The
information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and the Sponsor and the Trust are not soliciting an
offer to buy these securities in any jurisdiction where the offer or sale is not
permitted.
The
Franklin Templeton Holdings Trust (the “Trust”) is organized as a Delaware
statutory trust. The Franklin Responsibly Sourced Gold ETF series of the
Trust (the “Fund”) issues and offers shares (“Shares”) which represent units of
fractional undivided beneficial interests in the net assets of the Fund.
Only Shares of the Fund, and no other series of the Trust, as may be issued from
time to time, are offered in this prospectus (“Prospectus”). The investment
objective of the Fund is for the Shares to reflect the performance of the price
of gold bullion, less the Fund’s expenses. The assets of the Fund include only
gold bullion and cash, if any. The Fund is not a proxy for investing in physical
gold. Rather, the Shares are intended to provide a cost-effective means of
obtaining investment exposure through the securities markets that is similar to
an investment in gold.
The
Fund seeks to hold only responsibly sourced gold in the Fund’s allocated
account. The Fund defines responsibly sourced gold for this purpose as
London Good Delivery gold bullion bars that were refined on or after January 1,
2012 (also referred to herein as “post-2012 gold”). All post-2012 gold has been
refined in accordance with London Bullion Market Association’s (“LBMA”)
Responsible Gold Guidance (the “Gold Guidance”), described further herein.
To facilitate this, in transferring gold into and out of the Fund’s allocated
account, the Custodian will, on a best efforts basis and subject to available
liquidity, seek to allocate post-2012 gold. If, due to a lack of liquidity, the
Custodian is unable to allocate post-2012 gold to the Fund’s allocated account,
the Custodian will do so as soon as reasonably practicable.
Franklin
Holdings, LLC is the Sponsor of the Trust (the “Sponsor”). The Trust is a
Delaware statutory trust that was formed on April 19, 2021. The Shares are not
obligations of, and are not guaranteed by, the Sponsor or any of its
subsidiaries or affiliates.
BNY
Mellon Asset Servicing, a division of The Bank of New York Mellon, or “BNYM,” is
the Administrator (the “Administrator”) and Transfer Agent (the “Transfer
Agent”) of the Fund. BNYM also serves as the custodian of the Fund’s cash, if
any. JPMorgan Chase Bank, N.A., London branch (“JPMorgan”), serves as the
custodian (the “Custodian”) of the Fund’s gold bullion. Delaware Trust Company,
a subsidiary of the Corporation Services Company, is the sole trustee of the
Trust (the “Trustee”). Franklin Distributors, LLC is the marketing agent of the
Fund (the “Marketing Agent”).
The
Trust is an “emerging growth company” as defined under the federal securities
laws and, as such, has elected to comply with certain reduced public company
reporting requirements for this Prospectus and future filings.
Investing
in the Shares involves significant risks and may not be suitable for certain
investors. Shareholders do not have any voting rights under the Trust’s
governing documents except as the Sponsor may authorize from time to time. See
“Risks Related to the Shares—Shareholders do not have the rights enjoyed by
investors in certain other vehicles.”
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of the securities offered in this Prospectus, or
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The
Fund will issue and redeem Shares from time to time in Creation Units only to
Authorized Participants in exchange for the delivery to the Fund, or the
distribution by the Fund, of the amount of gold bullion represented by the
Creation Units being created or redeemed. This amount is based on the combined
NAV of the number of Shares included in the Creation Units being created or
redeemed, as applicable, determined on the day the order to create or redeem
Creation Units is accepted, as described in “Creations and Redemptions.” The
Shares will be sold to the public at prices that will reflect the price of gold
and the trading price of the Shares on NYSE Arca at the time of the
offer.
The
Shares are neither interests in nor obligations of the Sponsor, the Trustee, the
Administrator, the Transfer Agent, the Custodian, the Marketing Agent or their
respective affiliates. The Shares are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency. The Trust is not an
investment company registered under the Investment Company Act of 1940, as
amended (the “1940 Act”), and is not required to register under such act. The
Fund is not a commodity pool for purposes of the Commodity Exchange Act of 1936,
as amended (the “CEA”), and neither the Sponsor nor the Trustee are subject to
regulation by the Commodity Futures Trading Commission (“CFTC”) as a commodity
pool operator or a commodity trading advisor with respect to the Fund. See “Regulatory Risks— Shareholders do not have
the protections associated with ownership of shares in an investment company
registered under the 1940 Act or the protections afforded by the
CEA.”
On
May 24, 2022, JP Morgan Securities LLC (the “Initial AP”), subject to conditions
and acting as a statutory underwriter in connection with the initial purchase of
Shares, deposited gold for the purchase of Seed Creation Units totaling 100,000
Shares at the price equal to $25 per Share. Total proceeds to the Fund from the
sale of the Seed Creation Units were 1,338.976 ounces of gold. At contribution,
the value of the gold deposited with the Fund was based on the LBMA Gold Price
PM announced on May 24, 2022 of $1,867.10 per ounce of gold. Delivery of the
Seed Creation Units was made on May 26, 2022.
The
Initial AP intends to offer to the public these 100,000 Shares at a per-Share
offering price that will vary depending on, among other things, the price of
gold and the trading price of the Shares on the NYSE Arca at the time of the
offer. Shares offered by the Initial AP at different times may have different
offering prices. Prior to this offering, there was no public market for the
Shares. The Initial AP is not affiliated with the Sponsor or the
Trustee.
As
of May 24, 2022, there were 100,000 Shares outstanding.
This
Prospectus contains information you should consider when making an investment
decision about the Shares. You may rely on the information contained in this
Prospectus. The Trust and the Sponsor have not authorized any person to provide
you with different information and, if anyone provides you with different or
inconsistent information, you should not rely on it. This Prospectus is not an
offer to sell the Shares in any jurisdiction where the offer or sale of the
Shares is not permitted.
The
Shares are not registered for public sale in any jurisdiction other than the
United States. Persons outside of the United States who come into
possession of this Prospectus must inform themselves about, and observe any
restrictions relating to, the offering of the Shares and the distribution of
this Prospectus outside of the United States.
Until
[__], 2022 (25 days after the date of this Prospectus), all dealers effecting
transactions in the Shares, whether or not participating in this distribution,
may be required to deliver a prospectus. This requirement is in addition to the
obligations of dealers to deliver a prospectus when acting as underwriters and
with respect to unsold allotments or subscriptions. The Sponsor first intends to
use this Prospectus on June [__], 2022.
Authorized
Participants may be required to deliver a prospectus when making transactions in
the Shares.
Unless
otherwise indicated, information contained in this Prospectus concerning the
gold industry and market for gold bullion is based on information from
independent industry and research organizations, other third-party sources and
management estimates. Certain of these publications, studies and reports may
have been published before the COVID-19 pandemic and therefore may not reflect
any impact of COVID-19 on the gold industry and market for gold bullion. Sponsor
estimates are derived from publicly available information released by
independent industry analysts and third-party sources, as well as data from
internal research, and are based on assumptions made by reviewing such data and
the Sponsor’s knowledge of the gold industry and market for gold bullion, which
is believed to be reasonable. Although the Sponsor believes the data from these
third-party sources is reliable, the Sponsor has not independently verified any
third-party information. In addition, projections, assumptions and estimates of
the future performance of the gold industry, market for gold bullion and the
future performance of the Fund are necessarily subject to uncertainty and risk
due to a variety of factors, including those described in “Risk Factors” and
“Statement Regarding Forward-looking Statements.” These and other factors could
cause results to differ materially from those expressed in the estimates made by
the independent parties and by the Sponsor.
Prospectus
Summary
The
following is a summary of the Prospectus and, while it contains material
information about the Fund and the Shares, it does not contain or summarize all
of the information about the Fund and the Shares contained in this Prospectus
which is material and may be important to you. You should read this entire
Prospectus, including “Risk Factors” beginning on page 6, before making an
investment decision about the Shares.
Definitions
used in this Prospectus can be found in the Glossary of Defined Terms in
Appendix A.
TRUST
STRUCTURE
The
Trust
Franklin
Templeton Holdings Trust, or the Trust, was formed as a Delaware statutory trust
on April 19, 2021. The Trust currently offers a single series, the Franklin
Responsibly Sourced Gold ETF. The Fund issues common units of beneficial
interest, or Shares, which represent units of fractional undivided beneficial
interest in and ownership of the Fund. The term of the Trust and the Fund is
perpetual (unless terminated earlier in certain circumstances). Delaware Trust
Company, a subsidiary of the Corporation Service Company, serves as Trustee of
the Trust. The material terms of the Agreement and Declaration of Trust between
the Trustee and the Sponsor are discussed in greater detail under the section
“The Declaration of Trust.”
Franklin
Responsibly Sourced Gold ETF
The
Fund offered pursuant to this Prospectus is the Franklin Responsibly Sourced
Gold ETF, also referred to herein as “FGLD.” The investment objective of the
Fund is for the Shares to reflect the performance of the price of gold bullion,
less the Fund’s expenses. The Fund’s only ordinary recurring expense is the
Sponsor’s annual fee of 0.15% of the NAV of the Fund.
The
Fund seeks to hold only responsibly sourced gold in the Fund’s allocated
account. The Fund defines responsibly sourced gold for this purpose as
London Good Delivery gold bullion bars that were refined on or after January 1,
2012 (referred to herein as “post-2012 gold” and London Good Delivery gold
bullion bars refined prior to January 1, 2012 referred to herein as “pre-2012
gold”). All post-2012 gold has been refined in accordance with London Bullion
Market Association’s (“LBMA”) Responsible Gold Guidance (the “Gold
Guidance”).
To facilitate this, in transferring gold into and out of the Fund’s
allocated account, the Custodian will, on a best efforts basis and subject to
available liquidity, seek to allocate post-2012 gold. If, due to a lack of
liquidity, the Custodian is unable to allocate post-2012 gold to the Fund’s
allocated account, the Custodian will do so as soon as reasonably practicable.
Therefore, under normal market conditions, the Fund expects to hold only
post-2012 gold in the Fund’s allocated account. The Fund, however, may
temporarily deviate from this policy in unusual market conditions, such as in
the event of a temporary supply constraint or lack of availability, in which
case the Fund will seek to come back into conformity with the policy as soon as
reasonably practical. For example, at the time of a creation transaction
in the Fund’s Shares, only pre-2012 gold may be readily available to the
Custodian. In such circumstances, the Custodian would allocate such gold to the
Fund’s allocated account on a temporary basis until such time as the Custodian
is able to swap out the pre-2012 gold for post-2012 gold (including, but not
limited to, in connection with redemption transactions).
The
Fund has not adopted a limit or policy specifying the maximum amount of pre-2012
gold the Fund can hold at any time. However, the Fund expects any holdings of
pre-2012 gold to be temporary pursuant to the Custodian’s contractual
commitments to the Fund, as described herein. The Fund is not able to determine
with specificity the total amount of pre-2012 gold that exists across various
global reserves, and therefore the Fund is not able to determine what portion of
the current market supply of LBMA good delivery gold is comprised of London Good
Delivery gold bullion bars produced after January 2012.
The
Fund is not a proxy for investing in physical gold. Rather, the Shares are
intended to provide a cost-effective means of obtaining investment exposure
through the securities markets that is similar to an investment in gold. An
investment in physical gold requires costly and potentially complex arrangements
and accommodations such as those in connection with the assay, transportation,
warehousing and insurance of precious metals. As a result of these expenses and
complexities, direct investments in physical gold are generally cost-effective
only in amounts that are cost prohibitive to many investors. An investment in
the Shares is intended to remove these traditional barriers to a cost-effective
investment in physical gold by providing an investment with a value that
reflects the price of the gold owned by the Fund, less the Fund’s expenses and
liabilities. Although the Shares are not the exact equivalent of an investment
in gold, they provide investors with an alternative means of exposure to the
price of gold that allows a level of participation in the gold market through
the securities market.
The
Fund is designed to offer investors exposure to responsibly sourced gold as
defined by the Fund in a pooled investment vehicle structure. The Fund defines
responsibly sourced gold with reference to the specific criteria established and
monitored by the LBMA through its Responsible Sourcing Programme and the Gold
Guidance thereunder. The Gold Guidance on which the Fund’s responsible sourcing
definition and practices rely is described in greater detail beginning on page
18 of the Prospectus. The Fund does not
establish, maintain, monitor or control the standards or requirements under the
LBMA Responsible Sourcing Programme or the Gold Guidance. Accordingly, an
investment in the Fund is subject to the risk that the standards as may be
established or amended from time to time do not function as intended or that
material violations of the standards are not detected or enforced in a timely
manner or at all. The standards may be inadequate or ineffective in mitigating
various risks in the LBMA gold sourcing supply chain. These risks may be more
pronounced with respect to holdings of recycled gold. For information, please
see “Risk Factors—Risks Related to the
Shares—The Fund is subject to responsible sourcing due diligence
risk.”
There
are actual and potential conflicts of interest inherent in the Fund’s structure
that you should consider before purchasing Shares. The Sponsor manages the
Fund’s business and affairs. The Fund does not have a board of directors or its
own executive officers and accordingly is reliant on the
Sponsor
to resolve any conflicts that may arise between the Sponsor and its affiliates
on the one hand and the Fund on the other hand in good faith. Examples of
potential conflicts include, among others, conflicts arising from the Trust’s
indemnification of the Sponsor and its affiliates pursuant to the terms of the
Declaration of Trust. The Sponsor, its affiliates and their officers and
employees are not prohibited from engaging in other businesses or activities,
including those that might be in direct competition with the Fund. See “Risk Factors—General Risks—Potential conflicts of
interest may arise among the Sponsor or its affiliates and the
Fund.”
Shares
of the Fund represent units of fractional undivided beneficial interest in and
ownership of the Fund and will be offered on a continuous basis. The Fund will
issue and redeem Shares from time to time in Creation Units only to Authorized
Participants. The Fund’s Shares will trade under the ticker symbol FGLD on NYSE
Arca and other securities exchanges. Authorized Participants and other investors
will buy and sell Shares in the secondary market, largely in response to
changing demand for Shares. The principal offices of the Trust and the Fund are
located at One Franklin Parkway, San Mateo, CA 94403-1906.
The
Sponsor
The
Sponsor of the Trust and the Fund is Franklin Holdings, LLC. The Sponsor is a
Delaware limited liability company and was formed on July 21, 2021. Under
the Delaware Limited Liability Company Act and the governing documents of the
Sponsor, Franklin Advisers, Inc., the sole member of the Sponsor, is not
responsible for the debts, obligations and liabilities of the Sponsor solely by
reason of being the sole member of the Sponsor. Franklin Resources, Inc., a
corporation registered under Delaware law, is the ultimate parent company of the
Sponsor.
The Sponsor is responsible for establishing the Fund and
for the registration of the Shares. The Sponsor will generally oversee the
performance of the Fund’s principal service providers, but will not exercise
day-to-day oversight over such service providers. The Sponsor will maintain a
public website on behalf of the Fund, containing information about the Fund and
the Shares. The Fund’s website is www.franklintempleton.com/
investments/options/exchange-tradedfunds/products/31714/SINGLCLASS/
franklin-responsibly-sourced-gold-etf/ FGLD. This website is only provided here
as a convenience to you, and the information contained on or connected to the
Fund’s website is not considered part of this Prospectus.
The
general role and responsibilities of the Sponsor, as well as the principals and
key personnel of the Sponsor, are discussed in greater detail under the section
“The Declaration of Trust — The Sponsor.”
The
Administrator
The
Administrator of the Fund is BNY Mellon Asset Servicing, a division of The Bank
of New York Mellon, or “BNYM”. The Administrator is generally responsible for
the day-to-day administration and operation of the Fund, including the
calculation of the NAV of the Fund and the NAV per Share. The general role and
responsibilities of the Administrator are discussed in greater detail under the
section “Description of Key Service Providers — The Administrator.”
The
Transfer Agent
The
Transfer Agent is BNYM. The Transfer Agent serves as the Fund’s transfer agent
in connection with Creation and Redemption transactions of Shares and acts as
the Fund’s distribution disbursing agent. The Transfer Agent receives and
processes orders from Authorized Participants to create and redeem Creation
Units and coordinates the processing of such orders with the Custodian and The
Depository Trust Company, or “DTC.” The general role and responsibilities of the
Transfer Agent are discussed in greater detail under the section “Description of
Key Service Providers — The Transfer Agent.”
The
Custodian (Cash Only)
The
custodian of the Fund’s cash, if any, is BNYM. BNYM is generally responsible for
establishing and maintaining one or more cash accounts for the Fund. BNYM also
maintains books and records segregating the assets of the Fund from the assets
of any other series of the Trust. The general role and responsibilities of BNYM
as custodian of the Fund’s cash are discussed in greater detail under the
section “Description of Key Service Providers — The Custodian (Cash
Only).”
The
Custodian
JPMorgan
serves as the Custodian of the Fund. The Custodian is responsible for
safekeeping the gold bullion owned by the Trust. The Custodian is a market
maker, clearer and approved weigher of gold under the rules of the London
Bullion Market Association, or “LBMA.” The general role, responsibilities and
regulation of the Custodian are further described in section “Description of Key
Service Providers — The Custodian.”
The
Marketing Agent
The
Marketing Agent is Franklin Distributors, LLC. The Marketing Agent, an affiliate
of the Sponsor, assists the Sponsor in marketing the Shares. The Marketing Agent
is a registered broker-dealer with the SEC and is a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”).
The
Trust Is an Emerging Growth Company
The
Trust is an “emerging growth company” subject to reduced public company
reporting requirements under U.S. federal securities laws. Under the JOBS Act,
emerging growth companies like the Trust are subject to reduced public company
reporting requirements, as more fully described in the section “Risk
Factors.”
The
Trust expects to remain an “emerging growth company” until the earliest of (i)
the last day of the fiscal year on which the fifth anniversary of its initial
public offering of Shares occurs, or (ii) the Trust becoming a “large
accelerated filer” within the meaning of the Exchange Act. Other conditions that
may trigger a loss of “emerging growth company” status are not expected to apply
to the Trust due to the limited nature of its operations.
THE
FUND’S OBJECTIVE
The
investment objective of the Fund is for the Shares to reflect the performance of
the price of gold bullion, less the expenses of the Fund’s operations. The Fund
pays the Sponsor an annual fee of 0.15%, which is the Fund’s only ordinary
recurring expense. It is expected that, for many investors, the costs associated
with buying and selling the Shares in the secondary market and the payment of
the Fund’s ongoing expenses will be lower than the costs associated with buying
and selling gold bullion and storing and insuring gold bullion in a traditional
allocated gold bullion account.
The
Shares are designed for investors who want a cost-effective and convenient way
to invest in responsibly sourced gold. The Shares trade on NYSE Arca and provide
institutional and retail investors with indirect access to the gold bullion
market. They may be bought and sold on NYSE Arca like any other exchange-listed
securities, and regularly trade until 4:00 p.m. Eastern time.
Investing
in the Shares involves certain risks, including price volatility. See “Risk
Factors.”
PRINCIPAL
OFFICES
The
Fund’s office is located at One Franklin Parkway, San Mateo, CA 94403-1906 and
its telephone number is (650) 312-2000. The Sponsor’s office is located at
One Franklin Parkway, San Mateo, CA 94403-1906 and its telephone number is (650)
312-2000. The Trustee’s office is located at 251 Little Falls Drive,
Wilmington, DE 19808. The Administrator’s office is located at 2 Hanson Place,
Brooklyn, New York 11217. The Transfer Agent’s office is located at 2 Hanson
Place, Brooklyn, New York 11217. The Custodian’s office is located at 25 Bank
St, Canary Wharf, London E14 5JP, United Kingdom. The Marketing Agent’s office
is located at One Franklin Parkway, San Mateo, CA 94403-1906.
|
The
Offering
Offering
|
The Shares
represent units of fractional undivided beneficial interest in and
ownership of the Fund. |
|
Use
of Proceeds |
Proceeds received
by the Fund from the issuance and sale of Creation Units, including the
Seed Creation Units issued to the Initial AP, will consist of gold bullion
deposits. During the life of the Fund such proceeds will only be (1) held
by the Fund, (2) disbursed or sold as needed to pay the Fund’s ongoing
expenses and (3) distributed to Authorized Participants in connection with
the redemption of Creation Units. |
|
NYSE Arca
Symbol
CUSIP
|
FGLD
35473M105
|
|
Creation
and Redemption |
The Fund expects
to issue and redeem the Shares from time to time, but only in large
aggregations of Shares (as of the date of this Prospectus, 50,000 Shares)
referred to as Creation Units. Creation Units may be created or redeemed
only by Authorized Participants. The creation and redemption of Creation
Units require the delivery to the Fund or the distribution by the Fund of
the amount of gold bullion represented by the Creation Units being created
or redeemed. The dollar amount of a Creation Unit is a function of the NAV
of the number of Shares included in the Creation Unit. The initial amount
of gold bullion required for deposit with the Fund to create Shares was
669.488 ounces per Creation Unit. The number of ounces of gold bullion
required to create a Creation Unit or to be delivered upon the redemption
of a Creation Unit gradually decreases over time, due to the accrual of
the Fund’s expenses and the sale of the Fund’s gold bullion to pay the
Fund’s expenses. Authorized Participants will pay a transaction fee for
each order to create or redeem Creation Units. Authorized Participants may
sell the Shares included in the Creation Units they create to other
investors. See the section “Creations and Redemptions” for more
details. |
|
Net
Asset Value |
The NAV of the
Fund is the aggregate value of the Fund’s assets less its liabilities
(which include estimated accrued but unpaid fees and expenses). The NAV of
the Fund is calculated based on the price of gold per ounce times the
number of ounces of gold owned by the Fund. For purposes of calculating
NAV, the number of ounces of gold owned by the Fund reflects the amount of
gold delivered into (or out of) the Fund on a daily basis by Authorized
Participants creating and redeeming Shares. Except as otherwise described
herein, in determining the NAV of the Fund, the Administrator generally
will value the gold bullion held by the Fund on the basis of the LBMA Gold
Price PM. If no LBMA Gold Price PM is made on a particular evaluation day
or if the LBMA Gold Price PM has not been announced by 12:00 p.m. Eastern
standard time on a particular evaluation day, the next most recent LBMA
Gold Price (AM or PM) will be used to determine the NAV of the Fund,
unless the Sponsor determines that such price is inappropriate to use as
the basis for such determination. If the Sponsor determines that such
price is inappropriate to use, it shall identify an alternate basis for
evaluation of the gold bullion held by the Fund. |
|
|
The Administrator
will also determine the NAV per Share, which equals the NAV of the Fund,
divided by the number of outstanding
Shares. |
|
Purchases
and Sales in the Secondary Market |
The Shares of the
Fund will be listed on NYSE Arca and traded on NYSE Arca and other
national securities exchanges. |
|
|
Creation Units
of Shares in the Fund may be created or redeemed only by Authorized
Participants. It is expected that Creation Units in the Fund will be
created when there is sufficient demand for Shares in the Fund as when,
for example, the market price per Share is at a premium to the NAV per
Share. Authorized Participants are expected to sell such Shares to the
public at prices that are expected to reflect, among other factors, the
intra-day value of gold and the supply of and demand for Shares at the
time of sale. Similarly, it is expected that Creation Units in the Fund
will be redeemed when the market price per Share of the Fund is at a
discount to the NAV per Share. Retail investors seeking to purchase or
sell Shares on any day |
|
|
are expected to effect such transactions in the secondary market, on
NYSE Arca or other national securities exchanges, at the market price per
Share, rather than in connection with the creation or redemption of
Creation Units.
The market price of the Shares is not identical to the end-of-day NAV
per Share. However, the market price per Share is expected to be close to
the intra-day value of the Fund. Information regarding the market price of
the Shares will be provided on the Fund’s website at
www.franklintempleton.com/
investments/options/exchange-tradedfunds/products/31714/SINGLCLASS/
franklin-responsibly-sourced-gold-etf/ FGLD.
Investors are able to use the indicative
intra-day value (“IIV”) per Share as a reference to help determine if they
want to purchase or sell Shares in the secondary market. The IIV per Share
of the Fund is based on the prior day’s final NAV, adjusted four times per
minute throughout the trading day to reflect the continuous estimated
price changes of the Fund’s investments in gold. The IIV per Share should
not be viewed as a real-time update of the Fund’s NAV, which is calculated
once a day. The IIV per Share is not calculated by the Fund and the Fund
makes no representation or warranty as to the accuracy of the IIV per
Share. Retail investors may purchase and sell Shares through traditional
brokerage accounts or other intermediaries. Purchases or sales of Shares
may be subject to customary brokerage commissions and other transaction
charges. Investors are encouraged to review the terms of their brokerage
accounts for applicable charges. |
|
Fund
Expenses |
The Fund’s only
ordinary recurring expense is the Sponsor’s annual fee of 0.15% of the NAV
of the Fund. The Sponsor’s annual fee accrues daily and is payable by the
Fund monthly in arrears. The Fund’s expenses will reduce the NAV of the
Fund. |
|
Sponsor
Fees |
The Sponsor will
receive an annual fee equal to 0.15% of the daily NAV of the Fund. The
Sponsor’s compensation is paid in consideration of the Sponsor’s (i)
services under the Sponsor Agreement and the Declaration of Trust and (ii)
the payment by the Sponsor of the ordinary fees and expenses of the Fund,
including but not limited to, the fees charged by the Administrator, the
Custodian and the Trustee. The Sponsor shall not be required to pay any
extraordinary or non-routine expenses. Extraordinary expenses are fees and
expenses which are unexpected or unusual in nature, such as legal claims
and liabilities and litigation costs or indemnification or other
unanticipated expenses. Extraordinary fees and expenses also include
material expenses which are not currently anticipated obligations of the
Fund. Routine operational, administrative and other ordinary expenses are
not deemed extraordinary expenses. |
|
Voting
Rights |
Under the
Declaration of Trust, shareholders have no voting rights except as the
Sponsor may consider desirable and so authorize in its sole discretion
from time to time. |
|
Termination
Events |
The Sponsor may
terminate and liquidate the Fund or the Trust for any reason in its sole
discretion. The Sponsor would likely terminate and liquidate the Fund if
one of the following events occurs: |
|
• |
DTC, the
securities depository for the Shares, is unwilling or unable to continue
as the securities depository for the Shares and the Sponsor determines
that no suitable replacement is available; |
|
• |
The Shares are
de-listed from NYSE Arca and are not listed for trading on another U.S.
national securities exchange within five Business Days from the date the
Shares are de- listed; or |
|
• |
The Fund fails to
qualify for treatment, or ceases to be treated, for U.S. federal income
tax purposes, as a grantor trust. |
|
|
For additional
information relating to resignation of the Custodian, see “Risk Factors
—Risks Related to the Custody of Gold—Resignation of the Custodian would
likely lead to the termination of the Fund if no successor is
appointed.”
Upon the
termination of the Fund, the Sponsor will, within a reasonable time after
the termination of the Fund, sell all of the gold bullion not already
distributed to Authorized Participants redeeming Creation Units, if any,
and, after paying or making provision for the
|
|
Authorized Participants |
Fund’s
liabilities, distribute the proceeds to the Shareholders. See “The
Declaration of Trust — Termination of the Trust or Fund.”
Creation Units may
be created or redeemed only by Authorized Participants. Each Authorized
Participant must (1) be a registered broker-dealer or other securities
market participant such as a bank or other financial institution which is
not required to register as a broker-dealer to engage in securities
transactions, (2) be a DTC Participant, and (3) have entered into an
agreement to create and redeem the Fund’s Shares, referred to as a
“Participant Agreement.” The Participant Agreement provides the procedures
for the creation and redemption of Creation Units and for the delivery of
gold bullion required for such creations or redemptions. A list of the
current Authorized Participants can be obtained from the Administrator or
the Sponsor. See “Creation and Redemption of Shares” for more
details. |
|
Clearance
and Settlement |
The Shares will be
evidenced by global certificates that the Trust issues to DTC. The Shares
are available only in book-entry form. Shareholders may hold their Shares
through DTC, if they are DTC Participants, or indirectly through entities
that are DTC Participants. |
SUMMARY
OF FINANCIAL CONDITION
As
of May 24, 2022, the date the Initial AP deposited 1,338.976 fine ounces
of gold into the Fund in exchange for 100,000 Shares, the net asset value of the
Fund was $2,500,002 and the NAV per share was $25. At contribution, the value of
the gold deposited with the Fund was based on the price of an ounce of gold of
$1,867.10 announced on May 24, 2022.
Risk
Factors
You
should consider carefully the risks described below before making an investment
decision. You should also refer to the other information included in this
Prospectus, including the Fund’s financial statements and the related
notes. There can be no assurance that the Fund will meet its investment
objective, achieve profits or avoid losses.
RISKS
RELATED TO INVESTMENTS IN GOLD
An
investment in the Fund is subject to market risk with respect to the gold
markets.
Market
risk refers to the risk that the market price of gold bullion held by the Trust
may go up and down, sometimes rapidly or unpredictably. The market price of the
gold bullion has been historically unpredictable.
The
Fund is not a diversified investment and, therefore, may be more volatile than
other investments.
An
investment in the Fund is not intended as a complete investment plan. Because
the Fund principally holds only gold bullion, an investment in the Fund may be
more volatile than an investment in a more broadly diversified portfolio and may
fluctuate substantially over time. The price of gold can be volatile because
gold is comparatively less liquid than other commodities. An investment in the
Fund may be deemed speculative. An investment in the Fund should be considered
only by persons financially able to maintain their investment and who can bear
the risk of loss associated with an investment in the Fund. Investors
should review closely the objective and strategy, the investment and operating
restrictions of the Fund and familiarize themselves with the risks associated
with an investment in the Fund.
Adverse
developments in gold bullion trading prices may affect the value of an
investment in the Fund.
One
or more factors such as global gold supply and demand, exchange rate and
interest rate volatility and inflation expectations may lead to a decrease in
gold bullion trading prices. A decline in prices of gold would have a negative
impact on the Fund’s NAV and Shares.
Economic
or other events could result in large-scale sales of gold, which could decrease
the price of gold and the value of an investment in the Fund.
Large-scale
distress sales of gold may have a negative impact on the price of gold and
reduce the value of an investment in the Fund. The 2008 financial crisis
resulted in significantly depressed prices of gold, primarily due to forced
sales and deleveraging by institutional investors. Future events or crises may
similarly affect gold’s price performance, which would, in turn, adversely
affect an investment in the Fund.
The
Fund is subject to the risk that the Fund’s gold bullion may be sold at low
prices to pay expenses.
The
Fund’s gold bullion may be sold by the Sponsor to pay Fund expenses that are due
regardless of the current gold prices. The Fund is not an actively managed
investment and does not produce income that could be used to pay expenses.
The Sponsor will make no attempt to buy or sell gold bullion to
protect
against or to take advantage of fluctuations in the price of gold. Therefore,
the Fund’s gold bullion may be sold at a time when the gold price is low, which
could result in a loss to the Fund.
Temporary
increases in the price of gold due to purchases of gold bullion to deliver to
the Fund in exchange for Creation Units may adversely affect the Fund.
Purchasing
activity associated with acquiring the gold bullion required for deposit into
the Fund in connection with the creation of Creation Units, and purchasing
activity of other market participants, may temporarily increase the market price
of gold, which would likely result in higher prices for the Shares. Other market
participants may attempt to benefit from an increase in the market price of gold
that may result from increased purchasing activity of gold connected with the
issuance of Creation Units. Consequently, the market price of gold may decline
immediately after Creation Units are created. If the price of gold declines, it
will have a negative impact on the value of the Fund.
The
price of gold may be affected by the sale of gold by exchange-traded funds
(“ETFs”) or other exchange-traded vehicles tracking gold markets.
Large
redemptions of the securities of existing ETFs or other exchange-traded vehicles
tracking gold markets, which represent a significant proportion of demand for
physical gold bullion, could negatively affect gold bullion prices and the price
and NAV of the value of the Fund’s Shares.
Substantial
sales of gold by the “official” sector could adversely affect the value of an
investment in the Shares.
The
“official” sector (i.e., central banks, other governmental agencies and
multi-lateral institutions) buy, sell and hold gold as part of their reserve
assets. The official sector holds a significant amount of gold, most of which is
held in vaults and is not bought, sold, leased, swapped or otherwise mobilized
in the open market. In the event that future economic, political or social
conditions or pressures require members of the official sector to liquidate
their gold assets all at once or in an uncoordinated manner, the demand for gold
might not be sufficient to accommodate the sudden increase in the supply of gold
to the market. This could decrease the price of gold significantly, which would
adversely affect an investment in the Fund.
Geopolitical
tensions or conflicts affecting significant gold producers could result in a
decline in the price of gold and adversely affect the value of an investment in
the Shares.
Global
or regional military conflicts or acts of aggression, including Russia’s
military invasion of Ukraine in February 2022 as discussed further below, may
negatively affect global expectations for economic growth, exacerbate
inflationary pressures, disrupt trading markets and/or supply chains and result
in protracted volatility, which could have an adverse effect on the value of the
Fund’s investments. Specifically, in the aftermath of Russia’s invasion of
Ukraine, gold prices experienced increased volatility. The extent and duration
of Russia’s military actions and the repercussions of such actions (including
any retaliatory actions or countermeasures that may be taken by countries or
entities subject to sanctions, including cyber attacks) are impossible to
predict. These and any related events could significantly impact the Fund’s
performance and the value of an investment in the Fund. On March 7, 2022, the
LBMA suspended six Russian gold and silver refiners from its Good Delivery List
until further notice in light of sanctions imposed on Russia by the U.S.,
European Union and other countries in response to Russia’s invasion of Ukraine.
As a result, while existing gold bars from these refiners are considered
acceptable, newly minted gold bars produced by such refiners are effectively
banned from trading in the loco London market. Russia is a significant
producer of gold (estimates indicate Russia produces approximately 330 tonnes of
gold per year, accounting for around 9% of global production); however, per the
LBMA, as of the end April 2022, the amount of LBMA Good Delivery gold held in
London vaults was 9,672 tonnes (an increase of 0.03% from the previous month),
valued at $594.3 billion, which equates to approximately 773,735 gold bars.
Accordingly, as of the date of this prospectus, the Fund does not expect that
the suspension of Russian refiners will have a material impact on the supply of
LBMA Good Delivery gold available to the Fund and other market participants. Any
potential escalation of the conflict could negatively impact the Fund. In
addition, similar events in the future, particularly where unanticipated by
markets, could cause volatility in precious metals markets and the price of gold
and may have a negative impact on the Fund’s performance and the value of an
investment in the Shares.
Potential
discrepancies in the calculation of the LBMA Gold Price PM, as well as any
future changes to the LBMA Gold Price PM, could offset the value of the gold
bullion held by the Fund and could have an adverse effect on the methodology
used to calculate an investment in the Fund.
The
LBMA Gold Price is determined twice each Business Day (10:30 a.m. and 3:00 p.m.
London time) by the participants in a physically settled, electronic and
tradable auction administered by the IBA. The IBA oversees a bidding process
that determines the price of gold by matching buy and sell orders submitted by
the participants for the applicable auction time. The Fund’s NAV is determined
each day that the Fund’s principal market, NYSE Arca, is open for regular
trading, based on the price of gold per ounce applied against the number of
ounces of gold owned by the Fund. In determining the Fund’s NAV, the
Administrator generally will value the gold bullion held by the Fund based on
the 3:00 p.m. LBMA Gold Price (which is commonly referred to as the LBMA Gold
Price PM).
In
the event that the LBMA Gold Price PM does not prove to be an accurate benchmark
and the LBMA Gold Price PM varies materially from the price determined by other
mechanisms, the Fund’s NAV and the value of an investment in the Shares could be
adversely affected. Any future developments in the benchmark, to the extent they
have a material impact on the LBMA Gold Price PM, could adversely affect the
Fund’s NAV and the value of an investment in the Shares.
Further,
the calculation of the LBMA Gold Price PM is not an exact process. Rather, it is
based upon a procedure of matching orders from participants in the auction
process and their customers to sell gold with orders from participants in the
auction process and their customers to buy gold at particular prices. The LBMA
Gold Price PM does not therefore purport to reflect each buyer or seller of gold
in the market, nor does it purport to set a definitive price for gold at which
all orders for sale or purchase will take place on that particular day or time.
All orders placed into the auction process by the participants will be
executed
on the basis of the price determined pursuant to the LBMA Gold Price PM auction
process (provided that orders may be cancelled, increased or decreased while the
auction is in progress). It is possible that electronic failures or other
unanticipated events may occur that could result in delays in the announcement
of, or the inability of the system to produce, an LBMA Gold Price PM on any
given date.
If
concerns about the integrity or reliability of the LBMA Gold Price PM arise,
even if eventually shown to be without merit, such concerns could adversely
affect investor interest in gold and therefore adversely affect the price of
gold and the value of an investment in the Shares. Because the Fund’s NAV is
determined using the LBMA Gold Price PM, discrepancies in or manipulation of the
calculation of the LBMA Gold Price PM could have an adverse impact on the value
of an investment in the Shares. Furthermore, any concern about the integrity or
reliability of the pricing mechanism could disrupt trading in gold and products
using the LBMA Gold Price PM, such as the Shares. In addition, these concerns
could potentially lead to both changes in the manner in which the LBMA Gold
Price PM is calculated and/or the discontinuance of the LBMA Gold Price PM
altogether. Each of these factors could lead to less liquidity or greater price
volatility for gold and products using the LBMA Gold Price PM, such as the
Shares, or otherwise could have an adverse impact on the trading price of the
Shares.
RISKS
RELATED TO THE FUND AND THE SHARES
The
Fund is a passive investment vehicle and is not actively managed.
The
Fund is not actively managed, meaning it does not manage its portfolio to sell
gold bullion at times when its price is high, or to acquire gold bullion at low
prices in the expectation of future price increases. Also, the Fund does not use
any of hedging techniques to attempt to reduce the risks of losses resulting
from gold price decreases.
An
investment in the Fund has inherent costs, which may detract significantly from
Fund’s investment results.
There
are two types of costs involved in buying and selling shares, which apply to all
securities transactions effectuated on an exchange. When buying or
selling Shares through a broker or other intermediary, you will likely
incur a brokerage commission or other charges imposed by that broker or
intermediary. In addition, you may incur the cost of the “spread,” that is, the
difference between what investors or market makers are willing to pay for Shares
(the “bid” price) and the price at which they are willing to sell Shares (the
“ask” price). Because of the costs inherent in buying or selling Shares,
frequent trading may detract significantly from investment results and an
investment in Shares may not be advisable for investors who anticipate regularly
making small investments.
The Fund is subject to responsible sourcing due
diligence risk.
The
Fund seeks to hold only responsibly sourced gold bullion (as defined herein) in
its allocated account. The LBMA’s Gold Guidance establishes minimum requirements
that are mandatory along the entire gold supply chain for all Good Delivery
refiners wishing to trade with the London Bullion market. These standards are
intended to ensure, among other things, that gold is mined through verified
supply chains that meet certain internationally recognized ethical standards.
For example, approved LBMA refiners are required to demonstrate their efforts to
combat money laundering, financing of terrorism and human rights abuses, and to
respect the environment globally. The LBMA’s Responsible Sourcing Programme
provides a governance and audit framework for monitoring compliance with the
Gold Guidance. The Gold Guidance and the LMBA’s Responsible Sourcing Programme
include tailored due diligence standards with respect to various types of gold,
including mined and recycled gold. However, the Gold Guidance and the
Responsible Sourcing Programme may not work as intended or may be less effective
in the case of recycled gold as the ultimate source(s) of recycled gold may not
be identifiable. Specifically, the Gold Guidance sets forth due diligence
expectations for recycled gold including documentation required to give
assurance of origin and legality. In an effort to enhance efficacy, the due
diligence requirements with respect the refiner’s assessment of the recycled
gold supplier as set forth in the Gold Guidance are expected to cover all
precious metals activities carried out by the supplier rather than refiner’s
direct supply chains only. In addition, the Gold Guidance categorizes types of
recycled gold by the level of risk posed and provides additional due diligence
and enhanced due diligence guidance per category and includes requirements for
secondary refiners supplying recycled melted gold to LBMA Good Delivery refiners
to undergo independent assurance on conformance with an Organisation for
Economic Co-operation and Development (“OECD”) approved responsible sourcing
scheme. There is no guarantee that the Gold Guidance or the Responsible Sourcing
Programme will be implemented as intended, and there may be instances of
non-compliance that are undetected.
While
the Fund endeavors to hold only responsibly sourced gold, from time to time, in
certain circumstances the Fund may hold pre-2012 gold, including, for example,
due to a temporary supply constraint or lack of availability. In those
circumstances, the Custodian will seek to replace any pre-2012 gold in the
Fund’s allocated account with post-2012 gold as soon as reasonably practicable.
With respect to gold bars refined by a LBMA Good Delivery refiner, to the extent
that the gold bars are refined during the period of time that the refiner is on
the LBMA Good Delivery Current List, the subsequent removal of that refiner from
the LBMA Good Delivery Current List to the LBMA Good Delivery Former List does
not impact the status of those gold bars as London Good Delivery bars (i.e.,
such bars continue to be deemed London Good Delivery bars) and, therefore, those
bars can continue to be held by the Fund. Neither the Sponsor nor the Fund
is responsible for setting, implementing or enforcing the LBMA’s Good Delivery
standards and may have limited or no ability to independently verify gold
sourcing due diligence undertaken by the LBMA. Similarly, the Fund and the
Sponsor cannot guarantee all gold held by the Fund, including gold derived from
recycled sources, is 100% ethically sourced or compliant with the Gold Guidance.
The Fund is not an actively managed investment vehicle. The Sponsor does not
make any decision or assessment related to gold sourcing based on its subjective
judgment.
An
active and liquid market for the Shares of the Fund may not develop or be
sustained.
There
is no established trading market for the Fund’s Shares in the United
States. Although the Shares are listed for trading on NYSE Arca, there is
no guarantee that an active trading market will develop. Shareholders therefore
have limited access to information about prior market history on which to
base their investment decision. If an active trading
market for the Shares does not develop, the market prices and liquidity of the
Shares may be adversely affected. If an investor needs to sell Shares at a time
when no active market for Shares exists, or there is a halt in trading of
securities generally or of the Shares, this will most likely adversely affect
the price the investor receives for the Shares (assuming the investor is able to
sell them). Even if an active trading market for the Shares develops, the
market value for the Shares may be highly volatile and could be subject to wide
fluctuations after this offering, and therefore, it is difficult to predict the
price at which the Shares will trade.
The
Shares may trade at a price which is at, above or below the NAV per Share and
any discount or premium in the trading price relative to the NAV per Share may
widen as a result of non-concurrent trading hours between the COMEX and NYSE
Arca.
The
Shares may trade at, above or below the NAV per Share. The NAV per Share
fluctuates with changes in the market value of the Fund’s assets. The trading
price of the Shares fluctuates in accordance with changes in the NAV per Share
as well as market supply and demand. The amount of the discount or premium in
the trading price relative to the NAV per Share may be influenced by
non-concurrent trading hours between the Commodity Exchange Inc. (the “COMEX”)
and NYSE Arca. While the Shares trade on NYSE Arca until 4:00 p.m. Eastern
standard time, liquidity in the global gold market may be reduced after the
close of the COMEX at 1:30 p.m. Eastern standard time. As a result, after 1:30
p.m. Eastern standard time, trading spreads, and the resulting premium or
discount, on the Shares may widen.
However,
because Shares can be created and redeemed in Creation Units at NAV, the Sponsor
believes that large discounts or premiums to the NAV of the Fund are not
likely to be sustained over the long term. While the creation/redemption
feature is designed to make it more likely that Shares normally will trade on
stock exchanges at prices close to the Fund’s next calculated NAV, exchange
prices are not expected to correlate exactly with the Fund’s NAV due to timing
reasons, supply and demand imbalances and other factors. In addition,
disruptions to creations and redemptions, including disruptions at market makers
or Authorized Participants, or to market participants or during periods of
significant market volatility, may result in trading prices for Shares that
differ significantly from NAV.
If
the process of creation and redemption of Creation Units encounters any
unanticipated difficulties, or unanticipated operational or trading problems
arise, the possibility for arbitrage transactions intended to keep the price of
the Shares closely linked to the price of gold may not exist and, as a result,
the price of the Shares may fall.
If
the process for the creation and redemption of Shares by Authorized Participants
(which depends on, among other things, timely transfers of gold bullion to and
by the Custodian) encounters any unanticipated difficulties, potential market
participants who would otherwise be willing to purchase or redeem Creation Units
to take advantage of arbitrage opportunities may not do so. In
addition, there may be unanticipated problems or issues with respect to the
mechanics of the Fund’s operations or the trading of the Shares that could
adversely affect the Fund. To the extent that unanticipated operational or
trading problems or other similar issues arise, the Sponsor’s past experience
and qualifications may not be suitable for solving these problems or issues. In
these cases, the liquidity of the Shares may decline and the price of the Shares
may fluctuate independently of the price of gold and may fall.
The
amount of gold represented by each Share will decrease over the life of the Fund
due to the sales of gold necessary to pay the Sponsor’s Fee and Fund expenses.
Without increases in the price of gold sufficient to compensate for that
decrease, the price of the Shares will also decline and you will lose money on
your investment in Shares.
Each
outstanding Share represents a fractional, undivided interest in the gold
bullion held by the Fund. The Fund does not generate any income and regularly
sells gold bullion to pay for its ongoing expenses. Therefore, the amount of
gold bullion represented by each Share will gradually decline over time. This is
also true with respect to Shares that are issued in exchange for additional
deposits of gold bullion into the Fund, as the amount of gold bullion required
to create Shares proportionately reflects the amount of gold bullion represented
by the Shares outstanding at the time of creation. Assuming a constant gold
price, the trading price of the Shares is expected to gradually decline relative
to the price of gold as the amount of gold bullion represented by the Shares
gradually declines.
Investors
should be aware that the gradual decline in the amount of gold bullion
represented by the Shares will occur regardless of whether the trading price of
the Shares rises or falls in response to changes in the price of gold. The
estimated ordinary operating expenses of the Fund, which accrue daily commencing
after the first day of trading of the Shares, will be described in the Fund’s
Annual Report on Form 10-K, when available. The Fund may be subject to certain
liabilities (for example, as a result of litigation) that have not been assumed
by the Sponsor. The Fund will sell gold bullion to pay those expenses,
unless the Sponsor agrees to pay such expenses.
The
Sponsor may amend the Declaration of Trust without the consent of the
Shareholders
The
Sponsor may amend the Declaration of Trust, including to increase the Sponsor’s
fee, without Shareholder consent. Such amendments shall be effective on
such date as designated by the Sponsor in its sole discretion. Moreover,
at the time an amendment becomes effective, by continuing to hold Shares,
Shareholders are deemed to agree to the amendment and to be bound by the
Declaration of Trust as amended without specific agreement to such
increase.
An
investment in the Shares may be adversely affected by competition from other
methods of investing in gold.
The
Fund competes with other financial vehicles, including traditional debt and
equity securities issued by companies in the gold industry and other securities
backed by or linked to gold, direct investments in gold and investment vehicles
similar to the Fund. Market and financial conditions, and other conditions
beyond the Sponsor’s control, may make it more attractive to invest in other
financial vehicles or to invest in gold directly, which could limit the market
for the Shares and reduce the liquidity of the Shares.
The
liquidation of the Fund or the Trust may occur at a time when the disposition of
the Fund’s gold will result in losses to investors in Shares.
The
Trust or the Fund may have a limited duration in certain circumstances. Upon
termination of the Fund or 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 Fund. Sales of gold in connection with the liquidation of the
Fund at a time of low prices will likely result in losses, or adversely affect
your gains, on your investment in Shares. The Fund may be required to terminate
and liquidate at a time that is disadvantageous to Shareholders.
Redemption
orders may be subject to rejection, suspension or postponement.
The
Fund has the right, but not the obligation, to reject any Redemption Order if
(i) the order is not in proper form as described in the Participant Agreement,
(ii) the fulfillment of the order, in the opinion of its counsel, might be
unlawful, (iii) if the Fund determines that acceptance of the order from an
Authorized Participant would expose it to credit risk, or (iv) circumstances
outside the control of the Administrator, the Sponsor or the Custodian make the
redemption, for all practical purposes, not feasible to process.
The
Fund may, in its discretion, and will, when directed by the Sponsor, suspend the
right of redemption, or postpone the redemption settlement date: (1) for any
period during which NYSE Arca is closed other than customary weekend or holiday
closings, or trading on NYSE Arca is suspended or restricted, (2) for any period
during which an emergency exists as a result of which delivery, disposal or
evaluation of gold bullion is not reasonably practicable, or (3) for such other
period as the Sponsor determines to be necessary for the protection of the
Shareholders. The Sponsor will not be liable to any person or liable in any way
for any loss or damages that may result from any such rejection, suspension or
postponement.
The
liquidity of the Fund’s Shares may be affected by the withdrawal of Authorized
Participants and substantial redemptions by Authorized Participants.
If
one or more Authorized Participants that have substantial interests in the Fund
withdraws from participation, the liquidity of the Shares will likely decrease,
which could adversely affect the market price of the Shares. The liquidity of
the Shares also may be affected by substantial redemptions by Authorized
Participants related to or independent of the withdrawal from participation of
Authorized Participants. In the event that there are substantial redemptions of
Shares or one or more Authorized Participants with a substantial interest in the
Shares withdraws from participation, the liquidity of the Shares will likely
decrease, which could adversely affect the market price of the Shares and result
in your incurring a loss on your investment.
Shareholders
do not have the protections associated with ownership of shares in an investment
company registered under the 1940 Act or the protections afforded by the
CEA.
The
Trust is not registered as an investment company under the 1940 Act and is not
required to register under such act. Consequently, shareholders do not have the
regulatory protections provided to investors in registered investment companies.
Furthermore, the Fund is not a commodity pool for purposes of the CEA, and none
of the Sponsor, the Trustee, or the Marketing Agent is subject to regulation by
the CFTC as a commodity pool operator in connection with the Shares or a
commodity trading advisor in connection with the Shares. Consequently,
shareholders do not have the regulatory protections provided to investors in
CEA-regulated instruments or commodity pools.
Shareholders
do not have the rights enjoyed by investors in certain other vehicles.
Shareholders
do not have the rights enjoyed by investors in certain other vehicles. The
Shares have none of the statutory rights normally associated with the ownership
of shares of a corporation (including, for example, the right to bring
“oppression” or “derivative” actions). In addition, the Shares have limited
voting and distribution rights (for example, Shareholders do not have the right
to elect directors and will not receive dividends). Specifically, under the
Declaration of Trust, shareholders have no voting rights except as the Sponsor
may consider desirable and so authorize in its sole discretion from time to
time.
NYSE
Arca may halt trading in the Shares, which would adversely impact your ability
to sell your Shares.
Trading
in the Shares may be halted due to market conditions or for other reasons. For
example, trading of the Shares may be halted by NYSE Arca in accordance with its
rules and procedures, for reasons that, in the view of NYSE Arca, make trading
in the Shares inadvisable. Trading may also be halted by NYSE Arca in the event
certain information about the value of the Shares or the NAV is not made
available as required by such rules and procedures.
In
addition, shares of the Fund may trade in the secondary market at times when the
Fund does not accept orders to purchase or redeem Shares. At such times, Shares
may trade in the secondary market with more significant premiums or discounts
than might be experienced at times when the Fund accepts purchase and redemption
orders.
Also,
trading generally on NYSE Arca is subject to trading halts caused by
extraordinary market volatility pursuant to “circuit breaker” rules that require
trading to be halted for a specified period based on a specified market decline.
There can be no assurance that the requirements necessary to maintain the
listing of the Shares will continue to be met or will remain unchanged. The Fund
will be dissolved if the Shares are delisted from NYSE Arca and are not approved
for listing on another national securities exchange within five Business Days of
their delisting.
The
Trust is an “emerging growth company” and it cannot be certain if the reduced
disclosure requirements applicable to emerging growth companies will make the
Shares less attractive to investors.
The
Trust is an “emerging growth company” as defined in the JOBS Act. For as long as
the Trust continues to be an emerging growth company it may choose to take
advantage of certain exemptions from various reporting requirements applicable
to other public companies but not to emerging growth companies, which include,
among other things:
● exemption
from the auditor attestation requirements under Section 404(b) of the
Sarbanes-Oxley Act;
● reduced
disclosure obligations regarding executive compensation in the Trust’s periodic
reports and audited financial statements in this Prospectus;
● exemptions
from the requirements of holding advisory “say-on-pay” votes on executive
compensation and shareholder advisory votes on “golden parachute” compensation;
and
● exemption
from any rules requiring mandatory audit firm rotation and auditor discussion
and analysis and, unless otherwise determined by the SEC, any new audit rules
adopted by the Public Company Accounting Oversight Board.
The
Trust expects to remain an emerging growth company until the earliest of: (i)
last day of the fiscal year following the fifth anniversary after its initial
public offering of Shares occurs, (ii) the last day of the fiscal year in which
it has annual gross revenue of $1.07 billion or more, or (iii) the date on which
it is deemed to be a large accelerated filer under the federal securities
laws.
Under
the JOBS Act, emerging growth companies are also permitted to elect to delay
adoption of new or revised accounting standards until companies that are not
subject to periodic reporting obligations are required to comply, if such
accounting standards apply to non-reporting companies.
The
Trust cannot predict if investors will find an investment in the Trust less
attractive if it relies on these exemptions.
RISKS
RELATED TO THE CUSTODY OF GOLD
The
Fund will rely on the Custodian for the safekeeping of essentially all of the
Fund’s gold bullion. As a result, failure by the Custodian to exercise due care
in the safekeeping of the Fund’s gold bullion could result in a loss to the
Fund.
The
Fund will be reliant on the Custodian for the safekeeping of its gold bullion.
The Administrator is not liable for the acts or omissions of the Custodian. The
Administrator has no obligation to monitor the activities of the Custodian other
than to receive and review reports prepared by the Custodian pursuant to the
Custody Agreements. In addition, the ability to monitor the performance of the
Custodian may be limited because under the Custody Agreements the Trust and the
Sponsor and any accountants or other inspectors selected by the Sponsor have
only limited rights to visit the premises of the Custodian for the purpose of
examining the Fund’s gold bullion and certain related records maintained by the
Custodian. As a result of the above, any failure by the Custodian to exercise
due care in the safekeeping of the Fund’s gold bullion may not be detectable or
controllable by the Administrator and could result in a loss to the Fund.
The
value of the Shares will be adversely affected if gold owned by the Fund is lost
or damaged in circumstances in which the Fund is not in a position to recover
the corresponding loss.
The
Custodian is responsible to the Fund for loss or damage to the Fund’s gold only
under limited circumstances. The Custody Agreements contemplate that the
Custodian will be responsible to the Fund only if it acts with negligence, fraud
or in willful default of its obligations under the Custody Agreements. The
Custodian has no obligation to replace any gold lost under circumstances for
which the Custodian is liable to the Fund. The Custodian’s liability to the
Fund, if any, will be limited to the value of any gold lost, or the amount of
any balance held on an unallocated basis, at the time of the Custodian’s
negligence, fraud or willful default, or at the time of the act or omission
giving rise to the claim.
In
addition, because the Custody Agreements are governed by English law, any rights
which the holders of the Shares may have against the Custodian will be different
from, and may be more limited than, those that could have been available to them
under the laws of a different jurisdiction. The choice of English law to govern
the Custody Agreements, however, is not expected to affect any rights that the
holders of the Shares may have against the Fund.
Any
loss of gold owned by the Fund will result in a corresponding loss in the NAV of
the Fund and it is reasonable to expect that such loss will also result in a
decrease in the value at which the Shares are traded on NYSE Arca.
Although
the terms of the Custody Agreements concerning the Fund’s gold are expressly
governed by English law, a court hearing any legal dispute concerning that
arrangement may disregard that choice of law and apply U.S. law, in which case
the ability of the Fund to seek legal redress against the Custodian may be
impaired.
The
obligations of the Custodian under the Custody Agreements are governed by
English law. The Trust is a Delaware statutory trust. Any U.S., Delaware or
other court situated in the United States may have difficulty interpreting
English law, LBMA rules or the customs and practices in the London
custody market. It may be difficult or impossible for the Fund to sue the
Custodian in a U.S., Delaware or other court situated in the United States. In
addition, it may be difficult, time consuming and/or expensive for the Fund to
enforce in a foreign court a judgment rendered by a U.S., Delaware or other
court situated in the United States.
Shareholders
and Authorized Participants lack the right under the Custody Agreements to
assert claims directly against the Custodian, which significantly limits their
options for recourse.
Neither
the shareholders nor any Authorized Participant will have a right under the
Custody Agreements to assert a claim against the Custodian.
The
Fund’s lack of insurance protection and the shareholders’ limited rights of
legal recourse against the Fund, the Trustee, the Marketing Agent, the Sponsor,
the Custodian and any sub-custodian expose the shareholders to the risk of loss
of the Fund’s gold for which no person is liable.
The Fund does not insure its gold. The
Custodian maintains insurance on such terms and conditions as it considers
appropriate in connection with its custodial obligations under the Custody
Agreements and is responsible for all costs, fees and expenses arising from the
insurance policy or policies. The Fund is not a beneficiary of any such
insurance and does not have the ability to dictate the existence, nature or
amount of coverage. Therefore, shareholders cannot be assured that the Custodian
maintains adequate insurance or any insurance with respect to the gold held by
the Custodian on behalf of the Fund. In addition, the Custodian Agreement does
not require any direct or indirect sub-custodians to be insured or bonded with
respect to their custodial activities or in respect of the gold held by them on
behalf of the Fund. Further, shareholders’ legal recourse against the Fund, the
Trustee, the Sponsor, the Custodian, and any sub-custodians is limited.
Consequently, a loss may be suffered with respect to the Fund’s gold which is
not covered by insurance and for which no person is liable in
damages.
Resignation
of the Custodian would likely lead to the termination of the Fund if no
successor is appointed.
The
Fund and the Custodian may each terminate any Custody Agreement. The Sponsor
would likely terminate and liquidate the Fund if the Custody Agreements are
terminated and no successor custodian is appointed by the Sponsor. No assurance
can be given that the Sponsor would be able to find an acceptable replacement
custodian.
The
gold bullion custody operations of the Custodian are not subject to specific
governmental regulatory supervision.
The
Custodian is responsible for the safekeeping of the Fund’s gold bullion and also
facilitates the transfer of gold bullion into and out of the Fund. Although the
Custodian is a market maker, clearer and approved weigher under the rules of the
LBMA (which sets out good practices for participants in the bullion market), the
LBMA is not an official or governmental regulatory body. Furthermore, although
the Custodian is generally regulated under the UK by the Prudential Regulatory
Authority and the Financial Conduct Authority, such regulations do not directly
cover the Custodian’s gold bullion custody operations in the UK. Accordingly,
the Fund depends on the Custodian to comply with the best practices of the LBMA
and to implement satisfactory internal controls for its gold bullion custody
operations to keep the Fund’s gold bullion secure.
TAX
RISKS
If
a U.S. investor who or that is an individual, estate or trust (each referred to
in this paragraph and the next paragraph as an “individual”) sells or exchanges
Shares held for more than a year, any gain recognized on the sale or exchange
generally will be subject to U.S. federal income tax at a maximum rate of 28%
rather than the lower maximum rates applicable to most other long-term capital
gains an individual recognizes.
Gains
recognized by an individual from the sale of “collectibles,” which term includes
gold held for more than one year, are subject to U.S. federal income tax at a
maximum rate of 28% rather than the lower maximum rates applicable to most other
long-term capital gains individuals recognize (currently a maximum of 20% for
individuals). For these purposes, gain an individual recognizes on the sale of
an interest in a “grantor trust” that holds collectibles (such as the Trust) is
treated as gain recognized on the sale of the collectibles, to the extent the
gain is attributable to unrealized appreciation in value of the collectibles.
Therefore, any gain recognized by an individual U.S. investor attributable to a
sale or exchange of shares held for more than one year, or attributable to the
Fund’s sale of any gold that the U.S. investor is treated (through its ownership
of Shares) as having held for more than one year, generally will be subject to
U.S. federal income tax at a maximum rate of 28%. The tax rates for capital
gains recognized on the sale of assets held by an individual U.S. investor for
one year or less, or by a taxpayer other than an individual, are generally the
same as those at which ordinary income is taxed.
A
U.S investor will be required to recognize gain or loss upon a sale of gold by
the Fund (as discussed above), even though some or all of the proceeds of such
sale are used by the Sponsor to pay the Fund’s expenses. U.S. investors may
deduct their respective pro rata shares of each expense incurred by the Fund to
the same extent as if they directly incurred such an expense. U.S. investors who
are individual, estate or trust, however, may be required to treat some or all
of the expenses of the Fund as miscellaneous itemized deductions. An individual
U.S. investor may not deduct miscellaneous itemized deductions for tax years
beginning after December 31, 2017 and before January 1, 2026. For tax years
beginning before January 1, 2018 and after December 31, 2025, an individual U.S.
investor may deduct certain miscellaneous itemized deductions only to the extent
they exceed 2% of adjusted gross income. In addition, such deductions may be
subject to phase-outs and other limitations under applicable provisions of the
Internal Revenue Code of 1986, as amended, and the Treasury regulations
thereunder and, if the U.S. investor is an individual subject to the U.S.
federal alternative minimum tax, may not be deductible at all.
GENERAL
RISKS
The
Fund is exposed to various operational risks.
The
Fund is exposed to various operational risks, including human error, information
technology failures and failure to comply with formal procedures intended to
mitigate these risks, and is particularly dependent on electronic means of
communicating, record-keeping and otherwise conducting business. In addition,
the Fund generally exculpates, and in some cases indemnifies, counterparties
with respect to losses arising from unforseen
circumstances and events, which may include
the interruption, suspension or restriction of trading on or the closure of NYSE
Arca, power or other mechanical or technological failures or interruptions,
computer viruses, communications disruptions, work stoppages, natural disasters,
fire, war, terrorism, riots, rebellions or other circumstances beyond its or its
counterparties’ control. Accordingly, the Fund generally bears the risk of loss
with respect to these unforeseen circumstances and events to the extent relating
to the Fund or the Shares.
Although it is expected that the Fund’s direct
counterparties will generally have disaster recovery or similar programs or
safeguards in place to mitigate the effect of such unforeseen circumstances and
events, these safeguards may not be in place for all parties whose activities
may affect the Fund’s performance, and these safeguards, even if implemented,
may not be successful in preventing losses associated with such unforeseen
circumstances and events. Moreover, the systems and applications on which the
Fund relies may not continue to operate as intended. In addition to potentially
causing performance failures at, or direct losses to, the Fund, any such
unforeseen circumstances and events or operational failures may further distract
the counterparties or personnel on which the Fund relies, reducing their ability
to conduct the activities on which the Fund is dependent. These risks cannot be
fully mitigated or prevented, and further efforts or expenditures to do so may
not be cost-effective, whether due to reduced benefits from implementing
additional or redundant safeguards or due to increases in associated maintenance
requirements and other expenses that may make it costlier for the Fund to
operate in more typical circumstances.
Market
disruption events or extraordinary events could cause a disruption in the
operation of the Fund and its secondary market.
From
time to time, unexpected events may disrupt the operations of the Fund. These
events are referred to as either “Market Disruption Events” or “Extraordinary
Events” depending largely on their significance and potential impact on the
Fund. The occurrence of any Market Disruption Event or Extraordinary Event could
have a material adverse impact on the Fund, the trading of Shares, and the value
of an investment in the Shares. Examples of Market Disruption Events or
Extraordinary Events include disruptions in the trading of gold, as well as
delays or disruptions in the publication of the LBMA Gold Price. The occurrence
of a Market Disruption Event or Extraordinary Event may result in, among other
things (i) a disruption or change in the calculation of the LBMA Gold Price,
(ii) the suspension or cancellation of creation and redemption transactions,
and/or (iii) disruptions or halts in secondary market trading. Market Disruption
Events and Extraordinary Events could also cause secondary market trading of
Shares to be disrupted or halted for short or event long periods of time. To the
extent trading continues during a Market Disruption Event or Extraordinary
Event, it is expected that trading would be more volatile and that Shares would
trade at wider discounts or premiums to net asset value. The occurrence of any
Market Disruption Event or Extraordinary Event could have a material adverse
impact on the Fund or its performance.
The
Sponsor and its service providers are vulnerable to the effects of public health
crises, including the ongoing novel coronavirus pandemic (COVID-19).
Pandemics
and other public health crises may cause a curtailment of business activities
which may potentially impact the ability of the Sponsor and its service
providers to operate. The current global outbreak of the novel strain of
coronavirus, COVID-19, has resulted in market closures and dislocations, extreme
volatility, liquidity constraints and increased trading costs. Efforts to
contain the spread of COVID-19 have resulted in global travel restrictions and
disruptions of healthcare systems, business operations and supply chains,
layoffs, reduced consumer demand, defaults and credit ratings downgrades, and
other significant economic impacts. The effects of COVID-19 have impacted global
economic activity across many industries and may heighten other pre-existing
political, social and economic risks, locally or globally.
For
instance, the suspension of operations of mines, refineries and vaults that
extract, produce or store gold, restrictions on travel that delay or prevent the
transportation of gold, and an increase in demand for gold may disrupt supply
chains for gold, which could cause secondary market spreads to widen and
compromise the Fund’s ability to purchase and sell gold bullion. In
addition, the outbreak could impair the information technology and other
operational systems relied on by the Sponsor and the Trust’s service providers
and could otherwise disrupt the ability of employees of the Trust’s service
providers to perform essential tasks on behalf of the Trust. Governmental and
quasi-governmental authorities and regulators throughout the world have in the
past responded to major economic disruptions with a variety of fiscal and
monetary policy changes, including, but not limited to, direct capital infusions
into companies, new monetary programs and lower interest rates. An unexpected or
quick reversal of these policies, or the ineffectiveness of these policies, is
likely to increase volatility in the market for gold, which could adversely
affect the price of the Shares. The full impact of the COVID-19 pandemic
is unpredictable and may adversely affect the Fund’s performance.
The
service providers engaged by the Fund may not carry adequate insurance to cover
claims against them by the Fund, which could adversely affect the value of the
Fund’s net assets.
The
Administrator, the Custodian, and other service providers engaged by the Fund
maintain such insurance as they deem adequate with respect to their respective
businesses. Shareholders cannot be assured that any of the aforementioned
parties will maintain any insurance with respect to the Fund’s assets held or
the services that such parties provide to the Fund or that such insurance is
sufficient to satisfy any losses incurred by them in respect of their
relationship with the Fund. Accordingly, the Fund will have to rely on the
efforts of the service provider to recover from its insurer compensation for any
losses incurred by the Fund in connection with such arrangements.
The
Fund’s obligation to indemnify certain of its service providers could adversely
affect an investment in the Shares.
The
Fund has agreed to indemnify certain of its service providers, including the
Custodian, the Sponsor and the Trustee, for certain liabilities incurred by such
parties in connection with their respective agreements to provide services for
the Fund. In the event the Fund is required to indemnify any of its service
providers, the Fund may be required to sell gold bullion to cover such expenses
and its NAV would be reduced accordingly, thus adversely affecting an investment
in the Shares.
Potential conflicts of
interest may arise among the Sponsor or its affiliates and the Fund.
The Sponsor manages the Fund’s business and
affairs. Conflicts of interest may arise among the Sponsor and its affiliates,
on the one hand, and the Fund and its shareholders, on the other hand. As a
result of these conflicts, the Sponsor may favor its own interests and the
interests of its affiliates over those of the Fund and its shareholders. These
potential conflicts include, among others:
|
• |
The Trust, on
behalf of the Fund, has agreed to indemnify the Sponsor and its affiliates
pursuant to the terms of the Declaration of
Trust. |
|
• |
The Sponsor, its
affiliates and their officers and employees are not prohibited from
engaging in other businesses or activities, including those that might be
in direct competition with the Fund. |
There are actual and potential conflicts of
interest inherent in the Fund’s structure that you should consider before
purchasing Shares, and the Sponsor has not established formal procedures to
resolve all potential conflicts of interest. The Fund is externally operated and
does not have a board of directors or its own executive officers. Consequently,
investors may be reliant on the good faith of the respective parties to resolve
a conflict of interest equitably. The Sponsor is not required to devote its time
or resources exclusively to the management of the business and affairs of the
Fund and may engage in other business interests and activities similar to or in
addition to those relating to the activities to be performed for the Fund. The
officers of the Sponsor may buy or sell gold bullion or other products or
securities similar to the Shares for their own personal trading accounts
(subject to certain internal trading policies and procedures). The Sponsor, its
members, employees, associates and affiliates are permitted to carry on
activities competitive with those of the Fund or buy, sell or trade in assets
and portfolio securities of the Fund or of other investment funds. In addition,
the Sponsor and its affiliates may create products similar to the Fund that are
competitive with the Fund.
Use
of Proceeds
Proceeds
received by the Fund from the issuance and sale of Creation Units will consist
of gold bullion deposits. During the life of the Fund, such proceeds will only
be (1) held by the Fund, (2) disbursed or sold as needed to pay the Fund’s
ongoing expenses and (3) distributed to Authorized Participants in connection
with the redemption of Creation Units.
Overview
of the Gold Industry
Gold
is owned in a variety of forms which can be grouped into several major
categories of gold demand including jewelry, physical bars and coins, ETF
holdings, official holdings (central bank reserves) and fabrication (industrial
demand). According to the World Gold Council, the global gold market is
estimated to comprise over 197,000 tonnes of gold valued at approximately $9.6
trillion, including an estimated $1.9 trillion in gold bars and coins as of
December 31, 2019. The LBMA’s 2020 Annual Review (the “LBMA Review”) estimates
that the value of gold stored in London vaults is over $550 billion. Moreover,
as per the LBMA Review, average daily gold trading volume in the London OTC
market is around $64 billion a day, which represents approximately 46% of the
total global gold market based on estimated global average daily trading volume
of $139.25 billion. Per the LBMA Review, the loco London market represents the
largest share of daily gold trading volume across various gold market centers,
followed by gold futures trading on the CME (as distinct from physically settled
OTC gold trading), which accounts for 41% of global gold average daily trading,
and next by trading on the Shanghai Gold Exchange (“SGE”), which represents
approximately 5% of total gold market trade volume. The LBMA further estimates
that approximately 92% of large-scale mining production is refined through LBMA
Good Delivery refiners.
THE
LBMA RESPONSIBLE SOURCING PROGRAMME
As
described above, the Fund seeks to hold only responsibly sourced gold in the
Fund’s allocated account. To facilitate this, in transferring gold into
and out of the Fund’s allocated account, the Custodian will, on a best efforts
basis and subject to available liquidity, seek to allocate post-2012 gold.
If, due to a lack of liquidity, the Custodian is unable to allocate post-2012
gold to the Fund’s allocated account, the Custodian will do so as soon as
reasonably practicable. Therefore, under normal market conditions, the Fund
expects to hold only post-2012 gold in the Fund’s allocated account. The
Fund, however, may temporarily deviate from this policy in unusual market
conditions, such as in the event of a temporary supply constraint or lack of
availability, in which case the Fund will seek to come back into conformity with
the policy as soon as reasonably practical. For example, at the time of a
creation transaction in the Fund’s Shares, only pre-2012 gold may be readily
available to the Custodian. In such circumstances, the Custodian would allocate
such gold to the Fund’s allocated account on a temporary basis until such time
as the Custodian is able to swap out the pre-2012 gold for post-2012 gold
(including, but not limited to, in connection with redemption
transactions).
The
Gold Guidance is the specific document that underpins the LBMA’s Responsible
Sourcing Programme, a mandatory governance framework and audit program
applicable to LBMA approved Good Delivery refiners designed to promote the
integrity of the global supply chain for the wholesale gold markets. The
Responsible Sourcing Programme is based on the five-step framework for
risk-based due diligence codified in the OECD Due Diligence Guidance for
Responsible Supply Chains of Minerals from Conflict- Affected and High-Risk
Areas (2010) and the requirements detailed in the OECD Gold Supplement (2012)
(together, the “OECD Due Diligence Guidance”). The Gold Guidance includes
measures to address environmental and sustainability considerations (for
example, management of harmful chemicals or pollutants associated with the gold
mining process), avoid materials from conflict-afflicted areas, and combat money
laundering, financing of terrorism, and human rights abuses, including child
labor, as discussed further below. Since January 1, 2012, each LBMA Good
Delivery refinery has been required to undergo a comprehensive audit, at least
annually, in order to confirm compliance with the LBMA’s minimum requirements
related to the responsible sourcing of gold as set forth in the Gold Guidance
and to publicly report results (audits are made available on the LBMA website).
The audits, among other aspects, focus on the refiner’s management systems and
controls, and whether they are robust and appropriate to address the refiner’s
risk profile with respect to priority focus areas as identified above.
All refiners producing LBMA Good Delivery gold
bars must comply with the Gold Guidance and associated support documentation in
order to remain on the LBMA Good Delivery List. Any refiner applying to be an
LBMA Good Delivery accredited gold refiner is required to implement the Gold
Guidance and pass an audit covering a 12 month period completed by an auditor on
the LBMA's approved service provider list prior to becoming a member of the Good
Delivery List.
Audit Standards and Enforcement
Processes
All LBMA approved Good Delivery refiners and
new applicants are required to engage an independent third-party auditor from
the LBMA’s Approved Auditors List to conduct annual responsible sourcing audits.
To become accredited, auditors must submit an application form providing details
of their relevant experience, skills and quality control and governance
processes. To remain in good standing with the LBMA, auditors are required to
satisfy the requirements detailed in LBMA’s Responsible Sourcing: Third Party
Audit Guidance (the “Audit Guidance”). The ongoing review and enforcement of
approved auditor requirements are important mechanisms for assuring compliance
with the Responsible Sourcing Programme and the Gold Guidance.
The LBMA undertakes an annual review of each
auditor to confirm the auditor remains independent, and has appropriate
institutional capacity to support responsible sourcing audits and robust quality
assurance procedures in place. Pursuant to the Audit Guidance, approved auditors
are required to demonstrate complete financial and other independence from the
Good Delivery refiner. In particular, the Audit Guidance provides that the
auditing body may not provide services for the refiner related to the design,
establishment or implementation of the refiner’s precious metals supply chain
practice for a period of at least 24 months prior to the engagement.
Additionally, the auditor must have adequate organizational capacities and a
robust system of quality control, including with respect to the minimum
requirements for independence, conflicts of interest, ethics and audit quality
control reviews and the capacity to process appeals and/or handle complaints. In
addition, auditors are required to disclose in their application forms their
quality assurance and conflicts of interest policies, and explain how they
comply with the various core principles, which include ethical conduct, due
professional care, independence and integrity. Where any of these aspects no
longer satisfy applicable requirements, the auditor is removed from the Approved
Auditors List. Auditor accreditation and performance are reviewed on an annual
basis to ensure approved auditors continue to meet LBMA
requirements.
Compliance
with the LBMA’s responsible sourcing standards is required for access to the
Loco London market. Accordingly, loss of LBMA accreditation entails significant
commercial consequences for refiners. The LBMA enforces compliance through its
audit process as well as whistleblower and media reporting, which can result in
initiation of a formal incident review inquiry or special audit, as described
further below. Good Delivery refiners found to be applying the Programme in good
faith, but that have not met a satisfactory standard in some respects, will
generally be given a reasonable opportunity to raise their standards to the
required level. Loss of accreditation is imposed where there have been failures
that cannot be remediated or if attempts at remediation have been significantly
poor.
The
LBMA also conducts targeted “Special Audits” arising out of:
|
• |
queries resulting
from country of origin data reported confidentially to
LBMA; |
|
• |
part of an
incident review process. |
Under
a Special Audit, LBMA selects the auditor, who is independent of the original
auditor.
Environmental,
Social and Governance (“ESG”) Metric Adherence
Under
the Gold Guidance, a refiner’s due diligence for its supply chain must include a
policy that extends to ESG requirements. Specifically, refiners are directed to
strengthen ESG engagement with gold-supplying counterparties and, where
possible, assist gold-supply counterparties build due diligence capacities. In
addition, the Gold Guidance requires refiners to assess the risk in the supply
chain, which includes assessing the environmental policies and practices of the
producers, both in relation to artisanal and small-scale mining and large-scale
mining. The Gold Guidance provides specific parameters around this assessment
depending on the nature of the material being sourced (e.g., artisanal/small or
large scale). For example, with respect to storage, handling, and disposal of
hazardous chemicals, including mercury and cyanide, the LBMA recognizes that
mercury is used mainly in Artisanal and Small-Scale Mining (ASM) sources and
therefore does not ban such supply chains. Instead, LBMA requires refiners
working with such artisanal supply chains to assist them in establishing
processes to use mercury in a safe manner and to limit negative impacts on the
environment and health and safety, and to find alternative solutions to mercury.
Finally, once specific ESG risks have been identified, the Gold Guidance
requires refiners to implement a management strategy to respond to those
identified risks. Accredited refiners are also required to provide evidence of
their sustainability policy and its effect on any associated initiatives
throughout their supply chain.
Specific
ESG related metrics and risks addressed in the Gold Guidance include:
|
1. |
Non-compliance
with environmental, health, safety, labor and community related
regulations in country of operation and/or company
policy |
|
2. |
Ineffective
environmental management, including: (a) air, water, land pollution and
lack of incident management plans; (b) water stewardship, especially in
water scarce and stressed areas; (c) sourcing from World Heritage Sites
and protected areas; and (d) land rehabilitation and biodiversity
management |
|
3. |
Ineffective
mitigation of, and adaptation to, the impacts of climate
change |
|
4. |
Inappropriate
storage, handling and disposal of hazardous chemicals, including mercury
and cyanide |
|
5. |
Ineffective
management of tailings facilities |
|
6. |
Ineffective
management of labor issues, including remuneration, working hours,
collective bargaining, discrimination, diversity, disputes and
safeguarding of workers |
|
7. |
Ineffective
community engagement and management programs with respect to
socio-economic development, land acquisition and community resettlement,
cultural heritage sites and indigenous people, closure planning and
safeguarding of vulnerable populations |
|
8. |
Ineffective
management of business integrity impacts and ethical conduct as regarding
fair competition, responsibly lobbying, tax compliance and supporting the
implementation of relevant initiatives. |
Special Considerations
Relating to Recycled Gold
Recycled gold refers to
metal that has been previously refined and generally encompasses materials or
products that are gold-bearing and have not come directly from a mine
(considered the first stage of the gold life cycle). In practical terms,
recyclable material includes end-user, post-consumer products, scrap and waste
metals, materials arising during refining and product manufacturing, and
investment gold and gold-bearing products. This category may also include fully
refined gold that has been fabricated into grain, Good Delivery bars, medallions
and coins that have previously been sold by a refiner to a manufacturer, bank or
consumer market, and that may thereafter need to be returned to a refiner to
reclaim their financial value, or for transformation into other products (e.g.,
1 kilo bars). Recycled gold due diligence may vary significantly as the risk of
illegality or ethical concerns varies depending on the supplier, material, type,
form, value and area of origin. The Gold Guidance calls for refiners to
establish a system of controls for increased visibility and transparency over
the supply chain. This includes a chain of custody or traceability system that
identifies the origin of the gold and the upstream partners involved in the
supply chain, and a mechanism to trace the input and output of each lot refined.
The Gold Guidance sets forth specific risk identification protocols for recycled
gold which include, but are not limited to, the use of a tailored know your
customer questionnaire for recycled material to obtain, assess and, where
possible, verify against publicly available information the following
data:
|
• |
Main markets,
products and customer segments of the
counterparty |
|
• |
Profiles of the
counterparty’s gold and precious metals
suppliers |
|
• |
Types and forms of
precious metals sourced by the counterparty |
|
• |
Country of origin
of gold and precious metals processed by the
facility |
|
• |
Country of
destination of refined material |
|
• |
Trade and
production data, to extent available |
|
• |
Type and locations
of facilities operated by the counterparty (smelting, refining,
manufacturing, jewelry production, pawn shops,
etc.) |
|
• |
Import/export
licenses, if applicable |
|
• |
Anti-money
laundering and terrorist financing policies and
practices |
|
• |
Anti-bribery and
corruption policies and practices |
|
• |
Responsible
sourcing policies and processes |
|
• |
Data privacy
policies and practices, to extent available. |
The
Gold Guidance also calls for enhanced due diligence proportionate to the
specific risks presented, including with respect to recycled gold.
According
to the World Gold Council, in the third quarter of 2021, global mine production
was approximately 959.5 tonnes, 298 tonnes of which were recycled gold. The Fund
is not aware of any limit on the amount of recycled gold that may be used in the
fabrication of London Good Delivery gold bars refined after January 1, 2012. In
addition, the Fund does not separately monitor or limit its holdings in LBMA
compliant post-2012 gold sourced from recycled materials. Rather, the Fund
relies on the LBMA’s Gold Guidance as the means for determining what constitutes
responsibly sourced gold for purposes of the Fund’s investment policies, as
described above. The Gold Guidance provides for sourcing identification
requirements, country of origin data analysis and other risk-based due diligence
measures designed to provide transparency into the ultimate source of the
recycled gold. For information, please see “Risk Factors—Risks Related to the
Shares—The Fund is subject to responsible sourcing due diligence risk.”
Other
Sourcing Regulatory Schemes
Gold
bullion market centers including India, China and the United Arab Emirates have
established separate gold certification schemes and sourcing requirements and
guidelines for market participants. For example, Dubai Multi-Commodities Centre
(DMCC) requires DMCC accredited members globally to implement OECD Due Diligence
Guidance. Additionally, the China Chamber of Commerce of Metals, Minerals and
Chemicals (“CCCMC”) also promulgates guidelines for sourcing and trading gold
bullion by Chinese companies operating domestically and internationally. China
is one of the largest producers and importers of gold, and Shanghai is a key
physical trading hub for the Asian gold market. The SGE is supervised and
regulated by the People’s Bank of China. The SGE accepts gold bullion products
from two main sources as Shanghai Good Delivery gold: (1) manufactured by
domestic refiners accredited to the SGE; and (1) manufactured by refiners
accredited to the LBMA. The BSE, India’s leading exchange group, has also
adopted good delivery standards as defined by the Bureau of Indian Standards
governing purity, form and provenance of gold bars acceptable for settlement and
delivery, including manufacture, trade and delivery requirements. These
requirements may be more or less rigorous in certain respects than corresponding
LBMA standards. Enforcement may vary, and certain requirements are generally
voluntary and there may be little transparency around compliance. As discussed
above, the Fund seeks to hold only responsibly sourced gold bullion as defined
herein. The Fund does not anticipate holding any gold bullion that does not
conform to the LBMA Good Delivery standards, notwithstanding regulatory regimes
that may apply in other markets.
THE
MARKET FOR GOLD
As
the market for gold and movements in the price of gold are expected to directly
affect the price of the Shares, it is important to understand historical
movements in the price of gold. However, past movements in the price of gold are
not indicators of future market conditions or future gold prices.
The
following chart provides historical background on the price of gold. The chart
illustrates movements in the price of gold in USDs per ounce over the period
from January 4, 2010 through April 1, 2022. The price of gold in the chart is
based on the LBMA Gold Price PM and previously the London PM Fix. The LBMA Gold
Price replaced the previously established London Gold Fix on March 20,
2015.
GOLD SUPPLY AND DEMAND
Gold
is a physical asset that is accumulated, rather than consumed. As a result,
virtually all the gold that has ever been mined still exists today in one form
or another.
The
following table sets forth a summary of the world gold supply and demand for the
last 5 years. It is based on information reported in Gold Focus 2021.
World
Gold Supply and Demand, 2015–2020
Global
Gold Summary/Demand Summary(1)(2)
|
|
|
|
Tonnes
SUPPLY |
|
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
Mine
Production |
|
3,336 |
3,460 |
3,494 |
3,561 |
3,534 |
3,478 |
Recycling |
|
1,103 |
1,264 |
1,138 |
1,160 |
1,297 |
1,279 |
Net
Hedging Supply |
|
13 |
33 |
0 |
0 |
0 |
0 |
Total
Supply
|
|
4,453 |
4,756 |
4,632 |
4,721 |
4,831 |
4,757 |
DEMAND |
|
|
|
|
|
|
|
Jewelry
Fabrication |
|
2,479 |
2,019 |
2,257 |
2,285 |
2,137 |
1,328 |
Industrial
Demand |
|
332 |
323 |
333 |
335 |
326 |
302 |
Net
Physical Investment |
|
1,072 |
1,062 |
1,035 |
1,067 |
850 |
892 |
Net
Hedging Demand |
|
0 |
0 |
24 |
9 |
1 |
52 |
Net
official Sector Buying |
|
580 |
395 |
379 |
657 |
646 |
262 |
Total
Demand
|
|
4,463 |
3,798 |
4,028 |
4,352 |
3,959 |
2,837 |
Market
Balance |
|
-10 |
958 |
604 |
369 |
872 |
1,921 |
Net
Investments in ETFs |
|
-129 |
541 |
271 |
75 |
404 |
887 |
Market
Balance less ETFs |
|
119 |
417 |
332 |
294 |
469 |
1,034 |
|
|
|
|
|
|
|
|
Nominal Gold Price (US$/oz,
PM fix) |
|
1,160 |
1,251 |
1,257 |
1,268 |
1,393 |
1,770 |
Source:
Gold Focus |
|
|
|
|
|
|
|
1
Gold
Focus is published
by Metals Focus, Ltd. which is a precious metals research consultancy based in
London. Metals Focus Data Ltd. provides the supply and demand data to Metals
Focus, Ltd. When used in this Prospectus, “tonne” refers to one metric ton,
which is equivalent to 1,000 kilograms or 32,151 troy ounces.
|
2 |
Totals may vary
due to rounding |
SOURCES
OF GOLD SUPPLY
Based
on data from Gold Focus 2021, gold
supply averaged 4,778 tonnes per year between 2016 and 2020. Sources of gold
supply include both mine production and recycled above-ground stocks and, to a
lesser extent, producer net hedging. The largest portion of gold supplied to the
market is from mine production, which averaged approximately 3,563 tonnes per
year from 2016 through 2020. The second largest source of annual gold supply is
recycling gold, which is gold that has been recovered from jewelry and other
fabricated products and converted back into marketable gold. Recycled gold
averaged approximately 1,205 tonnes annually between 2016 through 2020.
SOURCES
OF GOLD DEMAND
Based
on data from Gold Focus 2021, gold
demand averaged 3,786 tonnes per year between 2016 and 2020. Gold demand
generally comes from four sources: jewelry, industry (including medical
applications), investment and the official sector (including central banks and
supranational organizations).
The
largest source of demand comes from jewelry fabrication, which accounted for
approximately 53% of the identifiable demand from 2016 through 2020 followed by
net physical investment, which represents identifiable investment demand, which
accounted for approximately 26%.
Gold
demand is widely dispersed throughout the world with significant contributions
from India and China. In many countries there are seasonal fluctuations in the
levels of demand for gold—especially jewelry. However, as a result of variations
in the timing of seasons throughout the world, seasonal fluctuations in demand
do not appear to have a significant impact on the global gold price.
Between
2016 and 2020, according to Gold Focus
2021, central bank purchases averaged 460 tonnes. The prominence given by
market commentators to this activity coupled with the total amount of gold held
by the official sector has resulted in this area being one of the more visible
shifts in the gold market.
OPERATION
OF THE GOLD BULLION MARKET
The
global trade in gold consists of over-the-counter, or OTC, transactions in spot,
forwards, and options and other derivatives, together with exchange- traded
futures and options.
GLOBAL
OVER-THE-COUNTER MARKET FOR GOLD
The
OTC market trades on a continuous basis and accounts for most global gold
trading. Market makers and participants in the OTC market trade with each other
and their clients on a principal-to-principal basis. All risks and issues of
credit are between the parties directly involved in a specific transaction. The
three products relevant to LBMA market making are spot (S) contracts, forward
(F) contracts and options (O) contracts. A “spot contract” is a contract to buy
or sell gold typically on or before two Business Days following the date of the
execution of the contract. A “forward contract” is an agreement to buy or sell
gold at a future date beyond the Spot Date at a price set at the time of the
contract. An “option contract” is an agreement that conveys to the purchaser the
right, but not the obligation, to buy or sell a quantity of gold at a
predetermined rate during a period or at a time in the future. There are twelve
LBMA Market Makers who provide the service in one, two or all three products.
(See http://www.lbma.org.uk/about-membership).
Member |
Membership
Type |
Spot
(S) |
Forwards
(F) |
Options
(O) |
|
Citibank
N A |
Full
Market Makers |
x |
x |
x |
|
Goldman
Sachs International |
Full
Market Makers |
x |
x |
x |
|
HSBC |
Full
Market Makers |
x |
x |
x |
|
JPMorgan
Chase Bank |
Full
Market Makers |
x |
x |
x |
|
Morgan
Stanley & Co International Plc |
Full
Market Makers |
x |
x |
x |
|
UBS
AG |
Full
Market Makers |
x |
x |
x |
|
|
|
|
|
|
|
BNP Paribas |
Market Makers |
|
x |
|
|
ICBC
Standard Bank |
Market
Makers |
x |
|
|
|
Merrill
Lynch International |
Market
Makers |
x |
|
x |
|
Standard
Chartered Bank |
Market
Makers |
x |
|
x |
|
The
Bank of Nova Scotia |
Market
Makers |
x |
x |
|
|
Toronto-Dominion
Bank |
Market
Makers |
|
x |
|
|
The
OTC market provides a relatively flexible market in terms of quotes, price,
size, destinations for delivery and other factors. Bullion dealers customize
transactions to meet their clients’ requirements. The OTC market has no formal
structure and no open-outcry meeting place.
The
main centers of the OTC market are London, New York and Zurich. Mining
companies, central banks, manufacturers of jewelry and industrial products,
together with investors and speculators, tend to transact their business through
one of these centers. Centers such as Dubai and several cities in the Far East
also transact substantial OTC market business. Bullion dealers have offices
around the world and most of the world’s major bullion dealers are either
members or associate members of the LBMA.
In
the OTC market, the standard size of gold trades ranges between 5,000 and 10,000
ounces. Bid-offer spreads are typically $0.50 per ounce. Transaction costs in
the OTC market are negotiable between the parties and therefore vary widely,
with some dealers willing to offer clients competitive prices for larger
volumes, although this will vary according to the dealer, the client and market
conditions. Cost indicators can be obtained from various information service
providers as well as dealers.
Liquidity
in the OTC market can vary from time to time during the course of the 24-hour
trading day. Fluctuations in liquidity are reflected in adjustments to dealing
spreads — the difference between a dealer’s “buy” and “sell” prices. The period
of greatest liquidity in the gold market generally occurs at the time of day
when trading in the European time zones overlaps with trading in the United
States, which is when OTC market trading in London, New York and other centers
coincides with futures and options trading on the COMEX.
THE
LONDON GOLD BULLION MARKET
Although
the market for physical gold is global, most OTC market trades are cleared
through London. In addition to coordinating market activities, the LBMA acts as
the principal point of contact between the London gold bullion market and its
regulators. A primary function of the LBMA is its involvement in the promotion
of refining standards by maintenance of the “London Good Delivery Lists,” which
are the lists of LBMA accredited melters and assayers of gold. The LBMA also
coordinates market clearing and vaulting, promotes good trading practices and
develops standard documentation.
As
discussed above, the LBMA's requirements for accreditation enforce standards
relating to the ethical sourcing of gold. Compliance with the LBMA's Responsible
Sourcing Programme and the Gold Guidance thereunder is mandatory for all Good
Delivery refiners wishing to trade with the London gold bullion
market.
The
term “loco London” refers to gold bars physically held in London that meet the
specifications for weight, dimensions, fineness (or purity), identifying marks
(including the assay stamp of an LBMA acceptable refiner) and appearance set
forth in the Good Delivery rules promulgated by the LBMA from time to time. Gold
bars meeting these requirements are known as “London Good Delivery Bars.”
The
unit of trade in London is the troy ounce, whose conversion between grams is:
1,000 grams = 32.1507465 troy ounces and 1 troy ounce = 31.1034768 grams. A
London Good Delivery Bar is acceptable for delivery in settlement of a
transaction on the OTC market. Typically referred to as 400-ounce bars, a London
Good Delivery Bar must contain between 350 and 430 fine troy ounces of gold,
with a minimum fineness (or purity) of 995 parts per 1,000 (99.5%), be of good
appearance and be easy to handle and stack. The fine gold content of a gold bar
is calculated by multiplying the gross weight of the bar (expressed in units of
0.025 troy ounces) by the fineness of the bar.
THE
LBMA GOLD PRICE
The
LBMA Gold Price is determined twice each Business Day (10:30 a.m. and 3:00 p.m.
London time) through an auction which provides reference gold prices for that
day’s trading. The auction that determines the LBMA Gold Price is a physically
settled, electronic and tradeable auction, with the ability to settle trades in
U.S. dollars, euros or British pounds. The IBA provides the auction platform and
methodology as well as the overall administration and governance for the LBMA
Gold Price. Many long-term contracts are expected to be priced on the basis of
either the morning (AM) or afternoon (PM) LBMA Gold Price, and many market
participants are expected to refer to one or the other of these prices when
looking for a basis for valuations.
Participants in the IBA auction process submit
anonymous bids and offers which are published on screen and in real-time.
Throughout the auction process, aggregated gold bids and offers are updated in
real-time with the imbalance calculated and the price updated every 45 seconds
until the buy and sell orders are matched. When the net volume of all
participants falls within a pre-determined tolerance, the auction is deemed
complete and the applicable LBMA Gold Price is published. Information about the
auction process (such as aggregated bid and offer volumes) will be immediately
available after the auction on the IBA’s website.
The
Financial Conduct Authority, or FCA, in the U.K. regulates the LBMA Gold
Price.
FUTURES
EXCHANGES
Although
the Fund will not invest in gold futures, information about the gold futures
market is relevant as such markets are a source of liquidity for the overall
market for gold and impact the price of gold.
The
most significant gold futures exchange is COMEX, operated by Commodities
Exchange, Inc., a subsidiary of New York Mercantile Exchange, Inc., and a
subsidiary of the Chicago Mercantile Exchange Group (the “CME Group”). It began
to offer trading in gold futures contracts in 1974 and for most of the period
since that date, it has been the largest exchange in the world for trading
precious metals futures and options. The Tokyo Commodity Exchange (the “TOCOM”)
is another significant futures exchange and has been trading gold since 1982.
Trading on these exchanges is based on fixed delivery dates and transaction
sizes for the futures and options contracts traded. Trading costs are
negotiable. As a matter of practice, only a small percentage of the futures
market turnover ever comes to physical delivery of the gold represented by the
contracts traded. Both exchanges permit trading on margin. Margin trading can
add to the speculative risk involved given the potential for margin calls if the
price moves against the contract holder. Both COMEX and TOCOM operate through a
central clearance system and in each case, the exchange acts as a counterparty
for each member for clearing purposes. Other commodity exchanges include, the
Multi Commodity Exchange of India (“MCX”), the Shanghai Futures Exchange, the
Shanghai Gold Exchange, ICE Futures US (the “ICE”), and the Dubai Gold &
Commodities Exchange. The ICE and CME Group are members of the Intermarket
Surveillance Group (“ISG”).
MARKET
REGULATION
The
global gold markets are overseen and regulated by both governmental and
self-regulatory organizations. In addition, certain trade associations have
established rules and protocols for market practices and participants.
Objective
of the Fund
OVERVIEW
The
investment objective of the Fund is for the Shares to reflect the performance of
the price of gold bullion, less the Fund’s expenses. The Fund’s only ordinary
recurring expense is the Sponsor’s annual fee of 0.15% of the NAV of the Fund.
The Sponsor believes that, for many investors, the Shares will represent a
cost-effective investment relative to traditional means of investing in gold. In
addition, the Fund seeks to hold only responsibly sourced gold which has been
refined in accordance with the Gold Guidance, and to provide investors access to
a convenient means of exposure to responsibly sourced gold. As the value of the
Shares is tied to the value of the gold bullion held by the Fund, it is
important in understanding the investment attributes of the Shares to first
understand the investment attributes of gold.
THE
CASE FOR INVESTING IN GOLD
Gold
has unique properties as an asset class. Gold can be used in portfolios to help
protect global purchasing power, reduce portfolio volatility and minimize losses
during periods of market shock. It has historically been perceived as a
high-quality liquid asset to be used when selling other assets would cause
losses. Investors have traditionally made use of gold’s lack of correlation with
other assets to diversify their portfolios and hedge against stock market, bond,
currency and other risks.
Gold’s
ability to serve as a potential portfolio diversifier is due to its historically
low-to-negative correlation with stocks and bonds. The economic forces that
determine the price of gold are different from the forces that determine the
prices of most financial assets. For example, the price of a stock often depends
on the earnings or growth potential of the issuing company or the confidence
investors have in its management. The price of a bond depends primarily on its
credit rating, its yield and the yields of competing fixed income investments.
The price of gold, however, depends on different factors, including the supply
and demand for gold, the strength or weakness of the USD, the rate of inflation
and interest rates and the political environment. Gold does not depend on a
promise to pay on the part of any government or corporation, as is the case with
investments in money market instruments as well as in the corporate and
government bond markets. Gold cannot be repudiated, as is the case with paper
assets. Gold is not subject to the risk of default or bankruptcy. Gold cannot be
created at will as can paper-backed assets.
Some of gold’s
investment attributes are shared with traditional portfolio diversifiers, which
include non-U.S. equities, emerging markets securities, real estate investment
trusts, and domestic and foreign bonds. However, gold historically has had
little correlation with these traditional diversifiers and low- to-negative
correlation with the Standard & Poor’s 500 Index, which is widely regarded
as the standard for measuring the stock market performance of large capitalized
U.S. companies. In the search for effective diversification, investors have
begun to turn to a variety of non-traditional diversifiers. These
non-traditional diversifiers include hedge and private equity funds,
commodities, timber and forestry, fine art and collectibles. Gold has
historically
been
perceived as having one or more of the following advantages over each of these
non-traditional diversifiers: greater liquidity, lower risk and lower management
and holding costs.
Although
the market for physical gold is global, most OTC market trades are cleared
through London among members of the LBMA. In addition to coordinating market
activities, the LBMA acts as the principal point of contact between the London
gold bullion market and its regulators. The LBMA promulgates guidance for
responsible sourcing of gold through its Responsible Sourcing Programme,
including sustainable sourcing practices, increased recycling, and adherence to
strict environmental, social, and governance (“ESG”) metrics. The LBMA’s
guidance has enhanced the ESG-focus of the gold market by working to combat
money laundering, terrorist financing and human rights abuses. See “THE LONDON
GOLD BULLION MARKET” above.
All
forms of investment carry some degree of risk. In addition, the Shares have
certain unique risks, as described in “Risk Factors” starting on page 6. Holding
gold directly also has risks.
STRATEGY
BEHIND THE SHARES
The
Shares are intended to offer investors an opportunity to participate in the
responsibly sourced gold market through an investment in securities.
Historically, the logistics of buying, storing and insuring gold have
constituted a barrier to entry for some institutional and retail investors
alike. The offering of the Shares is intended to overcome these barriers to
entry. The logistics of storing and insuring gold are dealt with by the
Custodian and the related expenses are built into the price of the Shares.
Therefore, an investor does not have any additional tasks or costs over and
above those associated with dealing in any other publicly traded security.
The Shares are intended for investors who want a simple and cost-efficient means
of gaining investment benefits similar to those of holding gold bullion and who
seek access to responsibly sourced gold. The Shares offer an investment
that is:
|
• |
Easily
Accessible. Investors can access
the gold market through a traditional brokerage account. The Sponsor
believes that investors will be able to more effectively implement
strategic and tactical asset allocation strategies that use gold by using
the Shares instead of using the traditional means of purchasing, trading
and holding gold. |
|
• |
Relatively
Cost Efficient. The Sponsor believes
that, for many investors, transaction costs related to the Shares will be
lower than those associated with the purchase, storage and insurance of
physical gold. |
|
• |
Exchange
Traded.
The Shares will trade on NYSE Arca, providing investors with an efficient
means to implement various investment
strategies. |
|
• |
Transparent. The Shares will be
backed by the assets of the Fund and the Fund will not hold or employ any
derivative securities. Further, the value of the Fund’s holdings will be
reported on the Fund’s website daily. |
|
• |
Responsibly
Sourced: Under the LBMA’s mandatory
Responsible Sourcing Programme, gold refiners are required to demonstrate
their efforts to combat money laundering, terrorist financing and human
rights abuses, and respect the environment globally. The LBMA’s audit
process is designed to assure investors and consumers that all London
precious metal stocks are conflict-free. |
Fund
Expenses
The
Fund’s only ordinary recurring expense is the fee paid to the Sponsor at an
annual rate of 0.15% of the daily net asset value of the Fund, so that the
Fund’s total annual expense ratio is expected to be equal to 0.15%.
In
exchange for the Sponsor’s fee, the Sponsor has agreed to assume the ordinary
fees and expenses incurred by the Fund, including but not limited to the
following: fees charged by the Administrator, the Custodian and the Trustee,
NYSE Arca listing fees, typical maintenance and transaction fees of the DTC, SEC
registration fees, printing and mailing costs, audit fees and expenses, up to
$500,000 per annum in legal fees and expenses and applicable license fees. The
Sponsor bears expenses in connection with the issuance and distribution of the
securities being registered. The Sponsor is not required to pay any
extraordinary or non-routine expenses. Extraordinary expenses are fees and
expenses which are unexpected or unusual in nature, such as legal claims and
liabilities and litigation costs or indemnification or other unanticipated
expenses. Extraordinary fees and expenses also include material expenses which
are not currently anticipated obligations of the Fund. The Fund will be
responsible for the payment of such expenses to the extent any such expenses are
incurred. Routine operational, administrative and other ordinary expenses are
not deemed extraordinary expenses. The Fund will sell gold on an as-needed basis
to pay the Sponsor’s fee.
In
certain exceptional cases the Fund will pay for certain expenses. These
exceptions include expenses not assumed by the Sponsor (described in the
immediately preceding paragraph), taxes and governmental charges, expenses and
costs of any extraordinary services performed by the Trustee or the Sponsor on
behalf of the Fund or action taken by the Trustee or the Sponsor to protect the
Fund or the interests of Shareholders, indemnification of the Sponsor under the
Declaration of Trust, and legal expenses in excess of $500,000 per year. The
Sponsor may determine in its sole discretion to assume legal fees and expenses
of the Fund in excess of the $500,000 per annum stipulated in the Sponsor
Agreement. The Fund’s organizational and offering costs are borne by the Sponsor
and, as such, are the sole responsibility of the Sponsor. The Sponsor will not
seek reimbursement or otherwise require the Fund, the Trust, the Trustee or any
Shareholder to assume any liability, duty or obligation in connection with any
such organizational and offering costs.
Shareholders
do not have the option of choosing to pay their proportionate share of the
Fund’s expenses in lieu of having their share of expenses paid by the sale of
the Fund’s gold. Each sale of gold by the Fund will be a taxable event to
Shareholders. See “United States Federal Tax Consequences — Taxation of U.S.
Shareholders.”
SALES OF GOLD
The
Sponsor will sell the Fund’s gold bullion as necessary to pay the Fund’s
expenses. When selling gold bullion to pay expenses, the Sponsor will endeavor
to sell the smallest amounts of gold bullion needed to pay expenses in order to
minimize the Fund’s holdings of assets other than gold bullion and will endeavor
to sell at the LBMA Gold Price PM. The Sponsor will place orders with gold
bullion dealers (which may include the Custodian). The Sponsor shall not be
liable for depreciation or loss incurred by reason of any sale. See “United
States Federal Tax Consequences — Taxation of U.S. Shareholders” for information
on the tax treatment of gold bullion sales.
The
Sponsor will sell the Fund’s gold bullion if that sale is required by applicable
law or regulation or in connection with the termination and liquidation of the
Fund.
Any
property received by the Fund other than gold bullion, cash or an amount
receivable in cash (such as, for example, an insurance claim) will be promptly
sold or otherwise disposed of by the Sponsor and the resulting proceeds will be
credited to the Fund’s cash account and/or converted into gold bullion.
CASH
ACCOUNT AND RESERVE ACCOUNT
The
Sponsor will cause the Fund to maintain a cash account in which proceeds of gold
bullion sales and other cash received by the Fund may be held. The Sponsor may
withdraw funds from the cash account to establish a reserve account for any
taxes, other governmental charges and contingent or future liabilities.
HYPOTHETICAL
EXPENSE EXAMPLE
The
following table, prepared by the Sponsor, illustrates the anticipated impact of
the deliveries and sales of gold bullion discussed above on the fractional
amount of gold bullion represented by each outstanding Share for three years. It
assumes that the only dispositions of gold bullion will be those sales needed to
pay the Sponsor’s Fee and that the price of gold and the number of Shares remain
constant during the three-year period covered. The table does not show the
impact of any extraordinary expenses the Fund may incur. Any such extraordinary
expenses, if and when incurred, will accelerate the decrease in the fractional
amount of gold represented by each Share. In addition, the table does not show
the effect of any waivers of the Sponsor’s Fee that may be in effect from time
to time.
|
Year |
|
|
|
1 |
2 |
3 |
Hypothetical
gold price per ounce |
|
$1,800 |
$1,800 |
$1,800 |
Sponsor’s
Fee |
|
0.15% |
0.15% |
0.15% |
Shares
of the Fund, beginning |
|
50,000 |
50,000 |
50,000 |
Ounces
of gold in the Fund, beginning |
|
694.4440 |
693.4020 |
692.3620 |
Beginning
adjusted net asset value of the Fund |
|
$1,250,000 |
$1,248,125 |
$1,246,253 |
Ounces
of gold to be delivered to cover the Sponsor’s Fee |
|
1.042 |
1.040 |
1.039 |
Ounces
of gold in the Fund, ending |
|
693.40 |
692.36 |
691.32 |
Ending
adjusted net asset value of the Fund |
|
$1,248,125.00 |
$1,246,252.81 |
$1,244,383.43 |
Ending
NAV per share |
|
$24.96 |
$24.93 |
$24.89 |
|
|
|
|
|
Description
of the Trust
The
Trust is organized as a Delaware statutory trust. Delaware Trust Company, a
subsidiary of the Corporation Service Company, is the Trustee of the
Trust. As of the date of this Prospectus, the Trust has established one
series, Franklin Responsibly Sourced Gold ETF, which is offered pursuant to this
Prospectus. The Fund issues common units of beneficial interest, or Shares,
which represent units of fractional undivided beneficial interest in and
ownership of the net assets of the Fund. The assets of the Fund include
only gold bullion and cash, if any.
The
Trust was formed and is operated in a manner such that a series is liable only
for obligations attributable to such series. This means that Shareholders of the
Fund are not subject to the losses or liabilities of any other series as may be
created from time to time and shareholders of any such other series are not
subject to the losses or liabilities of the Fund. Accordingly, the debts,
liabilities, obligations and expenses (collectively, “Claims”) incurred,
contracted for or otherwise existing solely with respect to the Fund are
enforceable only against the assets of the Fund and not against any other series
as may be established or the Trust generally. This limitation on liability is
referred to as the “Inter-Series Limitation on Liability.” The Inter-Series
Limitation on Liability is expressly provided for under the Delaware Statutory
Trust Act, which provides that if certain conditions are met, then the debts of
any particular series will be enforceable only against the assets of such series
and not against the assets of any other series or the Trust generally. For the
avoidance of doubt, the Inter-Series Limitation on Liability applies to each
series of the Trust, including the Fund and any other series that may be
established.
The
Fund holds gold bullion and is expected from time to time to issue Creation
Units in exchange for deposits of gold bullion and to distribute gold bullion in
connection with redemptions of Creation Units. The investment objective of the
Fund is for the Shares to reflect the performance of the price of
gold
bullion,
less the Fund’s expenses. The Fund’s only ordinary recurring expense is the
Sponsor’s annual fee of 0.15% of the NAV of the Fund. The Sponsor believes that,
for many investors, the Shares will represent a cost-effective investment
relative to traditional means of investing in gold. In addition, the Fund seeks
to hold only responsibly sourced gold which has been refined in accordance with
the Gold Guidance, and to provide investors access to a convenient means of
exposure to responsibly sourced gold. The material terms of the Trust’s
Declaration of Trust are discussed in greater detail under the section “The
Declaration of Trust.” The Shares represent units of fractional undivided
beneficial interest in and ownership of the Fund. The Fund is not managed like a
corporation or an active investment vehicle. The gold bullion held by the Fund
will only be sold (1) on an as-needed basis to pay the Fund’s expenses, (2) in
the event the Fund terminates and liquidates its assets, or (3) as otherwise
required by law or regulation. The sale of gold bullion by theFund is a taxable
event to Shareholders. See “United States Federal Tax Consequences — Taxation of
U.S. Shareholders.”
The
Trust is not registered as an investment company under the 1940 Act and is not
required to register under such act. The Trust will not hold or trade in
commodity futures contracts regulated by the CEA, as administered by the CFTC.
The Fund is not a commodity pool for purposes of the CEA, and none of the
Sponsor, the Trustee or the Marketing Agent is subject to regulation as a
commodity pool operator or a commodity trading adviser in connection with the
Shares.
The
Trust does not have a board of directors or an audit committee but certain
oversight functions with respect to the Trust are performed by certain executive
officers of the Sponsor. See “Description of Key Service Providers — The Sponsor
— Key Personnel of the Sponsor.”
The
Fund expects to create and redeem Shares from time to time but only in Creation
Units (a Creation Unit equals a block of 50,000 Shares). The number of
outstanding Shares is expected to increase and decrease from time to time as a
result of the creation and redemption of Creation Units. The creation and
redemption of Creation Units requires the delivery to the Fund or the
distribution by the Fund of the amount of gold bullion represented by the
Creation Units being created or redeemed. The total amount of gold bullion
required for the creation of Creation Units will be based on the combined NAV of
the number of Creation Units being created or redeemed. The initial amount of
gold bullion required for deposit with the Fund to create Shares was 669.488
ounces per Creation Unit. The number of ounces of gold bullion required to
create a Creation Unit or to be delivered upon the redemption of a Creation Unit
gradually decreases over time, due to the accrual of the Fund’s expenses and the
sale of the Fund’s gold bullion to pay the Fund’s expenses. This is because the
Shares comprising a Creation Unit will represent a decreasing amount of gold
bullion due to the sale of the Fund’s gold bullion to pay the Fund’s expenses.
Creation Units may be created or redeemed only by Authorized Participants, who
will pay a transaction fee of $500 for each order to create or redeem Creation
Units. Authorized Participants may sell to other investors all or part of the
Shares included in the Creation Units they purchase from the Fund. See “Plan of
Distribution.” The number of Shares in a Creation Unit, and the transaction fee
associated with such Creation Units, may be changed by the Sponsor at any time
in its sole discretion. In addition, the Sponsor may waive the transaction fee
on the creation or redemption of Creation Units for one or more Authorized
Participants from time to time in its sole discretion. For example, the Sponsor
may determine to waive the transaction fees for the Fund when the Sponsor
believes that such waiver is in the best interest of the Fund. When determining
whether to waive transaction fees, the Sponsor may consider a number
of factors including, but not limited to, whether waiving the fee will
facilitate the launch of the Fund or improve the quality of the secondary
trading market for the Shares.
Investors
may obtain on a 24-hour basis gold pricing information based on the spot price
for an ounce of gold from various financial information service providers.
Current spot prices are also generally available with bid/ask spreads from gold
bullion dealers. In addition, the Fund’s website at www.franklintempleton.com/
investments/options/exchange-tradedfunds/products/31714/SINGLCLASS/
franklin-responsibly-sourced-gold-etf/ FGLD will provide pricing information for
gold spot prices and the Shares. Market prices for the Shares will be available
from a variety of sources including brokerage firms, information websites and
other information service providers. The NAV of the Fund as calculated each
Business Day by the Administrator will be posted on the Fund’s website. The Fund
has no fixed termination date and the Sponsor may terminate the Fund for any
reason in its sole discretion. See “The Declaration of Trust — Termination of
the Trust or Fund.”
Description
of Key Service Providers
THE
SPONSOR
The
Sponsor is a Delaware limited liability company formed on July 21, 2021. The
Sponsor is responsible for establishing the Trust and for the registration of
the Shares. The Sponsor generally oversees the performance of the Fund’s
principal service providers, but does not exercise day-to-day oversight over
such service providers. The Sponsor, with assistance and support from the
Administrator, is responsible for preparing and filing periodic reports on
behalf of the Fund with the SEC and will provide any required certification for
such reports. The Sponsor will designate the independent registered public
accounting firm of the Fund and may from time to time employ legal counsel for
the Fund. The Marketing Agent assists the Sponsor in marketing the Shares. The
Marketing Agent is an affiliate of the Sponsor. See “—The Marketing Agent” for
more information about the Marketing Agent.
The
Sponsor will maintain a public website on behalf of the Fund, containing
information about the Fund and the Shares. The Fund’s website is
www.franklintempleton.com/
investments/options/exchange-tradedfunds/products/31714/SINGLCLASS/
franklin-responsibly-sourced-gold-etf/ FGLD. This website is only provided here
as a convenience to you, and the information contained on or connected to the
Fund’s website is not considered part of this Prospectus.
Key
Personnel of the Sponsor
The
Trust does not have any directors, officers or employees. The following persons,
in their respective capacities as executive officers of the Sponsor, a Delaware
limited liability company, perform certain functions with respect to the Trust
that, if the Trust had directors or executive officers, would
typically
be performed by them.
David
Mann – President and Chief Executive Officer
Matthew
Hinkle – Chief Financial Officer
Vivek
Pai – Chief Accounting Officer and Treasurer
Todd Mathias – Vice
President
Navid
Tofigh – Vice President and Secretary
Steve
Gray – Vice President and Assistant Secretary
Ryan
Wheeler – Assistant Treasurer
Ajay
Narayan – Assistant Treasurer
Jeff
White – Assistant Treasurer
Lisa
Moore – Assistant Treasurer - Tax
THE
TRUSTEE
Delaware
Trust Company, a subsidiary of the Corporation Service Company, serves as
Trustee of the Trust. The Trustee’s principal offices are located at 251 Little
Falls Drive, Wilmington, DE 19808. The structure of the Trust and the number
and/or identity of the Trustee may be amended in the future via amendments to
the Trust’s Certificate of Trust and the Declaration of Trust.
Under
the Declaration of Trust, the Sponsor has exclusive control of the management of
all aspects of the activities of the Trust and the Trustee has only nominal
duties and liabilities to the Trust. The Trustee accepts service of
legal process on behalf of the Trust and the Fund in the State of Delaware and
will make certain filings under the Delaware Statutory Trust Act and may perform
certain other limited administrative services pursuant to the Declaration of
Trust. The Trustee does not owe any other duties to the Trust or the
Shareholders. The Declaration of Trust provides that the Trustee is compensated
by the Sponsor. The Sponsor has the discretion to replace the Trustee. The
rights and duties of the Shareholders are governed by the provisions of the
Delaware Statutory Trust Act and by the Declaration of Trust. The Shareholders
have no voice in the day-to-day management of the business and operations of the
Fund and the Trust.
To
the extent the Trustee has duties (including fiduciary duties) and liabilities
to the Trust or the Shareholders under the Delaware Statutory Trust Act, such
duties and liabilities are replaced by the duties and liabilities of the Trustee
expressly set forth in the Declaration of Trust. The Trustee will have no
obligation to supervise, nor will they be liable for, the acts or omissions of
the Sponsor, Transfer Agent, Custodian or any other person. Neither the Trustee,
nor any director, officer or controlling person of the Trustee is, or has any
liability as, the issuer, director, officer or controlling person of the issuer
of Shares.
The
existence of a trustee should not be taken as an indication of any additional
level of management or supervision over the Trust. The Declaration of Trust
provides that the management authority with respect to the Trust is vested
directly in the Sponsor.
The
Trustee has not signed the registration statement of which this Prospectus is a
part, and is not subject to issuer liability under the federal securities laws
for the information contained in this Prospectus and under federal securities
laws with respect to the issuance and sale of the Shares. Under such laws,
neither the Trustee, nor any director, officer or controlling person of the
Trustee is, or has any liability as, the issuer or a director, officer or
controlling person of the issuer of the Shares. The Trustee’s liability in
connection with the issuance and sale of the Shares is limited solely to the
express obligations of the Trustee set forth in the Declaration of Trust.
THE
ADMINISTRATOR
The
Trust, on behalf of the Fund, has appointed BNYM as the Administrator of the
Fund and has entered into an Administration Agreement in connection therewith
(the “Administration Agreement”). BNYM, a banking corporation organized under
the laws of the State of New York with trust powers, has an office at 2 Hanson
Place, Brooklyn, New York 11217. BNYM is subject to supervision by the New York
State Banking Department and the Board of Governors of the Federal Reserve
System.
Pursuant
to the Administration Agreement, the Administrator performs or supervises the
performance of services necessary for the operation and administration of the
Fund. These services include receiving and processing orders from Authorized
Participants to create and redeem Creation Units, net asset value calculations,
accounting and other fund administrative services. The Administrator retains,
separately for the Fund, certain financial books and records, including Creation
Unit creation and redemption books and records; Fund accounting; ledgers with
respect to assets, liabilities, capital, income and expenses; the registrar;
transfer journals; and related details and trading and related documents
received from custodians.
The term of the
Administration Agreement is one year from its effective date and will
automatically renew for additional one year terms unless any party provides
written notice of termination (with respect to the Fund) at least 90 days prior
to the end of any one-year term or unless earlier terminated as provided
therein, including in the event of bankruptcy or insolvency of a party (or
similar proceeding or event) or a material breach that is not remedied or waived
in accordance with the terms of the Administration Agreement.
The
Fund has agreed to indemnify BNYM and certain of its affiliates (referred to as
“covered affiliates”) against any and all costs, expenses, damages, liabilities
and claims (including claims asserted by the Trust on behalf of the Fund), and
reasonable attorneys’ and accountants’ fees relating thereto, which are
sustained or incurred or which may be asserted against BNYM or covered
affiliates, by reason of or as a result of any action taken or omitted to be
taken by BNYM or a covered affiliate without bad faith, negligence, or willful
misconduct, or in reliance upon (i) any law, act, regulation or interpretation
of the same even though the same may thereafter have been altered, changed,
amended or repealed, (ii) the Fund’s offering materials and documents (excluding
information provided by BNYM), (iii) instructions properly provided to BNYM
pursuant to the terms of the Administration Agreement, or (iv) any opinion of
legal counsel for the Fund or BNYM, or arising out of transactions or other
activities of such Fund which occurred prior to the commencement of the
Administration Agreement; provided, that the Fund is not required to
indemnify BNYM nor any covered affiliate for costs, expenses, damages,
liabilities or claims for which BNYM or any covered affiliate is liable under
the Administration Agreement due to a breach of the standard of care provided
therein.
The
Administrator’s fees are paid by the Sponsor. The Administrator and any of its
affiliates may from time to time purchase or sell Shares for their own accounts,
as agents for their customers and for accounts over which they exercise
investment discretion. The Administrator and any successor administrator must be
a participant in DTC or such other securities depository as shall then be
acting.
THE
TRANSFER AGENT
The
Trust, on behalf of the Fund, has appointed BNYM as the Transfer Agent of the
Fund and has entered into a Transfer Agency and Service Agreement in connection
therewith (the “Transfer Agency Agreement”).
Pursuant
to the Transfer Agency and Service Agreement, the Transfer Agent serves as the
Fund’s transfer agent, dividend or distribution disbursing agent, and agent in
connection with certain other activities as provided under the Transfer Agency
and Service Agreement. The Transfer Agent receives a transaction processing fee
in connection with orders from Authorized Participants to create or redeem
Creation Units in the amount of $500 per order. These transaction processing
fees are paid directly by the Authorized Participants and not by the Fund.
The
Transfer Agent’s fees are paid by the Sponsor.
The
term of the Transfer Agency and Service Agreement is three years from its
effective date and will automatically renew for additional one year terms unless
any party provides written notice of termination (with respect to the Fund) at
least 90 days prior to the end of the initial or any subsequent term or unless
earlier terminated as provided therein, including: in the event of bankruptcy or
insolvency of a party (or similar proceeding or event) or a material breach that
is not remedied or waived in accordance with the terms of the Transfer Agency
Agreement.
Pursuant
to the Transfer Agency Agreement, the Trust has agreed to indemnify and hold the
Transfer Agent and its directors, officers, employees and agents harmless from
and against, any and all losses, damages, costs, charges, counsel fees,
including, without limitation, those incurred by the Bank in a successful
defense of any claims by the Trust, payments, expenses and liability (“Losses”)
which may be sustained or incurred by or which may be asserted against the
Transfer Agent in connection with or relating to the Transfer Agency Agreement
or the Transfer Agent’s actions or omissions with respect to the Transfer Agency
Agreement, or as a result of acting upon any instructions reasonably believed by
the Transfer Agent to have been duly authorized by the Trust or Sponsor or upon
reasonable reliance of information or records given or made by the Trust; except
for any Losses for which involved the Transfer Agent’s negligence, bad faith
willful misconduct or the reckless disregard of its duties under the Transfer
Agency Agreement.
THE
CUSTODIAN (CASH ONLY)
The
Trust, on behalf of the Fund, has appointed BNYM to serve as the custodian of
the Fund’s cash, if any, and has entered into a Custody Agreement in connection
therewith (the “BNYM Custody Agreement”).
Pursuant
to the BNYM Custody Agreement, BNYM has agreed to establish and maintain one or
more cash accounts for the Fund. BNYM shall also maintain books and records
segregating the assets of the Fund from the assets of any other series of the
Trust. With respect to all cash held pursuant to the BNYM Custody Agreement,
BNYM shall, unless otherwise instructed to the contrary, (a) receive all income
and other payments and advise the Fund as promptly as practicable of any such
amounts due but not paid; and (b) endorse for collection checks, drafts or other
negotiable instruments.
The
term of the BNYM Custody Agreement commences as of the effective date specified
therein and continues until it is terminated in accordance with its terms, as
follows: upon 90 days’ written notice by either party; or in the event of a
bankruptcy or insolvency of a party (or similar proceeding or event).
THE
CUSTODIAN
The
Sponsor has appointed JPMorgan as the Custodian of the Fund’s gold bullion.
JPMorgan is a National Association incorporated in the United States of
America. Its London office is located at 25 Bank St, Canary Wharf, London
E14 5JP, United Kingdom. While the UK operations of the Custodian are regulated
by the FCA in the United Kingdom, the custodial services provided by the
Custodian are presently not a regulated activity subject to the rules of the
FCA.
The
Custodian is responsible for safekeeping the Fund’s gold bullion. The Custodian
facilitates the transfer of gold bullion into and out of the Fund through the
unallocated gold bullion accounts it may maintain for each Authorized
Participant or unallocated gold accounts that may be maintained for an
Authorized
Participant by another LPMCL clearing bank, and through the unallocated and
allocated gold bullion accounts it maintains for the Fund. The Custodian is
responsible for allocating specific bars of gold bullion to the Fund Allocated
Account. The Custodian provides the Fund with regular reports detailing the gold
bullion transfers into and out of the Fund Unallocated Account and the Fund
Allocated Account and identifying the gold bullion bars held in the Fund
Allocated Account.
The
Custodian and its affiliates may from time to time purchase or sell gold bullion
or Shares for their own accounts, as agents for their customers and for accounts
over which they exercise investment discretion.
The
Custodian will hold the gold bullion deposited with and held for the account of
the Fund at its nominated vault premises, except when the gold bullion has been
allocated in the vault of a sub-custodian solely for temporary custody and
safekeeping. If held by a sub-custodian, the Custodian has agreed that it will
use commercially reasonable efforts promptly to transport the gold bullion from
the sub-custodian’s vault to the Custodian’s vault, at the Custodian’s cost and
risk. Unless otherwise agreed by the Fund, such vaults will be located within
the United Kingdom. The Custodian is a market maker, clearer and approved
weigher of gold under the rules of the LBMA.
The
Custodian, as instructed by the Sponsor or the Fund, is authorized to accept, on
behalf of the Fund, deposits of gold bullion in unallocated form. Acting on
standing instructions given by the Sponsor or the Fund, the Custodian allocates
gold bullion deposited in unallocated form with the Fund by selecting bars of
gold bullion for deposit to the Fund Allocated Account from unallocated bars
which the Custodian holds or by instructing a sub-custodian to allocate bars
from unallocated bars held by the sub-custodian. All gold bullion allocated to
the Fund must conform to the rules, regulations, practices and customs of the
LBMA, and the Custodian must replace any non-conforming gold bullion with
conforming gold bullion as soon as reasonably practicable. In addition, as
described above, the Custodian has undertaken to seek to replace any pre-2012
gold in the Fund Allocated Account with post-2012 gold as soon as reasonably
practicable.
The
gold bullion bars in an allocated gold bullion account are specific to that
account and are identified by a list which shows, for each gold bullion bar, the
refiner, assay or fineness, serial number and gross and fine weight. gold
bullion held in the Fund’s allocated account is the property of the Fund and is
not traded, leased or loaned under any circumstances.
The
gold bullion bars held in an unallocated account are not segregated from the
Custodian’s assets. The account holder therefore has no ownership interest in
any specific bars of gold bullion that the unallocated account’s bullion dealer
holds or owns. The account holder is an unsecured creditor of the bullion
dealer, and credits to an unallocated account are at risk of the bullion
dealer’s insolvency, in which event it may not be possible for a liquidator to
identify any gold bullion held in an unallocated account as belonging to the
account holder rather than to the bullion dealer.
The
Trust, on behalf of the Fund, and the Custodian have entered into Custody
Agreements which establish the Fund Unallocated Account and the Fund Allocated
Account. The Fund Unallocated Account is used for several purposes. It is used
to facilitate the transfer of gold bullion deposits and gold bullion redemption
distributions between Authorized Participants and the Fund in connection with
the creation and redemption of Creation Units. It is also used for sales of gold
bullion to pay the Fund’s Expenses, and when gold bullion is transferred into
and out of the Fund. The Custodian is instructed to allocate all gold bullion
deposited with the Fund to the Fund Allocated Account by the close of business
on each Business Day.
The
Custodian is authorized to appoint from time to time one or more sub-custodians
to hold the Fund’s gold bullion until it can be transported to the Custodian’s
vault.
The
Custodian is required to use reasonable care in selecting sub-custodians and
will monitor the conduct of each sub-custodian, and, where it is legally
permissible to do so, promptly advise the Trust of any difficulties or problems
existing with respect to such sub-custodian of which the Custodian is aware. The
Custodian is obliged under the Allocated Gold Account Agreement to use or to
procure any sub-custodian to use commercially reasonable efforts to promptly
transport gold bullion held for the Fund to the Custodian’s London vault
premises at Custodian’s cost and risk. Under the Allocated Gold Account
Agreement, the Custodian is liable in contract, tort or otherwise for any loss,
damage or expense suffered directly or indirectly by the Fund as a result
of any act or omission of any sub-custodian or bankruptcy or insolvency
event of any sub-custodian appointed by the Custodian.
Under
the customs and practices of the London bullion market, allocated gold bullion
is held by custodians and, on their behalf, by sub-custodians under arrangements
that permit each entity for which gold bullion is being held: (1) to request
from the entity’s custodian (and a custodian or sub-custodian to request from
its sub-custodian) a list identifying each gold bullion bar being held and the
identity of the particular custodian or sub-custodian holding the gold bullion
bar and (2) to request the entity’s custodian to withdrawal the entity’s gold
within two business days following demand for withdrawal. Each custodian or
sub-custodian is obligated under the customs and practices of the London bullion
market to provide the bar list and the identification of custodians and
sub-custodians referred to in (1) above, and each custodian is obligated to
release gold as requested. The Sponsor, the Fund and the Custodian have entered
into Custody Agreements which accurately reflect the roles and liabilities of
each party to the Custody Agreements.
The
Custodian has agreed to maintain insurance in connection with the storage of the
Fund’s precious metal under the Custody Agreements, including covering any loss
of gold, on such terms and conditions as it considers appropriate, which may not
cover the full amount of gold. The Fund will not be a beneficiary of any such
insurance and does not have the ability to dictate the nature or amount of the
coverage. Therefore, Shareholders cannot be assured that the Custodian maintains
adequate insurance or any insurance with respect to the gold bullion held by the
Custodian on behalf of the Fund.
The
Custodian has agreed to permit, and to procure that any sub-custodian permit,
the Sponsor and the Trust and their designated representatives, independent public accountants and bullion
auditors access to the Custodian’s
premises upon reasonable notice during normal business hours, to examine
on
the
Custodian’s premises the gold bullion held by the Custodian and such records as
they may reasonably require to perform their respective duties with regard to
investors in the Fund’s Shares. The Sponsor’s officers and/or properly
designated representatives will verify the Fund’s holdings at least annually.
The independent public accountants endeavor to examine the gold bullion held by
the Custodian in person at least annually, but are under no legal obligation to
do so.
Custody
Agreements
The
Allocated Gold Account Agreement and the Unallocated Gold Account Agreement
between the Trust, on behalf of the Fund, and the Custodian establishes the Fund
Allocated Account and the Fund Unallocated Account, respectively. These
agreements are sometimes referred to together as the “Custody Agreements.” The
following is a description of the material terms of the Custody Agreements. As
the Custody Agreements are similar in form, they are discussed together, with
material distinctions between the agreements noted.
Deposits
into the Fund Unallocated Account
The
Fund may deposit gold into an Unallocated Account by procuring a book-entry
transfer: (i) to the Custodian by arranging that its account with a third party
in which the Custodian holds gold is credited with an amount of gold equal to
the amount of gold to be recorded in the Fund’s Unallocated Account; or (ii) to
the Fund’s Unallocated Account by the Fund arranging that a third party for whom
the Custodian maintains an account holding gold instructs the Custodian to debit
from its account with the Custodian an amount of gold and to credit such amount
to the Fund Unallocated Account; or by the delivery of gold to the Custodian at
its nominated London vault premises. No interest will be paid by the Custodian
on any credit balance to the Fund Unallocated Account.
Withdrawals
from the Fund Unallocated Account
The
Custodian transfers gold bullion from the Fund Unallocated Account only in
accordance with the Trust’s instructions to the Custodian. A withdrawal of gold
bullion from the Fund Unallocated Account may only be made (1) by transfer to an
Authorized Participant account relating to the same kind of Gold and having the
same denomination as that which the Unallocated Account relates when Shares are
redeemed by an Authorized Participant; (2) by transfer of Gold to the allocated
account; (3) by a book-entry transfer by a debit by the Custodian of an amount
of gold from the Unallocated Account and credit of such amount to an account
maintained by the Custodian for another client or instructing credit of such
amount to an account maintained by a third party or (4) by the collection of
gold from the Custodian’s vault. Any gold bullion made available in physical
form will be in a form which complies with the rules, regulations, practices and
customs of the LBMA, the Bank of England or any applicable regulatory body, or
in such other form as may be agreed between the Administrator and the Custodian,
and in all cases will comprise one or more whole gold bullion bars selected by
the Custodian.
The
Custody Agreements provide for the full allocation of all gold bullion received
from the Authorized Participants or other third parties and credited to the Fund
Unallocated Account at the end of each Business Day.
Deposits
into the Fund Allocated Account
With
respect to gold bullion delivered by Authorized Participants, the Custodian
receives transfers of gold bullion into the Fund Allocated Account only at the
Trust’s instructions by (1) procuring a book-entry transfer: (a) to the
Custodian by arranging that the Custodian’s account with a Sub-Custodian with
which the Custodian holds Gold for the Fund is credited with the specific gold
bullion (identified, whether by bar serial numbers or otherwise) to be recorded
in the Fund’s Allocated Account; (b) to the Fund’s Allocated Account by the Fund
arranging that a third party for whom the Custodian maintains an allocated
account holding gold bullion instructs the Custodian to debit from its
allocated account with the Custodian and to credit to the Fund’s Allocated
Account the specific gold bullion (identified, whether by bar serial numbers or
otherwise) to be recorded in the Fund’s Allocated Account; or (iii) to the
Fund’s Allocated Account by agreeing with the Custodian that, in relation to the
specific gold bullion (identified, whether by bar serial numbers or otherwise)
which the Custodian holds on an allocated basis for its own account and which is
of the type which the Custodian has agreed to hold for the Fund, the Custodian
debits from its account record of its own gild bullion and credits to the Fund’s
Allocated Account such gold bullion (identified, whether by bar serial numbers
or otherwise); or (2) the delivery of gold bullion to the Custodian at its
nominated vault premises at the Fund’s expense and risk.
Withdrawals
from the Fund Allocated Account
The
Custodian transfers gold bullion from the Fund Allocated Account only in
accordance with the Trust’s instructions. Generally, the Custodian transfers
gold bullion from the Fund Allocated Account only by a debit by the Custodian of
specific gold bullion (identified, whether by bar serial numbers or otherwise)
from the Fund’s Allocated Account and (1) a book-entry transfer by a debit by:
(a) the Custodian instructing credit of such gold bullion to the account
specified by the Fund and maintained by the Custodian’s Sub-Custodian, (b)
credit by the Custodian of such gold bullion to an allocated account maintained
by the Custodian for another of its clients (as specified by the Fund), or (c)
where pursuant to a separate agreement with the Custodian, credit by the
Custodian of such gold bullion to its account record of gold bullion which the
Custodian holds on an allocated basis for the Custodian’s own account; or (2)
the collection of such gold bullion from certain specified vaults at the Fund’s
expense and risk.
The
Trust and the Custodian expect that the Trust will withdraw gold bullion
physically from the Fund Allocated Account (rather than by crediting it to the
Fund Unallocated Account and instructing a further transfer from that account)
only in exceptional circumstances, such as if, for some unforeseen reason, it
was not possible to transfer gold bullion in unallocated form.
Exclusion
of Liability
The
Custodian will adhere to the standards of a Reasonable and Prudent Custodian (as
defined in the Agreement) in the performance of its duties under the Custody
Agreements and is only responsible for any loss or damage suffered by the Fund
as a direct result of any negligence, fraud, or willful default on the part of
the Custodian in the performance of the duties under the Custody Agreements. The
Custodian’s liability is further limited to the market value of the gold bullion
held in the Fund Allocated Account and the amount of the gold bullion credited
to the Fund Unallocated Account at the time of such negligence, fraud, or
willful default. Furthermore, the Custodian has no duty to make or take or to
require any sub-custodian selected by it to make or take
any
special arrangements or precautions beyond those required by the Custody
Agreements.
In
the event of a loss caused by the failure of the Custodian or a sub-custodian to
exercise reasonable care, the Trust, on behalf of the Fund, has the right to
seek recovery from the Custodian in breach. The Custodian is not liable for any
delay in performance or any non-performance of any of its obligations under the
Custody Agreements by reason of any cause beyond the Custodian’s reasonable
control, including any breakdown, malfunction or failure of, or in connection
with, any communication, computer, transmission, cyber attack, clearing or
settlement facilities, industrial action, war, civil war, hostilities, epidemic,
pandemic, revolution, rebellion, insurrection, civil strife, acts, rules and
regulations of any governmental or supra national bodies or authorities or
relevant regulatory or self-regulatory organizations.
Indemnity
The
Custodian will be indemnified by the Fund on demand against all costs and
expenses, damages, liabilities and losses which the Custodian may suffer or
incur, directly in connection with the Custody Agreement except to the extent
that such sums are due directly to the Custodian’s negligence, willful default,
fraud, or material breach of the Custody Agreement.
Termination
Any
party may terminate the Custody Agreement by giving not less than one hundred
twenty (120) business days written notice to the other parties; and the Custody
Agreement shall terminate automatically, without further notice or action by any
party, upon a bankruptcy or insolvency event.
THE
MARKETING AGENT
Franklin
Distributors, LLC is the Marketing Agent of the Fund. The Marketing agent
is an affiliate of the Sponsor and has its principal address at One Franklin
Parkway, San Mateo, CA 94403-1906.
The
Marketing Agent and its affiliates may from time to time purchase or sell gold
or Shares for their own account, as agent for their customers and for accounts
over which they exercise investment discretion.
The
Marketing Agent is responsible for marketing the Fund and the Shares on a
continuous basis. Among other things, the Marketing Agent will assist the
Sponsor in: (1) developing a marketing plan for the Fund on an ongoing basis;
(2) preparing marketing materials regarding the Shares, including the content on
the Fund’s website; (3) executing the marketing plan for the Fund; (4)
conducting public relations activities related to the marketing of Shares; and
(5) incorporating gold into its strategic and tactical exchange-traded fund
research.
Description
of the Shares
GENERAL
The
beneficial interest in the Trust may be divided into one or more series. The
Fund is one such series. Each share of a series of the Trust shall represent an
equal beneficial interest in the net assets of such series, and each holder of
shares of a series shall be entitled to receive such holder’s pro rata share of
distributions of income and capital gains, if any, made with respect to such
series. Upon redemption of the shares of any series, the applicable shareholder
shall be paid solely out of the funds and property of such series of the Trust.
All shares are fully paid and non-assessable.
SHARE
SPLITS
If
the Sponsor believes that the per Share price in the secondary market for Shares
has fallen outside a desirable trading price range, the Sponsor may cause the
Fund to declare a split or reverse split in the number of Shares outstanding and
to make a corresponding change in the number of Shares constituting a Creation
Unit.
DISTRIBUTIONS
No
Share shall have any priority or preference over any other Share of the same
Series with respect to dividends or distributions of the Trust or otherwise. All
dividends and distributions shall be made ratably among all Shareholders of a
Series from the assets held with respect to such Series according to the number
of Shares of such Series held of record by such Shareholders on the record date
for any dividend or distribution or on the date of termination of the Trust, as
the case may be.
VOTING
AND APPROVALS
Under
the Declaration of Trust, Shareholders have no voting rights except as the
Sponsor may consider desirable and so authorize in its sole discretion.
The
Securities Depository; Book-Entry-Only System; Global Security
DTC
will act as securities depository for the Shares. DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a “clearing corporation” within the meaning of the New
York Uniform Commercial Code, and a “clearing agency”
registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities of DTC Participants and to facilitate the clearance and
settlement of transactions in such securities among the DTC Participants through
electronic book-entry changes. This eliminates the need for physical movement of
securities certificates. DTC Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
DTC Participant, either directly or indirectly. DTC is expected to agree with
and represent to the DTC Participants that it will administer its Book-Entry
System in accordance with its rules and bylaws and the requirements of
law.
Individual
certificates will not be issued for the Shares. Instead, one or more global
certificates will be signed by the Administrator and the Sponsor on behalf of
the Fund, registered in the name of Cede & Co., as nominee for DTC, and
deposited with the Administrator on behalf of DTC. The global certificates will
evidence all of the Shares outstanding at any time. The representations,
undertakings and agreements made on the part of the Fund in the global
certificates are made and intended for the purpose of binding only the Fund and
not the Administrator or the Sponsor individually.
Upon
the settlement date of any creation, transfer or redemption of Shares, DTC will
credit or debit, on its book-entry registration and transfer system, the amount
of the Shares so created, transferred or redeemed to the accounts of the
appropriate DTC Participants. The Administrator and the Authorized Participants
will designate the accounts to be credited and charged in the case of creation
or redemption of Shares.
Beneficial
ownership of the Shares will be limited to DTC Participants, Indirect
Participants and persons holding interests through DTC Participants and Indirect
Participants. Owners of beneficial interests in the Shares will be shown on, and
the transfer of ownership will be effected only through, records maintained by
DTC (with respect to DTC Participants), the records of DTC Participants (with
respect to Indirect Participants), and the records of Indirect Participants
(with respect to Shareholders that are not DTC Participants or Indirect
Participants). Shareholders are expected to receive from or through the DTC
Participant maintaining the account through which the Shareholder has purchased
their Shares a written confirmation relating to such purchase.
Shareholders
that are not DTC Participants may transfer the Shares through DTC by instructing
the DTC Participant or Indirect Participant through which the Shareholders hold
their Shares to transfer the Shares. Shareholders that are DTC Participants may
transfer the Shares by instructing DTC in accordance with the rules of DTC.
Transfers will be made in accordance with standard securities industry
practice.
DTC
may decide to discontinue providing its service with respect to Creation Units
and/or the Shares by giving notice to the Administrator and the Sponsor. Under
such circumstances, the Administrator and the Sponsor will either find a
replacement for DTC to perform its functions at a comparable cost or, if a
replacement is unavailable, terminate the Fund.
The
rights of the Shareholders generally must be exercised by DTC Participants
acting on their behalf in accordance with the rules and procedures of DTC.
Because the Shares can only be held in book-entry form through DTC and DTC
Participants, investors must rely on DTC, DTC Participants and any other
financial intermediary through which they hold the Shares to receive the
benefits and exercise the rights described in this section. Investors should
consult with their broker or financial institution to find out about procedures
and requirements for securities held in book-entry form through DTC.
Determination
of NAV
The
NAV is computed based upon the total value of the assets of the Fund (i.e., gold
and cash) less its liabilities. To determine the Fund’s NAV, the Administrator
will value the gold bullion held by the Fund on the basis of the LBMA Gold Price
PM as published by the IBA. IBA operates electronic auctions for spot,
unallocated loco London gold, providing a market-based platform for buyers and
sellers to trade. The auctions are run at 10:30 a.m. and 3:00 p.m. London time
for gold. The final auction prices are published to the market as the LBMA Gold
Price AM and the LBMA Gold Price PM, respectively. The Administrator will
calculate the NAV on each day NYSE Arca is open for regular trading, at the
earlier LBMA Gold Price PM for the day or 12:00 PM New York time. If no LBMA
Gold Price (AM or PM) is made on a particular evaluation day or if the LBMA Gold
Price PM has not been announced by 12:00 PM New York time on a particular
evaluation day, the next most recent LBMA Gold Price AM or PM will be used in
the determination of the NAV, unless the Sponsor determines that such price is
inappropriate to use as the basis for such determination.
Once
the value of the gold bullion has been determined, the Administrator subtracts
all estimated accrued expenses and other liabilities of the Fund from the total
value of the gold bullion and any cash of the Fund. The resulting figure is the
NAV. The Administrator determines the NAV per Share by dividing the NAV of the
Fund by the number of Shares outstanding as of the close of trading on NYSE
Arca.
Creations
and Redemptions
The
Fund creates and redeems Shares from time to time, but only in one or more
Creation Units (a Creation Unit equals a block of 50,000 Shares). The creation
and redemption of Creation Units is only made in exchange for the delivery to
the Fund or the distribution by the Fund of the amount of gold bullion
represented by the Creation Units being created or redeemed. The amount of gold
bullion required to be delivered to the Fund in connection with any creation, or
paid out upon redemption, is based on the combined NAV of the number of Shares
included in the Creation Units being created or redeemed as determined on the
day the order to create or redeem Creation Units is properly received and
accepted. The standard settlement cycle for most broker-dealer securities
transactions is two business days, T+2 (the trade date plus two business
days).
Authorized
Participants are the only persons that may place orders to create and redeem
Creation Units. To become an Authorized Participant, a person
must
enter into a Participant Agreement with the Sponsor and the Administrator. The
Participant Agreement and the related procedures attached thereto may be amended
by the Administrator and the Sponsor without the consent of any Shareholder or
Authorized Participant. Authorized Participants who make deposits with the Fund
in exchange for Creation Units receive no fees, commissions or other form of
compensation or inducement of any kind from either the Sponsor or the Fund, and
no such person has any obligation or responsibility to the Sponsor or the Fund
to effect any sale or resale of Shares.
The
initial Authorized Participant is a statutory underwriter under Section 2(a)(11)
of the Securities Act. Authorized Participants are cautioned that some of their
activities will result in their being deemed participants in a distribution in a
manner which would render them statutory underwriters and subject them to the
prospectus- delivery and liability provisions of the Securities Act, as
described in the section “Plan of Distribution.”
Prior
to initiating any creation or redemption order, an Authorized Participant must
have an existing unallocated account with a LPMCL clearing bank identified by
the Authorized Participant to the Custodian and the Sponsor, or an agreement
with the Custodian itself establishing an unallocated account in London. An
unallocated account is an account with a bullion dealer, which may also be a
bank, to which a fine weight amount of gold bullion is credited. Transfers to or
from an unallocated account are made by crediting or debiting the number of
ounces of gold bullion being deposited or withdrawn. The account holder is
entitled to direct the bullion dealer to deliver an amount of physical gold
bullion equal to the amount of gold bullion standing to the credit of the
unallocated account holder. Gold bullion held in an unallocated account is not
segregated from the Custodian’s assets. The account holder therefore has no
ownership interest in any specific bars of gold bullion that the bullion dealer
holds or owns. The account holder is an unsecured creditor of the bullion
dealer, and credits to an unallocated account are at risk of the bullion
dealer’s insolvency, in which event it may not be possible for a liquidator to
identify any gold bullion held in an unallocated account as belonging to the
account holder rather than to the bullion dealer.
Certain
Authorized Participants are able to participate directly in the gold bullion
market and the gold futures market. In some cases, an Authorized Participant may
from time to time acquire gold from or sell gold to its affiliated gold trading
desk, which may profit in these instances. The Sponsor believes that the size
and operation of the gold bullion market make it unlikely that an Authorized
Participant’s direct activities in the gold or securities markets will impact
the price of gold or the price of the Shares. Authorized Participants must be
DTC Participants and must be registered as broker- dealers under the Exchange
Act, and regulated by FINRA, or must be exempt from being or otherwise must not
be required to be so regulated or registered, and must be qualified to act as
brokers or dealers in the states or other jurisdictions where the nature of
their business so requires. Each Authorized Participant will have its own set of
rules and procedures, internal controls and information barriers as it
determines is appropriate in light of its own business and the regulatory regime
applicable thereto.
Authorized
Participants may act for their own accounts or as agents for broker-dealers,
custodians and other securities market participants that wish to create or
redeem Creation Units. An order for one or more Creation Units may be placed by
an Authorized Participant on behalf of multiple clients. Persons interested in
purchasing Creation Units should contact the Sponsor or the Administrator to
obtain the contact information for the Authorized Participants. Shareholders who
are not Authorized Participants will only be able to redeem their Shares through
an Authorized Participant.
All
gold bullion must be delivered by Authorized Participants to the Fund and
distributed by the Fund in unallocated form through credits and debits between
Authorized Participants’ unallocated accounts and the Fund Unallocated Account.
All gold represented by a credit to any unallocated account represents a right
to receive a specified quantity of fine ounces of gold.
Under
the Participant Agreement with respect to each Authorized Participant, the
Sponsor has agreed to indemnify the Authorized Participants against certain
liabilities, including liabilities under the Securities Act, and to contribute
to the payments the Authorized Participants may be required to make in respect
of those liabilities.
The
following description of the procedures for the creation and redemption of
Creation Units is only a summary and investors should review the description of
the procedures for the creation and redemption of Creation Units set forth in
the Declaration of Trust, the Administration Agreement and the form of
Participant Agreement, each of which has been filed as an exhibit to this
registration statement of which this Prospectus is a part.
CREATION
PROCEDURES
On
any Business Day, an Authorized Participant may place an order with the
Administrator to create one or more Creation Units. Purchase orders must be
placed with the Administrator no later than 3:59:59 p.m. New York time. The day
on which the Administrator receives a valid purchase order is the purchase order
date. Prior to the delivery of Creation Units for a purchase order, the
Authorized Participant must also have wired to the Administrator the
non-refundable transaction fee due for the purchase order.
DETERMINATION
OF REQUIRED DEPOSITS
The
total deposit required to create each Creation Unit, or a “Creation Unit Gold
Delivery Amount,” is an amount of gold and cash, if any, that is in the same
proportion to the total assets of the Fund (net of estimated accrued expenses
and other liabilities) on the date the order to purchase is properly received as
the number of Shares to be created under the purchase order is in proportion to
the total number of Shares outstanding on the date the order is
received.
DELIVERY
OF REQUIRED DEPOSITS
An
Authorized Participant who places a purchase order is responsible for
transferring the Creation Unit Gold Delivery Amount to the Fund Unallocated
Account
on the second Business Day in London following the purchase order date. Upon
receipt of the Creation Unit Gold Delivery Amount, the Administrator will direct
DTC to credit the number of Creation Units ordered to the Authorized
Participant’s DTC account. The expense and risk of delivery, ownership and
safekeeping of gold bullion until such gold bullion has been received by the
Fund will be borne solely by the Authorized Participant.
The
Custodian transfers the Creation Unit Gold Delivery Amount from the Fund
Unallocated Account to the Fund Allocated Account by allocating to the Fund
Allocated Account specific bars of gold which the Custodian holds, or
instructing a sub-custodian to allocate specific bars of gold held by or for the
sub-custodian. As noted above, the Custodian will, on a best efforts basis and
subject to available liquidity, seek to allocate post-2012 gold to the Fund
Allocated Account. Gold bullion held in the Fund’s allocated account is the
property of the Fund and is not traded, leased or loaned under any
circumstances.
The
Custodian will use reasonable commercial efforts to minimize the amount of gold
bullion held in the Fund Unallocated Account at all times during each London
business day; however, all Shareholders will be exposed to the risks of
unallocated gold bullion until the Custodian completes the allocation process.
See “Risk Factors — gold bullion held in the Fund’s unallocated gold bullion
account and any Authorized Participant’s unallocated gold bullion account will
not be segregated from the Custodian’s assets.”
REJECTION
OF PURCHASE ORDERS
The
Fund has the right, but not the obligation, to reject a purchase order if (i)
the order is not in proper form as described in the Participant Agreement, (ii)
the fulfillment of the order, in the opinion of its counsel, might be unlawful,
(iii) if the Fund determines that acceptance of the order from an Authorized
Participant would expose the Fund to credit risk; or (iv) circumstances outside
the control of the Administrator, the Sponsor or the Custodian make the
purchase, for all practical purposes, not feasible to process.
REDEMPTION
PROCEDURES
The
procedures by which an Authorized Participant can redeem one or more Creation
Units mirror the procedures for the creation of Creation Units. On any Business
Day, an Authorized Participant may place an order with the Administrator to
redeem one or more Creation Units. Redemption orders must be placed with the
Administrator no later than 3:59:59 p.m. New York time. A redemption order so
received is effective on the date it is received in satisfactory form by the
Administrator. The day on which the Administrator receives a valid redemption
order is the redemption order date.
DETERMINATION
OF REDEMPTION DISTRIBUTION
The
redemption distribution from the Fund consists of a credit to the redeeming
Authorized Participant’s unallocated account in the amount of the Creation Unit
Gold Delivery Amount. The Creation Unit Gold Delivery Amount for
redemptions is the number of ounces of gold held by the Fund to be paid out upon
redemption of a Creation Unit. The Sponsor anticipates that in the
ordinary course of the Fund’s operations there will be no cash distributions
made to Authorized Participants upon redemptions.
DELIVERY
OF REDEMPTION DISTRIBUTION
The
redemption distribution due from the Fund is delivered to the Authorized
Participant on the second Business Day following the redemption order date if,
by 10:00 A.M. New York time on such second Business Day, the Administrator’s DTC
account has been credited with the Creation Units to be redeemed.
The
Custodian will transfer the redemption amount from the Fund Allocated Account to
the Fund Unallocated Account and, thereafter, to the redeeming Authorized
Participant’s unallocated account. The Authorized Participant and the Fund are
each at risk in respect of gold bullion credited to their respective unallocated
accounts in the event of the Custodian’s insolvency. See “Risk Factors — Gold
held in the Fund’s unallocated Gold account and any Authorized Participant’s
unallocated Gold account will not be segregated from the Custodian’s
assets.”
SUSPENSION
OR REJECTION OF REDEMPTION ORDERS
The
Fund may, in its discretion, and will when directed by the Sponsor, suspend the
right of redemption, or postpone the redemption settlement date: (1) for any
period during which NYSE Arca is closed other than customary weekend or holiday
closings, or trading on NYSE Arca is suspended or restricted, (2) for any period
during which an emergency exists as a result of which delivery, disposal or
evaluation of gold bullion is not reasonably practicable, or (3) for such other
period as the Sponsor determines to be necessary for the protection of the
Shareholders.
The
Fund has the right, but not the obligation, to reject a redemption order if (i)
the order is not in proper form as described in the Participant Agreement, (ii)
the fulfillment of the order, in the opinion of its counsel, might be unlawful,
(iii) if the Fund determines that acceptance of the order from an Authorized
Participant would expose the Fund to credit risk, or (iv) circumstances outside
the control of the Administrator, the Sponsor or the Custodian make the
redemption, for all practical purposes, not feasible to process.
The
Sponsor will not be liable to any person or liable in any way for any loss or
damages that may result from any such suspension, postponement or
rejection.
CREATION
AND REDEMPTION TRANSACTION FEE
An Authorized
Participant is required to pay a transaction fee of $500 per order to create or
redeem Creation Units. An order may include multiple Creation Units. The
transaction fee may be changed from time to time at the sole discretion of the
Sponsor and upon written notice to the Authorized Participant, which notice may
be provided by disclosure in the Fund’s Prospectus. In addition, the Sponsor may
waive the transaction fee on the creation or redemption of Creation Units for
one or more Authorized Participants from time to time in its sole discretion.
For example, the Sponsor may determine to waive the transaction fees for the
Fund when the Sponsor believes that such waiver is in the best interest of the
Fund. When determining whether to waive transaction fees, the Sponsor may
consider a number of factors including, but not limited to, whether waiving the
fee will facilitate the launch of the Fund or improve the quality of the
secondary trading market for the Shares. The Sponsor will notify
Authorized Participants of any change in this plan.
TAX RESPONSIBILITY
Authorized Participants
are responsible for any transfer tax, sales or use tax, recording tax, value
added tax or similar tax or governmental charge applicable to the creation or
redemption of Creation Units, regardless of whether such tax or charge is
imposed directly on the Authorized Participants, and agree to indemnify the
Sponsor, the Administrator and the Fund if they are required by law to pay any
such tax, together with any applicable penalties, additions to tax or interest
thereon.
LIABILITY
No
Shareholder of the Fund shall be subject in such capacity to any personal
liability whatsoever to any person in connection with the Fund’s property or the
acts, obligations or affairs of the Fund. Shareholders shall have the same
limitation of personal liability as is extended to stockholders of a private
corporation for profit incorporated under the Delaware General Corporation
Law.
TRADING
OF FUND SHARES
The
Fund’s Shares will be listed on NYSE Arca under the ticker symbol FGLD. The
Fund’s Shares may be bought and sold in the secondary market throughout the
trading day like other publicly traded securities. While the Fund’s Shares are
issued in Creation Units at NAV, Shares traded in the secondary market may trade
at prices that are lower or higher than their NAV per Share. The amount of the
discount or premium in the trading price relative to the NAV per Share is a
function of supply and demand, among other things, and may be influenced by
non-concurrent trading hours between NYSE Arca and the COMEX, London, Zurich and
Singapore. While the Shares will trade on NYSE Arca until 4:00 p.m. New York
time, liquidity in the global gold market will be reduced after the close of the
COMEX at 1:30 p.m. New York time. As a result, after 1:30 p.m. New York time,
trading spreads, and the resulting premium or discount, on the Shares may
widen.
Most
retail investors purchase and sell Shares through traditional brokerage or other
intermediary accounts. Purchases or sales of Shares in the secondary market,
which will not involve the Fund, may be subject to customary brokerage
commissions. Investors are encouraged to review the terms of their brokerage
accounts for applicable charges.
Payments
to Financial Intermediaries. The
Sponsor, Marketing Agent, and/or their affiliates may enter into contractual
arrangements with certain broker-dealers and other financial intermediaries that
the Sponsor, Marketing Agent and/or their affiliates believe may benefit the
Fund. Pursuant to such arrangements, the Sponsor, Marketing Agent and/or their
affiliates may provide cash payments or non-cash compensation to intermediaries
for certain activities related to the Fund. Such payments are designed to make
registered representatives and other professionals more knowledgeable about
exchange-traded products (“ETPs”), including the Fund, or for other activities,
such as participating in marketing activities and presentations, educational
training programs, conferences, data collection and provision, technology
support, the development of technology platforms and reporting systems. The
Sponsor, Marketing Agent and/or their affiliates may also pay intermediaries for
certain printing, publishing and mailing costs associated with the Fund or
materials relating to ETPs/ETFs in general. In addition, the Sponsor, Marketing
Agent and/or their affiliates may make payments to intermediaries that make Fund
Shares available to their clients or for otherwise promoting the Fund. Payments
of this type are sometimes referred to as revenue-sharing payments. Any payments
made pursuant to such arrangements may vary in any year and may be different for
different intermediaries. In certain cases, the payments described in the
preceding sentence may be subject to certain minimum payment
levels.
Any
payments described above by the Sponsor, Marketing Agent and/or their affiliates
will be made from their own assets and not from the assets of the Fund. Although
a portion of the Sponsor’s revenue comes directly or indirectly in part from
fees paid by the Fund, payments to financial intermediaries are not financed by
the Fund and therefore do not increase the price paid by investors for the
purchase of Shares of, or the cost of owning, the Fund or reduce the amount
received by a shareholder as proceeds from the redemption of Fund Shares. As a
result, such payments are not reflected in the description of the Fund’s fees
and expenses. The Sponsor periodically assesses the advisability of continuing
to make these payments. Payments to a financial intermediary may be significant
to that intermediary, and amounts that intermediaries pay to your adviser,
broker or other investment professional, if any, may also be significant to such
adviser, broker or investment professional. Because an intermediary may make
decisions about what investment options it will make available or recommend, and
what services to provide in connection with various products, based on payments
it receives or is eligible to receive, such payments create conflicts of
interest between the intermediary and its clients. For example, these financial
incentives may cause the intermediary to recommend the Fund over other
investments. The same conflict of interest exists with respect to your financial
adviser, broker or investment professionals if he or she receives similar
payments from his or her intermediary firm. Please contact your
salesperson, adviser, broker or other investment professional for more
information regarding any such payments or financial incentives his or her
intermediary firm may receive. Any payments made, or financial incentives
offered, by the Sponsor, Marketing Agent and/or their affiliates made to an
intermediary may create the incentive for the intermediary to encourage
customers to buy Shares of the Fund.
United States Federal Tax
Consequences
The
following discussion of the material United States federal income tax
consequences that generally apply to the purchase, ownership and disposition of
Shares by a “U.S. Shareholder” (as defined below), and certain United States
federal income, gift and estate tax consequences that may apply to an investment
in Shares by a “Non-U.S. Shareholder” (as defined below). The discussion below
is based on the United States Internal Revenue Code of 1986, as amended (the
“Code”), Treasury Regulations promulgated under the Code and judicial and
administrative interpretations of the Code, all as in effect on the date of this
Prospectus; no assurance can be given that future legislation, regulations,
court decisions and/or administrative pronouncements will not significantly
change applicable law and materially affect the conclusions expressed herein,
and any such change, even though made after a Shareholder has invested in the
Fund, could be applied retroactively.
The
tax treatment of Shareholders may vary depending upon their own particular
circumstances. Certain Shareholders — including banks, thrift institutions and
certain other financial institutions, insurance companies, tax-exempt
organizations, brokers and dealers in securities or currencies, certain
securities traders, persons holding Shares as a position in a “hedging,”
“straddle,” “conversion” or “constructive sale” transaction (as those terms are
defined in the authorities mentioned above), qualified pension and
profit-sharing plans, individual retirement accounts (IRAs), certain other tax-
deferred accounts, U.S. expatriates, persons whose “functional currency” is not
the U.S. dollar, persons subject to the federal alternative minimum tax,
non-U.S. Shareholders (except as specifically provided under “Income Taxation of
Non-U.S. Shareholders” and “Estate and Gift Tax Considerations for Non-U.S.
Shareholders” below) and other Shareholders with special circumstances — may be
subject to special rules not discussed below. In addition, the following
discussion applies only to investors who hold Shares as “capital assets” within
the meaning of Code section 1221. This discussion does not purport to be
complete or to deal with all aspects of federal income taxation that may be
relevant to an investor in light of its particular circumstances.
Moreover,
the discussion below does not address the effect of any state, local or foreign
tax law on an owner of Shares. Purchasers of Shares are urged to consult their
own tax advisors with respect to all federal, state, local and foreign tax law
considerations potentially applicable to their investment in Shares.
For
purposes of this discussion, a “U.S. Shareholder” is a Shareholder that
is:
|
• |
An individual who
is treated as a citizen or resident of the United States for U.S. federal
income tax purposes; |
|
• |
An entity treated
as a corporation or partnership for U.S. federal income tax purposes that
is created or organized in or under the laws of the United States or any
political subdivision thereof; |
|
• |
An estate, the
income of which is includible in gross income for U.S. federal income tax
purposes regardless of its source; or |
|
• |
A trust, if a
court within the United States is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the
trust. |
A
Shareholder that is not a U.S. Shareholder as defined above is generally
considered a “Non-U.S. Shareholder” for purposes of this discussion. For United
States federal income tax purposes, the treatment of any beneficial owner of an
interest in a partnership, or any other entity treated as a partnership for
United States federal income tax purposes, will generally depend upon the status
of the partner and upon the activities of the partnership. Partnerships and
partners in partnerships are urged to consult their tax advisors about the
United States federal income tax consequences of purchasing, owning and
disposing of Shares.
TAXATION
OF THE FUND
The
Fund will be treated as a “grantor trust” for federal income tax purposes. There
can be no assurance that the Internal Revenue Service (“IRS”) will agree with
that treatment, and it is possible that the IRS or another tax authority could
assert a position contrary thereto and that a court could sustain that contrary
position. If the Fund were found not to be taxable as a “grantor trust,” the
Sponsor would likely terminate and liquidate the Fund. The balance of this
disclosure assumes that the Fund will be treated as a “grantor trust” for U.S.
federal income tax purposes.
As
a “grantor trust” for U.S. federal income tax purposes, neither the Trust nor
the Fund itself will pay U.S. federal income tax. Instead, the income and
expenses of the Fund “flow through” to the Fund’s Shareholders, and the
Administrator will report the Fund’s income, gains, losses and deductions to the
IRS on that basis.
TAXATION
OF U.S. SHAREHOLDERS
Shareholders
generally will be treated, for U.S. federal income tax purposes, as if they
directly owned a pro rata share of the underlying assets held in the Fund.
Shareholders also will be treated as if they directly received their respective
pro rata shares of the Fund’s income, if any, regardless of whether they receive
any distributions from the Fund. Shareholders will also be treated as if they
directly incurred their respective pro rata shares of the Fund’s expenses. In
the case of a Shareholder that purchases Shares for cash, its initial tax basis
in its pro rata share of the assets held in the Fund at the time it acquires its
Shares will be equal to its cost of acquiring the Shares. In the case of a
Shareholder that acquires its Shares by delivering gold bullion to the Fund, the
delivery of gold bullion to the Fund in exchange for the underlying gold bullion
represented by the Shares will not be a taxable event to the Shareholder, and
the Shareholder’s tax basis and holding period for the Shareholder’s pro rata
share of the gold bullion held in the Fund will be the same as its tax basis and
holding period for the gold bullion delivered in exchange therefor. For purposes
of this discussion, it is assumed that all of a Shareholder’s Shares are
acquired on the same date, at the same price per Share and, except where
otherwise noted, that the sole asset of the Fund is gold bullion.
When
the Fund sells gold bullion, for example to pay expenses, a Shareholder
generally will recognize gain or loss in an amount equal to the difference
between (1) the Shareholder’s pro rata share of the amount realized by the Fund
upon the sale and (2) the Shareholder’s tax basis for its pro rata share of the
gold bullion that was sold, which gain or loss will generally be long-term or
short-term capital gain or loss, depending upon whether the Shareholder is
treated as having held its share of the gold bullion that was sold for more than
one year. A Shareholder’s tax basis for its share of any gold bullion sold by
the Fund generally will be determined by multiplying the Shareholder’s total tax
basis for its share of all of the gold bullion held in the Fund immediately
prior to the sale by a fraction, the numerator of which is the amount of gold
bullion sold and the denominator of which is the total amount of the gold
bullion held in the Fund immediately prior to the sale. After any such sale, a
Shareholder’s tax basis for its pro rata share of the gold bullion remaining in
the Fund will be equal to its tax basis for its share of the total amount of the
gold bullion held in the Fund immediately prior to the sale, less the portion of
such basis allocable to the Shareholder’s share of the gold bullion that was
sold.
Upon
a Shareholder’s sale of some or all of its Shares, the Shareholder will be
treated as having sold the portion of its pro rata share of the gold bullion
held in the Fund at the time of the sale that is attributable to the Shares
sold. Accordingly, the Shareholder generally will recognize gain or loss on the
sale in an amount equal to the difference between (1) the amount realized
pursuant to the sale of the Shares, and (2) the Shareholder’s tax basis for the
portion of its pro rata share of the gold bullion held in the Fund at the time
of sale that is attributable to the Shares sold, as determined in the manner
described in the preceding paragraph.
A
redemption of some or all of a Shareholder’s Shares in exchange for the
underlying gold bullion represented by the Shares redeemed generally will not be
a taxable event to the Shareholder. The Shareholder’s tax basis for the gold
bullion received in the redemption generally will be the same as the
Shareholder’s tax basis for the portion of its pro rata share of the gold
bullion held in the Fund immediately prior to the redemption that is
attributable to the Shares redeemed. The Shareholder’s holding period with
respect to the gold bullion received should include the period during which the
Shareholder held the Shares redeemed. A subsequent sale of the gold bullion
received by the Shareholder will be a taxable event for U.S. federal income tax
purposes, unless a nonrecognition provision of the Code applies to such
sale.
After
any sale or redemption of less than all of a Shareholder’s Shares, the
Shareholder’s tax basis for its pro rata share of the gold bullion held in the
Fund immediately after such sale or redemption generally will be equal to its
tax basis for its share of the total amount of the gold bullion held in the Fund
immediately prior to the sale or redemption, less the portion of such basis
which is taken into account in determining the amount of gain or loss recognized
by the Shareholder upon such sale or, in the case of a redemption, which is
treated as the basis of the gold bullion received by the Shareholder in the
redemption.
As
noted above, the foregoing discussion assumes that all of a Shareholder’s Shares
were acquired on the same date and at the same price per Share. If a Shareholder
owns multiple lots of Shares (i.e.,
Shares acquired on different dates and/or at different prices), it is uncertain
whether the Shareholder may use the “specific identification” rules that apply
under Treas. Reg. Sec. 1.1012-1(c) in the case of sales of shares of stock, in
determining the amount, and the long-term or short-term character, of any gain
or loss recognized by the Shareholder upon the sale of gold bullion by the Fund,
upon the sale of any Shares by the Shareholder, or upon the sale by the
Shareholder of any gold bullion received by it upon the redemption of any of its
Shares. The IRS could take the position that a Shareholder has a blended tax
basis and holding period for its pro rata share of the underlying gold bullion
in the Fund. Shareholders that hold multiple lots of Shares, or that are
contemplating acquiring multiple lots of Shares, are urged to consult their own
tax advisors as to the determination of the tax basis and holding period for the
underlying gold bullion related to such Shares.
MAXIMUM
28% LONG-TERM CAPITAL GAINS TAX RATE FOR NON-CORPORATE U.S. SHAREHOLDERS
Under
current federal income tax law, gains recognized by non-corporate U.S.
Shareholders from the sale of “collectibles,” including gold bullion, held for
more than one year are taxed at a maximum rate of 28%, rather than the 20% rate
applicable to most other long-term capital gains. For these purposes, gain
recognized by a non-corporate U.S. Shareholder upon the sale of an interest in a
trust that holds collectibles is treated as gain recognized on the sale of
collectibles, to the extent that the gain is attributable to unrealized
appreciation in value of the collectibles held by the trust. Therefore, any gain
recognized by a non-corporate U.S. Shareholder attributable to a sale of Shares
held for more than one year, or attributable to the Fund’s sale of any gold
bullion which the Shareholder is treated (through its ownership of Shares) as
having held for more than one year, generally will be taxed at a maximum U.S.
federal income tax rate of 28%; if the Shares or gold bullion sold is held (or
treated as held) for one year or less, then any such gain so recognized would be
taxed for U.S. federal income tax purposes at the same rate at which ordinary
income is taxed.
3.8%
TAX ON NET INVESTMENT INCOME
Certain
U.S. Shareholders who are individuals are required to pay a 3.8% tax on the
lesser of the excess of their modified adjusted gross income over a threshold
amount ($250,000 for married persons filing jointly and $200,000 for single
taxpayers) or their “net investment income,” which generally includes dividends,
interest, and net gains from the disposition of investment property. This tax is
in addition to any regular U.S. federal income tax due on such investment
income. A similar tax will apply to certain shareholders that are estates or
trusts. U.S. Shareholders are urged to consult their tax advisors regarding the
effect, if any, this law may have on an investment in the Shares.
BROKERAGE
FEES AND FUND EXPENSES
Any
brokerage or other transaction fee incurred by a Shareholder in purchasing
Shares will be treated as part of the Shareholder’s tax basis in the underlying
assets of the Fund. Similarly, any brokerage fee incurred by a Shareholder in
selling Shares will reduce the amount realized by the Shareholder with respect
to
the sale.
Shareholders
will be required to recognize gain or loss upon a sale of gold bullion by the
Fund (as discussed above), even though some or all of the proceeds of such sale
are used by the Administrator to pay the Fund’s expenses. Shareholders may
deduct their respective pro rata shares of each expense incurred by the Fund to
the same extent as if they directly incurred the expense. Shareholders who are
individuals, estates or trusts, however, may be required to treat some or all of
the expenses of the Fund as miscellaneous itemized deductions. Individuals may
not deduct miscellaneous itemized deductions for tax years beginning after
December 31, 2017 and before January 1, 2026. For tax years beginning before
January 1, 2018 and after December 31, 2025, individuals may deduct certain
miscellaneous itemized deductions only to the extent they exceed 2% of adjusted
gross income. In addition, such deductions may be subject to phase-outs and
other limitations under applicable provisions of the Code.
INVESTMENT BY U.S.
TAX-EXEMPT SHAREHOLDERS
U.S. Tax-Exempt
Shareholders are subject to United States federal income tax only on their
unrelated business taxable income (“UBTI”). Unless they incur debt in order to
purchase Shares, it is expected that U.S. Tax-Exempt Shareholders should not
realize UBTI in respect of income or gains from the Shares. U.S. Tax-Exempt
Shareholders are urged to consult their own independent tax advisors regarding
the United States federal income tax consequences of holding Shares in light of
their particular circumstances.
INVESTMENT BY REGULATED
INVESTMENT COMPANIES
Mutual funds and other
investment vehicles which are taxed as “regulated investment companies” within
the meaning of section 851 of the Code are strongly urged to consult with their
tax advisors concerning the likelihood that an investment in Shares will affect
their qualification as a “regulated investment company.”
INVESTMENT
BY CERTAIN RETIREMENT PLANS
Code
section 408(m) provides that the acquisition of a “collectible” by an IRA, or a
participant-directed account maintained under any plan that is tax- qualified
under Code section 401(a), is treated as a taxable distribution from the account
to the owner of the IRA, or to the participant for whom the plan account is
maintained, of an amount equal to the cost to the account of acquiring the
collectible. The IRS has issued private letter rulings to taxpayers, including
an affiliate of the Sponsor, concluding that the purchase of shares in trusts
similar to the Fund by an IRA owner or plan participant will not constitute the
acquisition of a collectible or be treated as resulting in a taxable
distribution to the IRA owner or plan participant under Code section
408(m). Private letter rulings are only binding on the IRS with respect to
the taxpayer to which they are issued. The Fund has neither requested nor
obtained such a private letter ruling. IRA owners and plan participants are
strongly urged to consult with their tax advisors before directing any such
accounts to invest in the Shares.
However,
if any of the shares so purchased are distributed from an IRA or plan account to
the IRA owner or plan participant, or if any gold received by such IRA or plan
account upon the redemption of any of shares purchased by it is distributed (or
treated as distributed under Code section 408(m)) to the IRA owner or plan
participant, the shares or gold so distributed will be subject to federal income
tax in the year of distribution, to the extent provided under the applicable
provisions of Code section 408(d), 408(m) or 402. See also “ERISA and Related
Considerations.”
U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING FOR U.S. AND NON-U.S.
SHAREHOLDERS
The
Administrator will file certain information returns with the IRS, and provide
certain tax-related information to Shareholders, in connection with the Fund.
The Administrator will make information available that will enable brokers and
custodians through which investors hold Shares to prepare and, if required, to
file certain information returns (e.g., Form 1099) with the IRS. To the extent
required by applicable regulations, each Shareholder will be provided with
information regarding its allocable portion of the Fund’s annual income,
expenses, gains and losses (if any).
A
Shareholder may be subject to U.S. backup withholding tax in certain
circumstances unless the Shareholder provides its taxpayer identification number
and complies with certain certification procedures. Non-U.S. Shareholders may
have to comply with certification procedures to establish that they are not U.S.
persons, and some Non-U.S. Shareholders will be required to meet certain
information reporting or certification requirements imposed by the Foreign
Account Tax Compliance Act (“FATCA”), in order to avoid certain information
reporting and backup withholding tax requirements.
The
amount of any backup withholding will be allowed as a credit against a
Shareholder’s U.S. federal income tax liability and may entitle such a
Shareholder to a refund, provided that the required information is furnished to
the IRS.
ESTATE
AND GIFT TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS
Under
the U.S. federal tax law, individuals who are neither citizens nor residents (as
determined for federal estate and gift tax purposes) of the United States are
subject to estate tax on all property that has a U.S. “situs.” Shares may well
be considered to have a U.S. situs for these purposes. If they are, then Shares
would be includible in the U.S. federal gross estate of an individual Non-U.S.
Shareholder. Currently, U.S. federal estate tax is imposed at rates of up to 40%
of the fair market value of the taxable estate. The U.S. federal estate tax rate
is subject to change in future years. In addition, the U.S. federal “generation-
skipping transfer tax” may apply in certain circumstances. The estate of an
individual Non-U.S Shareholder who is resident in a country that has an estate
tax treaty with the United States may be entitled to benefit from such
treaty.
For
individual Non-U.S Shareholders, the U.S. federal gift tax generally applies
only to gifts of tangible personal property or real property having a U.S.
situs. Tangible personal property (including gold) has a U.S. situs if it is
physically located in the United States. Although the matter is not settled, it
appears that ownership of Shares should not be considered ownership of the
underlying gold for this purpose, even to the extent that gold was held in
custody in the United States. Instead, Shares should be considered intangible
property, and therefore they should not be subject to U.S. federal gift tax if
transferred during the holder’s lifetime. individual Non-U.S Shareholders are
urged to consult their tax advisors regarding the possible application of U.S.
estate, gift and generation-skipping transfer taxes in their particular
circumstances.
TAXATION IN JURISDICTIONS
OTHER THAN THE UNITED STATES
Prospective purchasers
of Shares that are based in or acting out of a jurisdiction other than the
United States are advised to consult their tax advisors as to the tax
consequences, under the laws of such jurisdiction (or any other jurisdiction not
being the United States to which they are subject), of their purchase, holding,
sale and redemption of or any other dealing in Shares and, in particular, as to
whether any value added tax, other consumption tax or transfer tax is payable in
relation to such purchase, holding, sale, redemption or other dealing.
ERISA and Related
Considerations
The Employee Retirement Income Security Act of
1974, as amended (“ERISA”), and/or Code section 4975 impose certain requirements
on certain employee benefit plans and certain other plans and arrangements,
including individual retirement accounts and annuities, Keogh plans, and certain
commingled investment vehicles or insurance company general or separate accounts
in which such plans or arrangements are invested (collectively, “Plans”), and on
persons who are fiduciaries with respect to the investment of “plan assets” of a
Plan.
Government
plans and some church plans are not subject to the fiduciary responsibility
provisions of ERISA or the provisions of section 4975 of the Code, but may be
subject to substantially similar rules under other federal law, or under state
or local law (“Other Law”). Fiduciaries of any such plans are advised to consult
with their counsel prior to an investment in the Shares.
In
contemplating an investment of a portion of Plan assets in Shares, the Plan
fiduciary responsible for making such investment should carefully consider,
taking into account the facts and circumstances of the Plan and the “Risk
Factors” discussed above and whether such investment is consistent with its
fiduciary responsibilities under ERISA, including, but not limited to: (1)
whether the investment is permitted under the Plan’s governing documents, (2)
whether the fiduciary has the authority to make the investment, (3) whether the
investment is consistent with the Plan’s funding objectives, (4) the tax effects
of the investment on the Plan, and (5) whether the investment is prudent
considering the factors discussed in this Prospectus. The fiduciary of a Plan
subject to Other Law should determine that an investment in Shares complies with
the terms of such Plan and with applicable Other Law.
Section
406 of ERISA and Section 4975 of the Code prohibit specific transactions
involving the assets of a Plan and persons who have certain specified
relationships to the Plan, including fiduciaries and other service providers to
the Plan, and certain affiliates of those persons. These persons are known as
“parties in interest” under ERISA and “disqualified persons” under Section 4975
of the Code. If the Trust, the Trustee, the Sponsor, the Custodian, the
underwriter or any of their respective affiliates is a party in interest or a
disqualified person to a Plan, the acquisition and/or holding of interests in
the Trust by that Plan may be or may result in a direct or indirect prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, unless an
exemption applies. Plan fiduciaries should talk to their advisors about the
prohibited transaction rules and exemptions. There can be no assurance that any
of the exemptions will be available with respect to an investment in the Shares.
Plan fiduciaries should not invest in the Shares unless they have concluded that
no non-exempt prohibited transactions will result from such investment. Plan
fiduciaries should consult their own legal advisors as to whether an investment
in the Shares could result in liability under ERISA, the Code or Other
Law.
It
is anticipated that the Shares will constitute “publicly offered securities” as
defined in the Department of Labor “Plan Asset Regulations,” Sec.2510.3-101
(b)(2) as modified by section 3(42) of ERISA. Accordingly, for purposes of
applying the fiduciary responsibility and prohibited transaction rules of ERISA
and the Code, Shares purchased by a Plan should be treated as assets of the
Plan, and not an interest in the underlying assets held in the Trust
represented by the Shares.
Plans
that purchase the Shares will be deemed to have represented, warranted and
agreed that (i) none of the Trust, the Trustee, the Sponsor, the Custodian or
any of their respective affiliates has provided any investment recommendation or
investment advice to the Plan (including plans subject to Other Law), or any
fiduciary or other person investing on behalf of the Plan (including plans
subject to Other Law) or who otherwise has discretion or control over the
investment and management of “plan assets” (“Plan Fiduciary”), on which either
the Plan or such plan or Plan or other plan Fiduciary has relied in connection
with the decision to purchase the Shares, (ii) the Trust, the Trustee, the
Sponsor, the Custodian or any of their respective affiliates are not otherwise acting as a
“fiduciary,” as that term is defined in Section 3(21) of ERISA or Section
4975(e)(3) of the Code or as may otherwise be defined under Other Law, to the
Plan or other plan or Plan or other plan Fiduciary in connection with the Plan’s
or other plan’s purchase of the Shares, and (iii) the Plan or other plan
Fiduciary is exercising its own independent judgment in evaluating the
transaction.
The
Declaration of Trust
The
Trust operates under the terms of the Declaration of Trust, dated as of May 10,
2022, between the Sponsor and the Trustee. A copy of the Declaration of Trust is
available for inspection at the Trust’s office. A description of the material
terms of the Declaration of Trust is provided below.
THE
SPONSOR
This section summarizes
some of the important provisions of the Declaration of Trust which apply to the
Sponsor. For a general description of the Sponsor’s role concerning the Trust,
see the section “Prospectus Summary — The Sponsor.”
Liability
of the Sponsor and indemnification
The
Sponsor will not be liable to the Trust, the Trustee or any Shareholder for any
action taken or for refraining from taking any action in good faith, or for
errors in judgment or for depreciation or loss incurred by reason of the sale of
any gold bullion or other assets of the Fund or the Trust. However, the
preceding liability exclusion will not protect the Sponsor against any liability
resulting from its own gross negligence, bad faith, or willful misconduct.
The Sponsor and
each of its shareholders, members, directors, officers, employees, affiliates
and subsidiaries will be indemnified by the Trust and held harmless against any
losses, liabilities or expenses incurred in the performance of its duties under
the Declaration of Trust without gross negligence, bad faith, or willful
misconduct. The Sponsor may rely in good faith on any paper, order, notice,
list, affidavit, receipt, evaluation, opinion, endorsement, assignment, draft or
any other document of any kind prima facie properly executed and submitted to it
by the Trustee, the Trustee’s counsel or by any other person for any matters
arising under the Declaration of Trust. The Sponsor shall in no event be deemed
to have assumed or incurred any liability, duty, or obligation to any
Shareholder or to the Trustee other than as expressly provided for in the
Declaration of Trust. Such indemnity includes payment from the Trust of the
costs and expenses incurred in defending against any indemnified claim or
liability under the Declaration of Trust.
THE
TRUSTEE
This
section summarizes some of the important provisions of the Declaration of Trust
which apply to the Trustee. For a general description of the Trustee’s role
concerning the Trust, see the section “Prospectus Summary — The
Trustee.”
Liability
of the Trustee and indemnification
The
Trustee will not be liable or accountable to the Trust or any other person or
under any agreement to which the Trust or any series of the Trust is a party,
except for a Trustee’s breach of its obligations pursuant to the Declaration of
Trust or its own willful misconduct, bad faith or gross negligence. The Trustee
and each of its officers, affiliates, directors, employees, and agents will be
indemnified by the Trust from and against any losses, claims, taxes, damages,
reasonable expenses, and liabilities incurred with respect to the creation,
operation or termination of the Trust, the execution, delivery or performance of
the Declaration of Trust or the transactions contemplated thereby; provided that
the indemnified party acted without willful misconduct, bad faith or gross
negligence.
Duties
The
Trustee will have none of the duties or liabilities of the Sponsor. The duties
of the Trustee shall be limited to (i) accepting legal process served on the
Trust in the State of Delaware, (ii) the execution of any certificates required
to be filed with the Secretary of State of the State of Delaware which the
Trustee is required to execute under Section 3811 of the Delaware Statutory
Trust Act, and (iii) any other duties specifically allocated to the Trustee in
the Declaration of Trust or agreed in writing with the Sponsor from time to
time.
Resignation,
discharge or removal of Trustee; successor trustees
The
Trustee may resign at any time by giving at least 60 days advance written notice
to the Trust, provided that such resignation will not become effective until
such time as a successor Trustee has accepted appointment as Trustee of the
Trust. The Sponsor may remove a Trustee at any time by giving at least 60 days
advance written notice to the Trustee, provided that such removal will not
become effective until such time as a successor Trustee has accepted appointment
as Trustee of the Trust. Upon effective resignation or removal, the Trustee will
be discharged of its duties and obligations.
STATEMENTS,
FILINGS AND REPORTS
Proper
books of account for the Fund shall be kept and shall be audited annually by an
independent certified public accounting firm selected by the Sponsor in its sole
discretion, and there shall be entered therein all transactions, matters and
things relating to each fund’s business as are required by the Securities Act,
as amended, and all other applicable rules and regulations, and as are usually
entered into books of account kept by persons engaged in a business of like
character. The books of account shall be kept at the principal office of the
Trust.
FISCAL
YEAR
The
fiscal year of the Fund will initially be the period ending March 31 of each
year. The Sponsor has the continuing right to select an alternate fiscal
year.
TERMINATION
OF THE TRUST OR THE FUND
The
Sponsor may terminate the Trust or the Fund in its sole discretion. The Sponsor
will give written notice of the termination of the Trust or the Fund,
specifying the date of
termination, to Shareholders of the Trust or the Fund, as applicable, at least
30 days prior to the termination of the Trust or the Fund. The Sponsor will,
within a reasonable time after such termination, sell all of the gold bullion
not already distributed to Authorized Participants redeeming Creation Units, if
any, in such a manner so as to effectuate orderly sales and a minimal market
impact. The Sponsor shall not be liable for or responsible in any way for
depreciation or loss incurred by reason of any sale or sales made in accordance
with the provisions of the Declaration of Trust. The Sponsor may suspend its
sales of the gold bullion upon the occurrence of unusual or unforeseen
circumstances, including, but not limited to, a suspension in trading of
gold.
AMENDMENTS TO DECLARATION
OF TRUST
The Declaration of Trust can be amended by the
Sponsor in its sole discretion and without the Shareholders’ consent by making
an amendment, a supplement thereto, or an amended and restated declaration of
trust. Any such restatement, amendment and/or supplement hereto shall be
effective on such date as designated by the Sponsor in its sole
discretion.
GOVERNING LAW
The Declaration of Trust
and the rights of the Sponsor, the Trustee, DTC (as registered owner of the
Trust’s global certificates for Shares) and the Shareholders under the
Declaration of Trust are governed by the laws of the State of Delaware.
INITIAL AP
On
May 24, 2022, the initial Authorized Participant, JP Morgan Securities LLC (the
“Initial AP”), purchased 100,000 Shares at a per-Share price of $25 (the “Seed
Creation Units”). Total proceeds to the Fund from the sale of the Seed Creation
Units were 1,338.976 ounces of gold. The value of gold deposited with the Fund
was $2,500,002 based on the LBMA Gold Price PM on May 24, 2022 of $1,867.10 per
ounce of gold. Delivery of the Seed Creation Units was made on May 26, 2022. As
of the date of this Prospectus, these 100,000 Shares represent all of the
outstanding Shares. The Initial AP intends to offer the Shares comprising the
Seed Creation Units to the public pursuant to this
Prospectus at a per
Share offering price that will vary depending on, among other things, the price
of gold and market price of the Shares on the NYSE Arca at the time of the
offer. Shares offered by the Initial AP at different times may have different
offering prices. The Initial AP will be acting as underwriter with respect to
the Seed Creation Units. Prior to this offering, there was no public market for
the Shares. The Initial AP is not affiliated with the Sponsor or the
Trustee.
Plan
of Distribution
In addition to, and independent of, initial
purchases by the Initial AP (described above), the Fund expects to issue Shares
in Creation Units to Authorized Participants on a continuous basis in exchange
for deposits of the amount of gold bullion represented by the Creation Units
being created. As of June 17, 2022, BofA Securities, Inc., JP Morgan Securities,
LLC and UBS Securities LLC are the only Authorized Participants. Because new
Shares can be created and issued on an ongoing basis, at any point during the
life of the Fund, a “distribution,” as such term is used in the Securities Act,
will be occurring.
Authorized
Participants, other broker-dealers and other persons are cautioned that some of
their activities will result in their being deemed participants in a
distribution in a manner which would render them statutory underwriters and
subject them to the prospectus-delivery and liability provisions of the
Securities Act. For example, an Authorized Participant, other broker-dealer firm
or its client will be deemed a statutory underwriter if it purchases a Creation
Unit from the Fund, breaks the Creation Unit down into the constituent Shares
and sells the Shares to its customers, or if it chooses to couple the creation
of a supply of new Shares with an active selling effort involving solicitation
of secondary market demand for the Shares. A determination of whether one is an
underwriter must take into account all the facts and circumstances pertaining to
the activities of the broker-dealer or its client in the particular case, and
the examples mentioned above should not be considered a complete description of
all the activities that would lead to categorization as an underwriter.
Investors
who purchase Shares through a commission/fee-based brokerage account may pay
commissions/fees charged by the brokerage account. Investors are encouraged to
review the terms of their brokerage accounts for details on applicable
charges.
Dealers
who are not “underwriters” but are participating in a distribution (as
contrasted to ordinary secondary trading transactions), and thus dealing with
Shares that are part of an “unsold allotment” within the meaning of section
4(a)(3)(C) of the Securities Act, would be unable to take advantage of the
prospectus-delivery exemption provided by section 4(a)(3) of the Securities
Act.
The
Sponsor intends to qualify the Shares in states selected by the Sponsor and
through broker-dealers who are members of FINRA. Investors intending to create
or redeem Creation Units through Authorized Participants in transactions not
involving a broker-dealer registered in an investor’s state of domicile or
residence should consult their legal advisors regarding applicable broker-dealer
or securities regulatory requirements under the state securities laws prior to
such creation or redemption.
Because
FINRA views the Shares as interests in a direct participation program, no
FINRA-member, or person associated with a member, will participate in a public
offering of Shares except in compliance with Rule 2310 of the FINRA Rules. The
Authorized Participants do not receive from the Trust or the Sponsor any
compensation in connection with an offering of the Shares.
The
Shares will trade on NYSE Arca under the symbol “FGLD.”
The Marketing
Agent assists the Sponsor in, among other things: (1) developing a marketing
plan for the Fund on an ongoing basis; (2) preparing marketing materials
regarding the Shares, including the content on the Fund’s website; (3) executing
the marketing plan for the Fund; (4) conducting public relations activities
related to the marketing of Shares; and (5) incorporating gold into its
strategic and tactical exchange-traded fund research.
Legal
Proceedings
None.
Legal
Matters
The validity of
the Shares will be passed upon for the Sponsor by Stradley Ronon Stevens &
Young, LLP, which, as U.S. tax counsel to the Fund, will also render an opinion
regarding the material federal income tax consequences that generally will apply
under currently applicable law to the purchase, ownership and disposition of
Shares by a “U.S. Shareholder” as defined in the material under the caption
“United States Federal Tax Consequences” in this Prospectus.
Experts
The financial
statements as of May 24, 2022 included in this Prospectus have been so included
in reliance on the report of PricewaterhouseCoopers LLP, an independent
registered public accounting firm, given on the authority of said firm as
experts in accounting and auditing.
Where
You Can Find More Information
The
Sponsor has filed on behalf of the Fund a registration statement on Form S-1
with the SEC under the Securities Act. This Prospectus, which constitutes a part
of the registration statement, does not contain all of the information set forth
in the registration statement (including the exhibits to the registration
statement), parts of which have been omitted in accordance with the rules and
regulations of the SEC. Please refer to the registration statement and exhibits
for further information with respect to Shares. Statements contained in this
Prospectus regarding the contents of any contract or other document are only
summaries. With respect to any contract or document that is filed as an exhibit
to the registration statement, you should refer to the exhibit for a copy of the
contract or document, and each statement in this Prospectus regarding that
contract or document is qualified by reference to the exhibit. The SEC maintains
a website that contains reports, proxy and information statements and other
information regarding issuers, like us, that file documents electronically with
the SEC. The address of that website is www.sec.gov.
The Fund will be subject to the informational
requirements of the Exchange Act, and the Sponsor, on behalf of the Fund, will
file certain periodic reports and other information with the SEC. These filings
will contain certain important information that does not appear in this
prospectus and will be available free of cost on the SEC’s website referenced
above. Information about the Fund and the Shares can also be obtained,
free of charge, from the Fund’s website: www.franklintempleton.com/
investments/options/exchange-tradedfunds/products/31714/SINGLCLASS/
franklin-responsibly-sourced-gold-etf/ FGLD. This Internet address is only
provided here as a convenience to you to allow you to access the Fund’s website,
and the information contained on or connected to the Fund’s website is not part
of this Prospectus or the registration statement of which this Prospectus is a
part. The Fund will make available, free of charge, on its website the Fund’s
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K
(including any amendments thereto), proxy statements and other information filed
with, or furnished to, the SEC, as soon as reasonably practicable after such
documents are so filed or furnished.
Financial
Statements
FRANKLIN
TEMPLETON HOLDINGS TRUST
Franklin
Responsibly Sourced Gold ETF
Statement
of Assets and Liabilities
The
Franklin Templeton Holdings Trust (the “Trust”) is organized as a Delaware
statutory trust. The Franklin Responsibly Sourced Gold ETF series of the Trust
(the “Fund”) issues and offers shares (“Shares”) which represent units of
fractional undivided beneficial interests in the net assets of the Fund. The
investment objective of the Fund is for the Shares to reflect the performance of
the price of gold bullion, less the Fund’s expenses. The assets of the Fund
include only gold bullion and cash, if any.
BNY
Mellon Asset Servicing, a division of The Bank of New York Mellon (“BNYM”), is
the Administrator and Transfer Agent of the Fund. BNYM also serves as the
custodian of the Fund’s cash, if any. JPMorgan Chase Bank, N.A. London Branch
serves as custodian of the Fund’s gold bullion. Delaware Trust Company, a
subsidiary of the Corporation Services Company, is the sole trustee of the Trust
(the “Trustee”). Franklin Distributors, LLC is the marketing agent of the Fund
(the “Marketing Agent”).
The
investment objective of the Fund is for the Shares to reflect the performance of
the price of gold bullion, less the Fund’s expenses. The Fund’s fiscal year-end
is March 31.
The
Fund expects to issue and redeem the Shares from time to time, but only in large
aggregations of Shares (generally 50,000 Shares) referred to as Creation Units.
Creation Units may be created or redeemed only by Authorized Participants. The
creation and redemption of Creation Units require the delivery to the Fund or
the distribution by the Fund of the amount of gold bullion represented by the
Creation Units being created or redeemed. The dollar amount of a Creation Unit
is a function of the NAV of the number of Shares included in the Creation
Unit.
On
May 24, 2022, JP Morgan Securities LLC (the “Initial AP”), subject to conditions
and acting as a statutory underwriter in connection with the initial purchase of
shares, deposited gold for the purchase of Seed Creation Units totaling 100,000
shares at the share price equal to $25 per share. Total proceeds to the Fund
from the sale of the Seed Creation Units were 1,338.976 ounces of gold. At
contribution, the value of the gold deposited with the Fund was $2,500,002 based
on the price of an ounce of gold of $1,867.10 announced on May 24, 2022. The
Initial AP intends to offer to the public these 100,000 Shares at a per-Share
offering price that will vary depending on, among other things, the price of
gold and the trading price of the Shares on the NYSE Arca at the time of the
offer. Shares offered by the Initial AP at different times may have different
offering prices. Prior to this offering, there was no public market for the
Shares. The Initial AP is not affiliated with the Sponsor or the
Trustee.
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States (“U.S. GAAP”), management of the Sponsor
makes estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amount of revenue and expenses
reported during the period. Actual results could differ from these
estimates.
A
separate statement of income, changes in equity, and cash flows have not been
presented in the financial statements because principal operations have not
commenced as of May 24, 2022.
The
following is a summary of significant accounting policies followed by the Fund
and the Trust.
The
Sponsor has determined that the Fund falls within the scope of Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
946, Financial Services - Investment Companies, and has concluded that, solely
for accounting and reporting and not for any other purposes, the Fund qualifies
as an Investment Company. The Fund is not registered as an investment company
under the Investment Company Act of 1940 and is not required to register under
such act.
JPMorgan
Chase Bank N.A., London branch (the “Custodian”), is responsible for the
safekeeping of gold bullion owned by the Fund.
Fair
value of the gold bullion held by the Fund is generally based on that day's
London Bullion Market Association ("LBMA") Gold Price PM. See 4.3 “Calculation
of Net Asset Value” below. The "LBMA Gold Price PM" is the price per fine
troy ounce of gold, stated in U.S. dollars, determined by ICE Benchmark
Administration (“IBA”) following an electronic auction consisting of one or more
30-second rounds starting at 3:00 p.m. (London time), on each day that the
London gold market is open for business, and published shortly
thereafter.
Gain
or loss on sales of gold bullion is calculated on a trade date basis using the
average cost method.
The
following tables summarize activity in gold bullion during the period covered by
these financial statements:
The
NAV is computed based upon the total value of the assets of the Fund (i.e., gold
and cash) less its liabilities. To determine the Fund’s NAV, the Administrator
will value the gold bullion held by the Fund on the basis of the LBMA Gold Price
PM as published by the IBA. IBA operates electronic auctions for spot,
unallocated loco London gold, providing a market-based platform for buyers and
sellers to trade. The auctions are run at 10:30 a.m. and 3:00 p.m. London time
for gold. The final auction prices are published to the market as the LBMA Gold
Price AM and the LBMA Gold Price PM, respectively. The Administrator will
calculate the NAV on each day NYSE Arca is open for regular trading, at the
earlier LBMA Gold Price PM for the day or 12:00 PM New York time. If no LBMA
Gold Price (AM or PM) is made on a particular evaluation day or if the LBMA Gold
Price PM has not been announced by 12:00 PM New York time on a particular
evaluation day, the next most recent LBMA Gold Price AM or PM will be used in
the determination of the NAV, unless the Sponsor determines that such price is
inappropriate to use as the basis for such determination.
Once
the value of the gold bullion has been determined, the Administrator subtracts
all estimated accrued expenses and other liabilities of the Fund from the total
value of the gold bullion and any cash of the Fund. The resulting figure is the
NAV. The Administrator determines the NAV per Share by dividing the NAV of the
Fund by the number of Shares
outstanding
as of the close of trading on NYSE Arca.
Upon
listing, the Fund’s only ordinary recurring expense is the Sponsor’s annual fee
of 0.15% of the NAV of the Fund. The Sponsor’s annual fee accrues daily and is
payable by the Fund monthly in arrears. The Fund’s expenses will reduce the NAV
of the Fund.
The
Fund’s organizational and offering costs are borne by the Sponsor and, as such,
are the sole responsibility of the Sponsor. The Sponsor will not seek
reimbursement or otherwise require the Fund, the Trust, the Trustee or any
Shareholder to assume any liability, duty or obligation in connection with any
such organizational and offering costs.
In
the normal course of business, the Trust, on behalf of the Fund, may enter into
contracts with service providers that contain general indemnification clauses.
The Fund’s maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred.
The
Fund is treated as a grantor trust for federal income tax purposes and,
therefore, no provision for federal income taxes is required. Any interest,
expenses, gains and losses are passed through to the holders of Shares of the
Fund. The Sponsor has reviewed the tax positions as of May 24, 2022 and has
determined that no provision for income tax is required in the Fund’s financial
statements.
Under
the Trust’s organizational documents, the Sponsor and its shareholders, members,
directors, affiliates, officers, employees and subsidiaries are indemnified by
the Trust against certain liabilities. The Fund has also agreed to indemnify
certain of its other service providers, including the Administrator, Custodian
and the Trustee (including its officers, affiliates, directors, employees, and
agents), for certain liabilities incurred by such parties in connection with
their respective agreements to provide services for the Fund.
Substantially
all of the Fund’s assets are holdings of gold bullion, which creates a
concentration risk associated with fluctuations in the price of gold.
Accordingly, a decline in the price of gold will have an adverse effect on the
value of the Shares of the Fund. Factors that may have the effect of causing a
decline in the price of gold include large sales by the official sector
(governments, central banks, and related institutions), an increase in the
hedging activities of gold producers, and changes in the attitude of
speculators, investors and other market participants towards gold.
U.S.
GAAP defines fair value as the price the Fund would receive to sell an asset or
pay to transfer a liability in an orderly transaction between market
participants at the measurement date. The Fund’s policy is to value its
investment at fair value.
Various
inputs are used in determining the fair value of assets and liabilities. 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 an asset or liability 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:
Unadjusted
quoted prices in active markets for identical assets or liabilities;
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
Unobservable
inputs that are unobservable for the asset or liability, including the Fund’s
assumptions used in determining the fair value of investments.
At
May 24, 2022, the value of the gold bullion held by the Fund is categorized as
Level 1.
Franklin
Holdings, LLC is the Sponsor of the Fund. Franklin Distributors, LLC serves as
the Marketing Agent of the Fund. The Sponsor and the Marketing Agent are
affiliates and each is considered to be a related party to the Trust and the
Fund. Franklin Resources, Inc. (“FRI”) is the ultimate parent company of the
Sponsor and the Marketing Agent. FRI is the holding company for various
subsidiaries that together are referred to as Franklin Templeton
Investments.
Franklin
Holdings, LLC will receive an annual fee equal to 0.15% of the daily net assets
of the Fund.
The
Fund has evaluated subsequent events through the issuance of the financial
statements and determined that no events have occurred that require
disclosure.