| ISHARES COMEX GOLD TRUST Item 1A Risk Factors |
| Because the iShares are created to reflect the price of the gold held by the trust, the market price of the iShares will be as unpredictable as the price of gold has historically been |
| This creates the potential for losses, regardless of whether you hold iShares for a short-, mid-or long-term |
| iShares are created to reflect, at any given time, the market price of gold owned by the trust at that time less the trust’s expenses and liabilities |
| Because the value of iShares depends on the price of gold, it is subject to fluctuations similar to those affecting gold prices |
| The price of gold has fluctuated widely over the past several years |
| If gold markets continue to be characterized by the wide fluctuations that they have shown in the past several years, the price of the iShares will change widely and in an unpredictable manner |
| This exposes your investment in iShares to potential losses if you need to sell your iShares at a time when the price of gold is lower than it was when you made your investment in iShares |
| Even if you are able to hold iShares for the mid-or long-term you may never have a profit, because gold markets have historically experienced extended periods of flat or declining prices |
| Following an investment in iShares, several factors may have the effect of causing a decline in the prices of gold and a corresponding decline in the price of iShares |
| A significant portion of the aggregate world gold holdings is owned by governments, central banks and related institutions |
| If one or more of these institutions decides to sell in amounts large enough to cause a decline in world gold prices, the price of the iShares will be adversely affected |
| • A significant increase in gold hedging activity by gold producers |
| Should there be an increase in the level of hedge activity of gold producing companies, it could cause a decline in world gold prices, adversely affecting the price of the iShares |
| • A significant change in the attitude of speculators and investors towards gold |
| Should the speculative community take a negative view towards gold, it could cause a decline in world gold prices, negatively impacting the price of the iShares |
| Conversely, several factors may trigger a temporary increase in the price of gold prior to your investment in the iShares |
| If that is the case, you will be buying iShares at prices affected by the temporarily high prices of gold, and you may incur losses when the causes for the temporary increase disappear |
| The amount of gold represented by the iShares will continue to decrease over the life of the trust due to the sales necessary to pay the sponsor’s fee and trust expenses |
| Without increases in the price of gold sufficient to compensate for that decrease, the price of the iShares will also decline and you will lose money on your investment in iShares |
| 7 ______________________________________________________________________ [30]Table of Contents Although the sponsor has agreed to assume all organizational and certain ordinary administrative and marketing expenses incurred by the trust, not all trust expenses have been assumed by the sponsor |
| For example, any taxes and other governmental charges that may be imposed on the trust’s property will not be paid by the sponsor |
| As part of its agreement to assume some of the trust’s ordinary administrative expenses, the sponsor has agreed to pay legal fees and expenses of the trust not in excess of dlra100cmam000 per annum |
| Any legal fees and expenses in excess of that amount will be the responsibility of the trust |
| The trust may also be subject to other liabilities (for example, as a result of litigation) which have also not been assumed by the sponsor |
| The only source of funds to cover those liabilities will be sales of gold held by the trust |
| Even if there are no expenses other than those assumed by the sponsor, and there are no other liabilities of the trust, the trustee will still need to sell gold to pay the sponsor’s monthly fee |
| The result of these periodic sales is that the amount of gold represented by each iShare will decrease |
| New deposits of gold, received in exchange for new iShares issued by the trust, do not reverse this trend |
| To retain the iShare’s original price, the price of gold has to increase |
| Without that increase, the lower amount of gold represented by the iShare will have a correspondingly lower price |
| If these increases do not occur, or are not sufficient to counter the lower amount of gold represented by each iShare, you will sustain losses on your investment in iShares |
| An increase in the trust expenses not assumed by the sponsor, or the existence of unexpected liabilities affecting the trust, will force the trustee to sell larger amounts of gold, and will result in a more rapid decrease of the amount of gold represented by each iShare and a corresponding decrease in its value |
| The trust is a passive investment vehicle |
| This means that the value of your iShares may be adversely affected by trust losses that, if the trust had been actively managed, it might have been possible to avoid |
| The trustee does not actively manage the gold held by the trust |
| This means that the trustee does not sell gold at times when its price is high, or acquire gold at low prices in the expectation of future price increases |
| It also means that the trustee does not make use of any of the hedging techniques available to professional gold investors to attempt to reduce the risks of losses resulting from price decreases |
| Any losses sustained by the trust will adversely affect the value of your iShares |
| The price received upon the sale of iShares may be less than the value of the gold represented by them |
| The result obtained by subtracting the trust’s expenses and liabilities on any day from the price of the gold owned by the trust on that day is the net asset value of the trust which, when divided by the number of iShares outstanding on that date, results in the net asset value per iShare (“ NAV”) |
| 8 ______________________________________________________________________ [31]Table of Contents iShares may trade at, above or below their NAV The NAV of iShares will fluctuate with changes in the market value of the trust’s assets |
| The trading prices of iShares will fluctuate in accordance with changes in their NAVs as well as market supply and demand |
| The amount of the discount or premium in the trading price relative to the NAV per iShare may be influenced by non-concurrent trading hours between the major gold markets and the AMEX While the iShares will trade on the AMEX until 4:15 PM New York time, liquidity in the market for gold will be reduced after the close of the major world gold markets, including London, Zurich and COMEX (which usually closes from 1:30 PM until 2:00 PM New York time) |
| As a result, during this time, trading spreads, and the resulting premium or discount on iShares, may widen |
| The liquidation of the trust may occur at a time when the disposition of the trust’s gold will result in losses to investors in iShares |
| If certain events occur, at any time, the trustee will have to terminate the trust |
| Otherwise, the trust will terminate automatically after forty years |
| Upon termination of the trust, the trustee will sell gold in the amount necessary to cover all expenses of liquidation, and to pay any outstanding liabilities of the trust |
| The remaining gold will be distributed among investors surrendering iShares |
| Any gold remaining in the possession of the trustee after 90 days may be sold by the trustee and the proceeds of the sale will be held by the trustee until claimed by any remaining holders of iShares |
| Sales of gold in connection with the liquidation of the trust at a time of low prices will likely result in losses, or adversely affect your gains, on your investment in iShares |
| There may be situations where an Authorized Participant is unable to redeem a basket of shares |
| To the extent the value of gold decreases, these delays may result in a decrease in the value of the gold the Authorized Participant will receive when the redemption occurs, as well as a reduction in liquidity for all shareholders in the secondary market |
| Although iShares surrendered by Authorized Participants in basket-size aggregations are redeemable in exchange for the underlying amount of gold, redemptions may be suspended during any period while regular trading on the AMEX or COMEX is suspended or restricted, or in which an emergency exists that makes it reasonably impracticable to deliver, dispose of, or evaluate gold |
| If any of these events occurs at a time when an Authorized Participant intends to redeem iShares, and the price of gold decreases before such Authorized Participant is able again to surrender for redemption baskets of iShares, such Authorized Participant will sustain a loss with respect to the amount that it would have been able to obtain in exchange for the gold received from the trust upon the redemption of its iShares, had the redemption taken place when such Authorized Participant originally intended it to occur |
| As a consequence, Authorized Participants may reduce their trading in iShares during periods of suspension, decreasing the number of potential buyers of iShares in the secondary market and, therefore, the price a shareholder may receive upon sale |
| The liquidity of the iShares may also be affected by the withdrawal from participation of Authorized Participants |
| In the event that one of more Authorized Participants which have substantial interests in iShares withdraw from participation, the liquidity of the iShares will likely decrease which could adversely affect the market price of the iShares and result in your incurring a loss on your investment |
| 9 ______________________________________________________________________ [32]Table of Contents Authorized Participants with large holdings may choose to terminate the trust |
| This power may be exercised by a relatively small number of holders |
| If it is so exercised, investors who wished to continue to invest in gold through the vehicle of the trust will have to find another vehicle, and may not be able to find another vehicle that offers the same features as the trust |
| The lack of an active trading market for the iShares may result in losses on your investment at the time of disposition of your iShares |
| Although iShares are listed for trading on the AMEX, you should not assume that an active trading market for the iShares will develop or be maintained |
| If you need to sell your iShares at a time when no active market for them exists, such lack of an active market will most likely adversely affect the price you receive for your iShares (assuming you are able to sell them) |
| If the process of creation and redemption of Baskets of iShares encounters any unanticipated difficulties, the possibility for arbitrage transactions intended to keep the price of the iShares closely linked to the price of gold may not exist and, as a result, the price of the iShares may fall |
| If the processes of creation and redemption of shares (which depend on timely transfers of gold to and by the custodian) encounter any unanticipated difficulties, potential market participants who would otherwise be willing to purchase or redeem Baskets of iShares to take advantage of any arbitrage opportunity arising from discrepancies between the price of the iShares and the price of the underlying gold may not take the risk that, as a result of those difficulties, they may not be able to realize the profit they expect |
| If this is the case, the liquidity of the iShares may decline and the price of the iShares may fluctuate independently of the price of gold and may fall |
| iShares are not entitled to the same rights as shares issued by a corporation |
| By acquiring iShares, you are not acquiring the right to elect directors, to receive dividends, to vote on certain matters regarding the issuer of your iShares or to take other actions normally associated with the ownership of shares |
| As an owner of iShares, you will not have the protections normally associated with ownership of shares in an investment company registered under the Investment Company Act of 1940, or the protections afforded by the Commodity Exchange Act of 1936 |
| The trust is not registered as an investment company for purposes of United States federal securities laws, and is not subject to regulation by the SEC as an investment company |
| Consequently, the owners of iShares do not have the regulatory protections provided to investors in investment companies |
| For example, the provisions of the Investment Company Act that limit transactions with affiliates, prohibit the suspension of redemptions (except under certain limited circumstances) or limit sales loads do not apply to the trust |
| The trust does not hold or trade in commodity futures contracts regulated by the Commodity Exchange Act (“CEA”), as administered by the Commodity Futures Trading Commission (“CFTC”) |
| Furthermore, the trust is not a commodity pool for purposes of the CEA, and its sponsor is not subject to regulation by the CFTC as a commodity pool operator, or a commodity trading advisor |
| Consequently, the owner of iShares does not have the regulatory protections 10 ______________________________________________________________________ [33]Table of Contents provided to investors in CEA-regulated instruments or commodity pools |
| Consequently, the trustee is not subject to registration as a commodity pool operator and the owners of iShares do not receive the disclosure document and certified annual report required to be delivered by a commodity pool operator |
| The value of the iShares will be adversely affected if gold owned by the trust is lost or damaged in circumstances in which the trust is not in a position to recover the corresponding loss |
| The responsibility of the custodian for loss or damage to the trust’s gold is not unlimited |
| The agreement with the custodian contemplates that under certain circumstances the custodian will not be responsible for loss or damage to the trust’s gold in the custodian’s possession |
| For example, losses due to nuclear accidents, terrorism, riots, acts of God, insurrections, strikes and similar causes beyond the control of the custodian will be sustained by the trust |
| Any loss of gold owned by the trust will result in a corresponding loss in the NAV and it is reasonable to expect that such loss will also result in a decrease in the value at which the iShares are traded on the AMEX Gold transferred to the trust in connection with the creation of Baskets of iShares may not be of the quality required under the Trust Agreement |
| The trust will sustain a loss if the trustee issues iShares in exchange for gold of inferior quality and that loss will adversely affect the value of all existing iShares |
| The procedures agreed to with the custodian contemplate that the custodian must undertake certain tasks in connection with the inspection of gold delivered by Authorized Participants in exchange for Baskets of iShares |
| The custodian’s inspection includes review of the corresponding bar list to ensure that it accurately describes the weight, fineness, refiner marks and bar numbers appearing on the gold bars, but does not include any chemical or other tests designed to verify that the gold received does, in fact, meet the purity requirements referred to in the Trust Agreement |
| Accordingly, such inspection procedures may not prevent the deposit of gold that fails to meet these purity standards |
| Each person that deposits gold in the trust is liable to the trust if that gold does not meet the requirements of the Trust Agreement |
| The custodian will not be responsible or liable to the trust or to any investor in the event any gold otherwise properly inspected by it does not meet the purity requirements contained in the Trust Agreement |
| To the extent that Baskets of iShares are issued in exchange for gold of inferior quality and the trust is not able to recover damages from the person that deposited that gold, the total value of the assets of the trust will be adversely affected and, with it, the NAV In these circumstances, it is reasonable to expect that the value at which the iShares trade on the AMEX will also be adversely affected |
| The value of the iShares will be adversely affected if the trust is required to indemnify the trustee as contemplated in the Trust Agreement |
| Under the Trust Agreement, the sponsor has a right to be indemnified from the trust for any liability or expense it incurs without negligence, bad faith or willful misconduct on its part |
| That means the sponsor may require the assets of the trust to be sold in order to cover losses or liability suffered by the sponsor |
| Any sale of that kind would reduce the net asset value of the trust and the value of the iShares |