for the following:

 

(1) The risk factor entitled “Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares,” is modified to read as follows:

 

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

 

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

 

Pursuant to the provisions of the Dodd-Frank Act described above, the CFTC proposed regulations in December 2016 (modifying an original November 2013 proposal), referred to in this report as the “Proposed Position Limits Rules,” that would impose new federal position limits on futures and options on certain energy, metal, and agricultural commodities and economically equivalent swaps (collectively, “Referenced Contracts”). Also in December 2016, the CFTC adopted final position aggregation requirements.

 

The Proposed Position Limits Rules would include as Referenced Contracts a number of the futures contracts included in the S&P GSCI-ER, and as of the date of this report such contracts represent a substantial portion of the weight of the S&P GSCI-ER. Consequently, if the Proposed Position Limits Rules are adopted as proposed, the maximum positions that market participants can hold in the Referenced Contracts that underlie the S&P GSCI-ER may be limited, which could reduce the liquidity of such Referenced Contracts and adversely affect the performance of the S&P GSCI-ER and the value of your Shares. Moreover, because the relative weights of the commodities in the S&P GSCI-ER are largely determined based on the trading volume of the futures contracts designated for such commodities, a reduction in the trading volume of such futures contracts could significantly alter the weights of the futures contracts underlying the S&P GSCI-ER, which could have further adverse effects on the level of the S&P GSCI-ER and the value of your Shares. The risks presented by the Proposed Position Limits Rules also arise with respect to existing federal limits on certain agricultural commodity futures contracts, which include futures contracts underlying the S&P GSCI-ER.

 

The Proposed Position Limits Rules would also narrow the existing bona fide hedge exemption for Referenced Contracts. If adopted as proposed, this narrow definition may affect the hedging and investing activities of participants in the markets for the Index Futures and the futures contracts and commodities underlying the S&P GSCI-ER, which in turn could reduce the liquidity and adversely affect the pricing of the Index Futures and such futures contracts and commodities. Any of these effects could increase volatility in and otherwise adversely affect the price of the Shares. The public comment period on the Proposed Position Limits Rules closed on February 28, 2017. The CFTC had specifically solicited, among other things, comments on issues affecting position limits for physical commodity derivatives that could directly affect the value of the Trust’s position in Index Futures going forward.

 

With respect to the position aggregation rules adopted by the CFTC in December 2016, those final rules, which became effective on February 14, 2017, expand the circumstances requiring persons to aggregate Referenced Contracts that are owned or controlled by such persons. Specifically, the final aggregation rules require a person holding positions in multiple commodity pools with substantially identical trading strategies to aggregate the pools’ positions in Referenced Contracts, on a pro-rata basis, with other positions in Referenced Contracts held or controlled by such person. CFTC staff has granted relief, until August 12, 2022, from various conditions and requirements in the final aggregation rules, including the “substantially identical trading strategies” aggregation requirement. Under this relief, a person would not be required to aggregate positions on the basis of the “substantially identical trading strategies” aggregation requirement unless the person is holding or controlling the trading of positions in multiple accounts or commodity pools with substantially identical trading strategies in order to willfully circumvent applicable position limits. Although Index Futures are not among the Referenced Contracts identified in the Proposed Position Limits Rules, if federal position limits are extended to Index Futures or if the Exchange adopts similar aggregation rules, some participants in the market for Index Futures may be encumbered in trying to hedge their exposure, which could reduce liquidity in such Index Futures and the futures contracts and commodities underlying the S&P GSCI-ER and adversely affect the value of the Shares.

 

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In addition to, or in lieu of, the Proposed Position Limits Rules, the CFTC could propose other rules that may lower the applicable position limits, apply position limits to a broader range of contracts (including commodity index contracts such as the Index Futures) or further restrict position limit exemptions. If any of these actions is taken, such measures could further reduce the size of positions that the Trust and other investors could hold directly in Index Futures and the underlying futures contracts and commodities, with potential reductions in liquidity and adverse effects on the pricing of Index Futures. See also “The value of the Shares depends on the value of Index Futures, which fluctuates based on the prices of commodity futures contracts reflected in the S&P GSCI-ER. These prices may be volatile, thereby creating the potential for losses regardless of the length of time you intend to hold your Shares.”

 

Certain other rules proposed pursuant to the Dodd-Frank Act also may have an impact on the Trust and the value and continued availability of the Shares. On December 22, 2010, the CFTC proposed rules, referred to in this report as the “DCM Rules,” that would require that at least 85% of the total volume of any contract listed on a designated contract market (“DCM”) including the Index Futures, be executed through the central order book, rather than as a block transaction or other non-competitively executed transaction. Contracts that do not meet the 85% threshold would be required to be delisted by the DCM and, if a swap, transferred to a swap execution facility or also be liquidated. Generally, the Trust’s transactions in Index Futures are expected to be executed through block or EFRP transactions that are not executed through the applicable Exchange’s central order book. When the CFTC finalized the DCM Rules in June 2012, the CFTC noted that it needed additional time to consider the proposed requirements regarding the 85% threshold, particularly in light of substantial comments received. If ultimately adopted as proposed, those proposed requirements could significantly and adversely affect the availability, liquidity and price of Index Futures, as well as futures contracts currently included or which may in the future be included in the S&P GSCI-ER, and could inhibit the Trust’s ability to redeem and offer Shares, which in turn could adversely affect the value and continued availability of the Shares.

 

The CFTC has adopted rules regarding the risk management practices of clearing members (the “FCM Rules”) most of which became effective on June 1, 2013. The FCM Rules require the Trust’s Clearing FCM to establish, and periodically reevaluate, risk-based limits on position and order size, amongst other measures. The FCM Rules may lead the Trust’s Clearing FCM to reduce its internal limits on the size of the Index Futures positions it will execute or clear for the Trust, reducing the Trust’s and other market participants’ ability to transact in Index Futures, and potentially adversely affecting the price of Shares. In the event that the Clearing FCM does reduce its internal limits on the size of Index Futures positions, the Trust may deem it feasible to use additional Clearing FCMs. If this happens, it could substantially increase the costs of clearing for the Trust.

 

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

 

 

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

 

a) None.

 

b) Not applicable.

 

c) 13,300,000 Shares (266 Baskets) were redeemed during the quarter ended September 30, 2019.

 

 

Period

 

Total Number of Shares

Redeemed

   

Average Price

Per Share

 

07/01/19 to 07/31/19

    350,000     $ 15.73  

08/01/19 to 08/31/19

    5,050,000       14.78  

09/01/19 to 09/30/19

    7,900,000       15.53  

Total

    13,300,000     $ 15.24  

 

 

Item 3. Defaults Upon Senior Securities

 

None.

 

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 

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) of registrant’s Current Report on Form 8-K filed on May 9, 2007

       

4.1

   

Third Amended and Restated Trust Agreement is incorporated by reference to Exhibit 4.1 of registrant’s Registration Statement No. 333‑193156 filed on January 2, 2014

       

4.2

   

Authorized Participant Agreement is incorporated by reference to Exhibit 4.2 of registrant’s Current Report on Form 8-K filed on November 29, 2013

       

10.1

   

Investment Advisory Agreement is incorporated by reference to Exhibit 10.1 of registrant’s Registration Statement No. 333-193156 filed on January 2, 2014

       

10.2

   

Sublicense Agreement is incorporated by reference to Exhibit 10.2 of registrant’s Registration Statement No. 333-126810 filed on May 26, 2006

       

10.3

   

Futures and Options Account Agreement is incorporated by reference to Exhibit 10.3 of registrant’s Registration Statement No. 333‑193156 filed on January 2, 2014

       

10.4

   

Master Service Agreement is incorporated by reference to Exhibit 10.4 of registrant’s Current Report on Form 8-K filed on March 4, 2013

       

10.5

   

Service Module for Custodial Services is incorporated by reference to Exhibit 10.5 of registrant’s Registration statement No. 333-193156 filed on January 2, 2014

       

10.6

   

Service Module for Fund Administration and Accounting Services is incorporated by reference to Exhibit 10.6 of registrant’s Registration Statement No. 333-193156 filed on January 2, 2014

       

10.7

   

Control Agreement is incorporated by reference to Exhibit 10.7 of registrant’s Post-Effective amendment No. 1 to Registration Statement No. 333-193156 filed on April 2, 2014

       

31.1

   

Certification by Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

       

31.2

   

Certification by Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

       

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

 

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

     
101.SCH   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Cover Page Interactive Data File included as Exhibit 101 (embedded within the Inline XBRL document)

 

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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.

 

iShares Delaware Trust Sponsor LLC,

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

 

 

/s/ Paul Lohrey

Paul Lohrey

Director, President and Chief Executive Officer

(Principal executive officer)

 

Date: November 6, 2019

 

 

/s/ Mary Cronin

Mary Cronin

Director and Chief Financial Officer

(Principal financial and accounting officer)

 

Date: November 6, 2019

 


*     The registrant is a trust and the persons are signing in their respective capacities as officers of iShares Delaware Trust Sponsor LLC, the Sponsor of the registrant.

 

 

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