ETFS COMMODITY SECURITIES LIMITED

Transcription

. 'f
Registered No: 90959
Report and Financial Statements for the
Year Ended 31 December 2007
CONTENTS
Management and Administration
Directors' Report
2-10
Statement of Directors' Responsibilities
11
Independent Auditors' Report
12
Income Statement
13
Balance Sheet
14
Cash Flow Statement
15
Statement of Changes in Shareholders' Equity
16
Notes to the Financial Statements
17-33
MANAGEMENT AND ADMINISTRATION
Directors
Company Secretary
Graham Tuckwell - Chairman
R&H Fund Services (Jersey) Limited
Dr Vince FitzGerald
Ordnance House
31 Pier Road
Graeme Ross
Craig Stewart
St Helier
Dr Leanne Baker
Jersey
B Cukier - appointed 20/03/07
JE4 8PW
Registered Office
English and German Legal Advisers
Ordnance House
31 Pier Road
Dechert LLP
160 Queen Victoria Street
London, EC4V 4QQ
St Helier
Jersey, JE4 8PW
Jersey Legal Advisers
Mourant du Feu & Jeune
22 Grenville Street
St Helier
Jersey, JE4 8PX
Registrar
Computershare Investor Services (Channel
Ordnance House
31 Pier Road
St Helier
Jersey, JE4 8PW
Auditors
Trustee
Ernst & Young LLP
The Law Debenture Trust Corporation pic
Fifth Floor
Liberation House
Castle Street
100 Wood Street
St Helier
London, EC2V 7EX
Jersey, JE11EY
Administrator
Calculating Agent
ETF Securities Limited
AIG Financial Products Corp.
50 Danbury Road
Ordnance House
31 Pier Road
Wilton
St Helier
Jersey, JE4 8PW
Connecticut
USA,06897-4444
Dutch Legal Advisers
Dutch Listing and Paying Agent
Stibbe
1070 AP, Amsterdam
Fortis Bank (Nederland) N,V,
1012 KK Amsterdam
German Listing and Paying Agent
Italian Legal Advisers
HSBC Trinkhaus & Burkhordt AG
40212 Dusseldorf
00197 Roma
French Legal Advisers
French Listing and Paying Agent
Simmons & Simmons
HSBC France
75008 Paris
75001 Paris
Studio Legale Cieri Crocenzi
. 1 .
Islands) Limited
DIRECTORS' REPORT
The directors of ETFS Commodity Securities Limited ("CSL"/the Company), submit herewith the report and financial
statements of the Company for the financial year ended 31 December 2007.
Directors
The names and particulars of the directors of the Company who have served during or since the end of the financial
year are:
Mr Graham John Tuckwell- Chairman (appointed 19 January 2006)
Mr Tuckwell is a founder and the chairman of Gold Bullion Securities Limited (Jersey) and Gold Bullion Securities
Limited (Australia), which companies obtained the world's first listings of a commodity on a stock exchange. Gold
Bullion Securities are traded on the London Stock Exchange (code: GBS) and on the Australian Stock Exchange
(code: GOLD). Mr Tuckwell is also the founder and managing director of Investor Resources Limited, a boutique
corporate advisory firm established more than eight years ago, which specialises in providing financial, technical and
strategic advice to the resources industry. He has more than 20 years of corporate and investment banking
experience. Prior to establishing Gold Bullion Securities Limited and Investor Resources Limited, Mr Tuckwell was
Head of Mining Asia/Pacific at Salomon Brothers, Group Executive Director at Normandy Mining responsible for
Strategy and Acquisitions and Head of Mergers and Acquisitions at Credit Suisse First Boston in Australia, He holds
a Bachelor of Economics (Honours) and a Bachelor of Laws degree from the Australian National University,
Dr. Vince FitzGerald - Non-Executive Director (appointed 19 January 2006)
Dr FitzGerald is Chairman of The Allen Consulting Group Pty Ltd, an Australian consulting company in the fields of
economics, public policy and economic and financial regulation. He has been a director of that company since 1989,
soon after its foundation, Prior to that time, he was a senior government official in Canberra, his career involving
assignments in the Departments of the Treasury, Prime Minister and Cabinet, Finance (Deputy Secretary), Trade
(Secretary) and Employment, Education and Training (Secretary). He is a well known expert on the superannuation
industry in Australia, and is a superannuation fund trustee. During the 10 years to 2004, Dr FitzGerald was a director
of ING Australia Holdings Ltd and its subsidiaries, and was Chairman of its Audit and Risk Management Committees.
He is a non-executive director of Gold Bullion Securities Limited in Jersey and Australia and chairs the group's Risk
Management and Audit Committee. He holds a Bachelor of Economics (First class Honours in Econometrics) from
the University of Queensland and a PhD in Economics from Harvard University.
Graeme Ross - Non-Executive Director (appointed 19 January 2006)
Mr Ross graduated from Abertay University Dundee in 1980 and joined Arthur Young McClelland Moores in Perth,
Scotland. He qualified as a chartered accountant in 1984 and joined KPMG Peat Marwick's practice in Jersey shortly
afterwards. Graeme joined the Jersey practice of Rawlinson & Hunter, Chartered Accountants, in 1986 as a
manager in the fund administration division. In 1994 he was admitted to the Jersey partnership. Graeme has been
the managing director of R&H Fund Services (Jersey) Limited since 1996 and has in-depth knowledge and
experience of the fund management industry and in particular retail funds. He has worked in the offshore fund
management industry for 18 years and also served as a committee member of the Jersey Fund Managers
Islands) Limited
and one of his roles is to maintain the day to day operations of Gold Bullion Securities Limited (Jersey), of which he
is a non-executive director,
Association for three years, Graeme is also a director of Computershare Investor Services (Channel
-2-
DIRECTORS' REPORT. CONTINUED
Directors. continued
Craig Stewart - Non.Executive Director (appointed 19 January 2006)
Mr Stewart graduated from Edinburgh University in 1987 with a degree in Politics and worked in commercial roles for
two blue chip companies headquartered in London. In 1993, he joined Arhur Andersen's Audit and Business
Advisory practice in Jersey and qualified as a chartered accountant in 1996. He has specialised in the investment
fund sector and been particularly involved with retail, institutional and private equity funds. In 1997, he was promoted
to manager with sole responsibility for Andersen's asset management clients in European offshore jurisdictions, He
was also the manager on a significant number of consulting assignments including controls reviews, operational
reviews, due diligence projects, benchmarking studies and forensic investigations. In April 2000, he joined
Rawlinson & Hunter's fund administration division and in January 2001 he was promoted to Director of R&H Fund
Services (Jersey) Limited, Craig is also a director of Computershare Investor Services (Channel
Islands) Limited and
a non-executive director of Gold Bullion Securities Limited (Jersey), ETFS Oil Securities Limited and ETFS Metal
Securities Limited.
Dr. Leanne M. Baker - Non.Executive Director (appointed 7 August 2006)
Dr, Baker is managing director of Investor Resources LLC, a U,S.-based corporate advisory firm that provides
financial, investment banking and investor relations expertise to the natural resources industry, She holds her
required U.S, regulatory licenses as an independent contractor with broker-dealer Puplava Securities Inc. She has
more than 20 years of Wall Street research and banking experience, including managing the commodity research
team at Philipp Brothers, Inc, in the 1980s and helping to build a metals and mining equity research/banking
franchise at Salomon Brothers Inc in the 1990s, She also serves on the boards of directors of Agnico-Eagle Mines
Ltd., U.S. Gold Corporation and New Sleeper Gold Corporation, Dr. Baker received her M.S. and Ph.D. degrees in
mineral economics from Colorado School of Mines.
Ben Cukier - Non.Executive Director (appointed 20 March 2007)
Mr Cukier is a Partner in FTVentures (L.P.) with investment responsibilities in Business Services, Mr Cukier was
previously with the Telecommunications and Media Team at Madison Dearborn Partners in Chicago. Prior to joining
Madison Dearborn Partners, Mr Cukier was with McKinsey & Co, in New York, where he consulted to clients in the
telecommunications, Internet, and healthcare industries. Prior to joining FTVentures, Mr Cukier spent a summer
working in the Business Development group at Allegiance Telecom. Mr Cukier received his BS and BA from the
University of Pennsylvania and an MBA from Stanford,
.3.
ETFS COMMODITY SECURITES LIMITED
Principal Activities
ETFS Commodity Securities Limited (the "Company") has established a programme under which Micro and
Commodity Securities may be issued from time to time. On 15 September 2007 the Directors approved the issuance
of new types of ETFS Commodity Securities, namely Forward Individual Securities, Forward Index Securities
together with the corresponding Forward Micro Securities. All transaction documents relating to the new issuance
were tabled and approved at the meeting. Consent was requested and given by the Jersey regulator with regard to
the issuance of the new securities, During the course of the year all new classes of Forward Securities were issued
with the exception of the Precious Metal Forward Security. The existing classes of Individual Security, Index Security
and Micro Security are referred to as the "Classic Securities". The terms of the Classic Securities are largely
unaltered, Commodity Securities have been designed to enable investors to gain exposure to a total return (as
explained below) from an investment in individual commodities (through Individual Securities) or baskets of
commodities (through Index Securities), similar to the returns which could be achieved from a fully-paid/collateralised
investment in futures contracts. However, no trading or management of futures contracts is required of the
Company, as it will purchase matching Commodity Contracts from AIG Financial Products Corp. ("AIG.FP") or, in
certain circumstances, any other Commodity Contract Counterparty. Any type of Investor can buy and sell
Commodity Securities through the trading of the securities listed on the London SE, Borsa Italiana, Euronext
Amsterdam, Frankfurt SE and Euronext Paris.
Dow Jones - AIG Commodity IndexsM and Sub.lndices
Classic Securities
All Commodity Securities are priced off Individual Commodity Indices published by Dow Jones & Company, Inc,
("Dow Jones"). These Indices are constructed and published pursuant to a joint arrangement between AIG-FP, a
wholly owned subsidiary of American International Group, Inc. ("AIG") and Dow Jones, The methodology used to
calculate these indices is set out in the DJ-AIGClsM Handbook.
Each Individual Commodity Index tracks a designated futures contract - generally among the most liquid futures
contract for that commodity, NYMEX contracts are used for the energy indices, LME and COMEX contracts are used
for the metal indices, and CME, CBOT and NYBOT contracts are used for the livestock and agriculture indices,
Each Individual Commodity Index is designed to reflect two components:
The current market price (or spot price) of the commodity (which can rise or fall), determined from Settlement Prices
on a futures exchange which trades that commodity; and
The effect of backwardation or contango in that futures market (if the market is in backwardation, the index may tend
to rise over time as lower futures prices converge to higher spot prices; if it is in contango the index may tend to fall
over time, as higher futures prices converge to lower spot prices).
Dow Jones also publishes an index of all the commodities, the Dow Jones - AIG Commodity IndexsM "DJ.AIGClsM",
and a number of sub-indices thereof, All are constructed using the same inputs as the relevant Individual Commodity
Indices. The weighting to be given to each commodity in the DJ-AIGClsM is determined and adjusted annually (a
process called rebalancing) and the weightings for the sub-indices are adjusted accordingly,
Forward Securities
The nineteen classes of Forward Individual Security correspond to the nineteen different commodities presently
represented in the Dow Jones - AIG Comodity Index 3 Month ForwardsM "DJ.AIGCI.F3sM", being Aluminium, Coffee,
Copper, Corn, Cotton, Crude Oil, Gasoline, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Silver,
Soybean Oil, Soybeans, Sugar, Wheat and Zinc,
The price of a Forward Micro Security of a particular class would track the price of an individual Commodity of a
corresponding class on the DJ-AIGCI-F3sM
.4.
Dow Jones - AIG Commodity IndexSM and Sub.lndices continued
The ten categories of Forward Index Securities would correspond to the overall index and nine sub indices of the DJ-
AIGCI, being All Commodities; Agricultural; Energy; Ex-Energy; Grains; Industrial Metals; Livestock; Petroleum;
Precious Metals and Softs.
The Company may with AIG-FP's agreement, use a different forward commodity index to Price the Forward
Securities,
Commodity Securities Generally
Commodity Securities are financial instruments designed to track the price of commodity futures, and give investors
an exposure similar to that which could be achieved by managing a fully cash-collateralised un
leveraged long
position in near-term futures contracts, However, unlike managing a futures position, Commodity Securities involve
no need to roll from one futures contract to another, no margin calls, and no other brokerage or other costs in holding
or rolling futures contracts (although Security Holders incur other costs in holding Commodity Securities).
Commodity Securities provide investors with a "total return", comprising: a commodity "excess return" (spot price
movement plus the roil yield from backwardation and/or contango in the relevant futures market when rolling) plus a
collateral return in the form of capital enhancement.
There are two types of Commodity Securities issued: Individual Securities, which are based on the value of a single
commodity futures contract; and Index Securities, which are based on the value of a basket of commodities futures
contracts.
Individual Securities
Thirty eight classes of Individual Securities have been launched, corresponding to the nineteen different commodities
presently represented in the DJ-AIGClsM and the DJ-AIGCI-F3sM, being: Aluminium, Coffee, Copper, Corn, Cotton,
Crude Oil, Gasoline, Gold, Heating Oil, Lean Hogs, Live Cattle, Natural Gas, Nickel, Silver, Soybean Oil, Soybeans,
Sugar, Wheat and Zinc.
The Price for each class of Individual Securities is calculated in US Dollars as:
Price = Individual Commodity Index x Multiplier x Pool Factor / 10
The Multiplier is a factor used to include in the Price the benefit from the capital enhancement component, and to
reflect the Management Fee and License Allowance, The Pool Factor is a number that will always be 1 unless Micro
or Commodity Securities are divided as described under the heading of "Consolidation and Division of Micro and
Commodity Securities" in Part 3 (Description of Commodity Securities) of the Prospectus,
Index Securities
Twenty categories of Index Securities have been issued, corresponding to the overall index and the nine sub-indices
presently represented in the DJ-AIGClsM and the DJ-AIGCI-F3sM , being: All Commodities; Agricultural; Energy; ExEnergy; Grains; Industrial Metals; Livestock; Petroleum; Precious Metals and Softs.
Each Index Security is priced by reference to Micro Securities. The Price for each Index Security is equal to the sum
of the value of those Micro Securities or the Forward Micro Securities, determined in the same manner as Individual
Securities.
.5.
Micro Securities
A single Commodity Contract is equivalent in Price to a single Micro Security and when an Individual Security or an
Index Security is issued, a number of Commodity Contracts equivalent in the aggregate to that Individual Security or
Index Security is created. A Commodity Security may (when in Certificated Form) be surrendered in exchange for
the Micro Securities by reference to which the amount payable on Redemption of the Commodity Security is
calculated. Micro Securities may be redeemed by Authorised Participants in the same manner as Commodity
Securities. Micro Securities may (when in Certificated Form) also be surrendered in exchange for Individual
Securities or Index Securities.
Trust Instrument
The Micro and Commodity Securities are constituted by a Trust Instrument entered into between the Company and
The Law Debenture Trust Corporation p.lc, as trustee for the Security Holders of each type.
Calculation of Prices
The Price for each type of Micro and Commodity Security applies to both issues and redemptions of Micro and
Commodity Securities - there is no spread between the issue price and the redemption price.
The Multipliers for each class of Individual Security are adjusted daily based on the Capital Adjustment applicable to
that class of Individual Security.
The Multiplier is the same for each class of Individual Security, The Multiplier, the Price for each class of Individual
Security and the Price for each category of Index Security are calculated as at the end of each Pricing Day (after the
Settlement Prices for that day on the futures exchanges have been published and the resultant indices published by
Dow Jones) and posted on the Company's website at http://www.etfsecurities.com/csl.
Trading of Commodity Securities
Commodity Securities are fully transferable. The Classic Micro and Commodity Securities were admitted to trading
on the Domestic Market (a regulated market) of the London Stock Exchange on 27 September 2006, Micro
Securities are also fully transferable and have been admitted to trading on the Domestic Market, but the Company
does not anticipate that an active secondary market will develop in any of the Micro Securities.
Certain of the Classic Commodity Securities have been admitted to listing on Eurolist by Euronext Amsterdam and to
trading on Euronext Amsterdam's market for listed securities, the Official Market (AmHickr Markt) of the Frankfurt
Stock Exchange, the Eurolist of Euronext Paris SA and the ETFplus market of the Borsa Italiana.
No application has been or is currently being made for the Forward Securities to be admitted to listing or trading on
any exchange or market outside the UK but the Issuer may cause such application to be made in respect of any or all
classes thereof on any such exchanges or markets at its discretion.
Commodity Contracts
Commodity Securities are backed by Commodity Contracts with terms corresponding to the terms of Commodity
Securities. Each time Commodity Securities are issued or redeemed, matching Commodity Contracts between the
Company and a Commodity Contract Counterpart are created or cancelled by the Company.
The Company has entered into a Facility Agreement with AIG-FP enabling the Company to create and cancel
Commodity Contracts on a continuous basis, The Facility Agreement has a minimum term of five and a half years,
which may be extended,
.6.
Commodity Contracts continued
The payment obligations of AIG-FP to the Company under the Facility Agreement and the Commodity Contracts are
guaranteed by AIG. AIG is admitted to the Official List, and trades on the London Stock Exchange (as well as the
New York Stock Exchange, which is its home exchange).
The Company is a special purpose company whose only assets will be the Commodity Contracts and related
contractual rights (including the rights under the AIG Guarantee), and so the abilty of the Company to meet its
obligations under Commodity Securities is wholly dependent on its receipt of payments under Commodity Contracts
from AIG-FP or from AIG under the AIG Guarantee. Neither Commodity Securities nor any payments in respect
thereof are guaranteed by AIG-FP or AIG.
The Company may, but is not required to, enter into other Facility Agreements with other Commodity Contract
Counterparties, although under the Facility Agreement with AIG-FP it is only able to create Commodity Contracts
with any other Commodity Contract Counterparty if (a) the Company wishes to create Commodity Contracts that
would cause the value of outstanding Commodity Contracts to exceed the maximum permitted under the Facility
Agreement and AIG-FP does not agree an increase which would provide at least US$1,OOO,000,000 of additional
unused capacity, (b) an AIG Downgrade occurs and AIG-FP has not provided certain alternative credit support in
accordance with the conditions of the Facility Agreement with AIG-FP, (c) AIG-FP gives notice under that Facility
Agreement to cancel some or all of the Commodity Contracts then in existence due to a Hedging Disruption Event
(as defined in the Facility Agreement) or (d) AIG-FP gives notice under that Facility Agreement that a withholding or
deduction for or on account of certain taxes may be or may be about to be required by any applicable law of the
United States to be made in respect of any payment to be made by AIG-FP under the Facility Agreement. The
obligations of any other such Commodity Contract Counterpart wil not be guaranteed by AIG under the
AIG Guarantee. It will not be the Company's intention to enter into other Facility Agreements for the purposes of
spreading counterparty risk.
The Company holds separate pools of assets for each class of Micro Security and Individual Security so that holders
of a particular class of Micro Security and Individual Security (and of a category of Index Security to the extent that
the amount payable on Redemption thereof is calculated by reference to that class of Micro Security) only have
recourse to the security granted by the Company over the Commodity Contracts of the same class (as well as over
the AIG Guarantee in respect of that class). These Pools are secured in favour of the Trustee on behalf of Security
Holders of the relevant type.
Application and Redemption by Authorised Participants
Commodity Securities are applied for and redeemed and Micro Securities may be redeemed on any General Trading
Day, but only Authorised Participants may give the requisite notices to the Company to apply for or redeem
Commodity Securities or redeem Micro Securities, All other persons must buy and sell Micro and Commodity
Securities through trading on the London Stock Exchange or other appropriate exchange,
Pricing and Settlement
The amount payable on the issue and redemption of Micro and Commodity Securities can be established in two
different ways: Agreed Pricing and Settlement Pricing,
When Agreed Pricing is used, the amount payable for the issue or redemption of the relevant Micro and Commodity
Securities is agreed between an Authorised Participant and AIG-FP, and notified to the Company,
.7.
Pricing and Settement continued
When Settement Pricing is used, the amount payable for the issue or redemption of the relevant Micro and
Commodity Securities is determined from the Price of the Micro Securities by reference to which the amount payable
on Redemption is calculated on the relevant Pricing Day. In the case of Individual Securities of a particular class,
this is one million Micro Securities of that class. In the case of Index Securities, it is defined numbers of different
classes of Micro Securities, subject to adjustment on Rebalancing,
A single Price will be established for each Micro and Commodity Security as at the end of each Pricing Day. An
issue or a redemption of Micro or Commodity Securities will be priced on the day that a valid Application Form or
Redemption Form is given, unless that day is not a Pricing Day for any class of the Commodity Contracts securing
the Micro and Commodity Securities in question, in which case those Commodity Contracts will be priced on the next
Pricing Day for those Commodity Contracts and the price of the Micro and Commodity Securities determined
accordingly. If any given day is not a Pricing Day for a particular Classic Security, then generally it will not be a
Pricing Day for the Forward Security exposed to the same Commodity.
Issues and redemptions which are fully priced on day T will be settled on aT +3 basis (unless Agreed Pricing is used
and the Authorised Participant and AIG-FP agree a different settlement date), Settlement for issues and
redemptions will be effected on a delivery versus payment basis with funds being transferred directly between the
bank accounts of the relevant Authorised Participant and AIG-FP.
The Company will decline Applications if it cannot for any reason create corresponding Commodity Contracts under
the Facility Agreement.
Fees are payable by the Authorised Participants to the Company upon the issue or redemption of Micro or
Commodity Securities,
Each Forward Individual Security and each Forward Index Security would be entitled on redemption to receive an
amount calculated by reference to the price of a defined number of forward micro securities (the "Micro Forward
Securities"), in the case of Individual Securities, one million Micro Forward Securities of the relevant class and in the
case of Forward Index Securities a defined number of Micro Forward Securities of different classes as set out in the
Supplemental Trust Instrument.
Administration
The parent of the Company, ETF Securities Limited ("ETFSL"), supplies all management and administration services
to the Company and pays all the management and administration costs of the Company, in return for which the
Company pays ETFSL a Management Fee initially equal to 0.49 per cent per annum of the Price on that day of all
Classic Securities and 0.49 per cent per annum of the Price on that day of all Forward Securities outstanding,
AIG-FP also pays the Company a License Allowance, which is used to pay licence fees to Dow Jones due under the
License Agreement (with any difference being payable to/by ETFSL), The Licence Allowance is 0,05 per cent per
annum spread on a daily basis to the daily Price of all outstanding Micro or Commodity Securities, and this rate will
be varied to match approximately the fees payable to Dow Jones under the license Agreement.
The rate of the Management Fee and the License Allowance will be reflected in the adjustments to the Multiplier
each day.
The Company is only liable to pay the fees to ETFSL upon receipt of that amount from AIG-FP,
Review of Operations
The Company was incorporated on 16 August 2005 and the Commodity Securities issued by the Company were
admitted to the offcial list of the UK Listing Authority on 27 September 2006, Trading of Commodity Securities
commenced on the London Stock Exchange on 27 September 2006. The Commodity Securities were also listed on
Deutsche Borsa on 2 November 2006 , Euronext Amsterdam on 15 December 2006 and on Euronext Paris on 6
February 2007. . 8 .
Review of Operations continued
On 20 March 2007 the Directors agreed to apply for listing of the securities on the new ETF segment of the Borsa
Italiana. The application was successful and the securities are also now listed on the Borsa Italian
a s,p,a,
At the Directors meeting which was held on 15 September 2007 the Directors agreed to apply for admission of the
new Commodity securities to the Official List of the UK Listing Authority and for admission to trading on the London
Stock Exchange. The application was successful and the securities are now listed.
On 20 November 2007 the Directors appointed HSBC Trinkaus & Burkhardt AG to act on their behalf for admission
to the Regulated Market of the Frankfurt Stock Exchange and the listing application for 9 recorded classes of ETFS
Forward Index Securities and 1 Forward Individual Security.
On 20 November 2007 the Directors issued a letter to Euronext Paris SA requesting the cross-listing of the
securities on the NextWarrants segment of Eurolist by Euronext. The application was successful and the securities
are now cross-listed.
During the year, the Company generated Creation and Redemption fees connected with the issue of and redemption
of Commodity Securities. Income from these sources amounted to USD266,468 (2006: USD11,753). In addition,
the Company received from AIG Financial Products Corp ("AIG - FP") a Management Fee calculated at 0,49% per
annum and a License Allowance calculated at 0.05% per annum, based on the total daily value of Commodity
Contracts outstanding. Income from this source amounted to USD3,986,790 (2006: USD42,127), giving a total
trading income of USD4,253,258 (2006: USD53,880) for
the year.
The operating costs of the Company over the same period amounted to USD3,986,790 (2006: USD42,127). These
comprised paying to ETFSL a Management fee of 0.49% per annum and the License Allowance of 0.05% per
annum, based on the total daily value of Commodity Securities outstanding (equal to the value of Commodity
Contracts outstanding).
As a result, the Company realised a profit from trading operations of USD266,468 (2006: USD11,753), excluding
bank interest received,
The Company's liability in connection with the issue of Commodity Securities is tied directly to the price of the
Commodity Contracts. The movement is reflected on the balance sheet and through the income statement in
accordance with the Company's accounting policy,
The Company holds Commodity Contracts as security for the Commodity Securities in issue and bears no financial
risk from the movement in the individual securities or index securities price, The decrease in market value of the
Commodity Control reflects the depreciation of the Commodity Contracts as valued at the balance sheet date
compared to the value of the Commodity Contracts acquired by the Company throughout the period.
These items effectively cancel each other out and have no net effect on the income statement.
Future Developments
On 24 January 2008 the Directors approved the issuance of up to USD1,000,OOO,OOO ETFS Short and Leveraged
Commodity Securities compromising 66 different classes of Short and Leveraged Commodity Securities.
It was noted that an application would be made to the UK listing Authority for admission to trading on the London
Stock Exchange,
The directors are not aware of any further developments that might have a significant effect on the operations of the
Company in subsequent financial periods not already disclosed in this report or the attached financial statements,
.9.
Dividends
The directors do not recommend the provision or payment of a dividend to holders of Ordinary Shares for the period,
It is the Company's policy that dividends will only be declared when the directors are of the opinion that there are
sufficient retained reserves.
Employees
The Company does not have any employees. It is the Company's policy to use the services of specialist
subcontractors or consultants as far as possible.
Company Secretary
Greg Burgess was appointed Secretary of the Company on 19 January 2006.
Greg Burgess resigned as Secretary of the Company on 10 July 2006.
R&H Fund Services (Jersey) Limited were appointed as Secretary of the Company from 10 July 2006.
Directors' Interests
The following table sets out each director's interest in Ordinary shares as at the date of this report:
Ordinary Shares of Nil Par Value
Directors
Graham John Tuckwell (as controlling party of ETFSL, the immediate parent company)
2
Directors' Remuneration
The following table discloses the remuneration of the directors of the Company which has been paid by the Company
or by the parent company, ETFSL during the financial period:
Fees
Name
2007
Specified Directors:
Graham J Tuckwell
Stuart Thomas (resigned 7 August 2006)
Graeme D Ross (paid by ETFS)
Craig A Stewart (paid by ETFS)
2006
Nil
Nil
Nil
£5,000
£5,000
£14,000
£1,250
£1,250
Vincent WJ FitzGerald
Nil
Nil
Leanne M Baker (appointed 7 August 2006)
B Cukier (appointed 20 March 2007)
Nil
Nil
Nil
Nil
rnst & Yo g LLP will be proposed at the forthcoming annual general meeting.
C¿,.
Graeme DRoss
Director
Jersey
25 June 2008
.10.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the financial statements in accordance with applicable Jersey law and
generally accepted accounting principles.
Jersey Company law requires the directors to prepare financial statements for each financial period which give a true
and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In
preparing these financial statements, the directors should:
. select suitable accounting policies and then apply them consistently;
. make judgments and estimates that are reasonable and prudent;
. prepare the financial statements on the going concern basis unless it is inappropriate to presume that the
company will continue in business.
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any
time the financial position of the company and enable them to ensure that the financial statements comply with the
Law and International Financial Reporting Standards, They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities,
. 11 .
1111111111111111111111111111111'",. ãl ERNST & YOUNG
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ETFS COMMODITY
SECURITIES LIMITED
We have audited the company's financial statements for the year ended 31 December 2007 which
comprise the Income Statement, the Balance Sheet, the Cash Flow Statement, the Statement of
Changes in Shareholders' Equity, and the related notes 1 to 16. These financial statements have been
prepared under the accounting policies set out therein.
the
Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in an auditors' report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body, for our audit work, for this
This report is made solely to the company's members, as a body, in accordance with Article 110 of
report, or for the opinions we have formed.
Respective responsibilties of directors and auditors
The directors are responsible for the preparation of the financial statements In accordance with
applicable Jersey law as set out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory
requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and are
properly prepared in accordance with the Companies (Jersey) Law 1991. We also report to you if, in
our opinion, the company has not kept proper accounting records or if we have not received all the
information and explanations we require for our audit.
We read other information contained in the Report and consider whether it is consistent with the
audited financial statements. The other information comprises the Management and Administration,
the Directors' Report and the Statement of Directors' Responsibilities. We consider the implications
for our report if we become aware of any apparent misstatements or material inconsistencies with the
financial statements. Our responsibilties do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland)
issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the financial statements. It also includes an assessment of
the significant estimates and judgments made by the directors in the preparation of the financial
statements, and of whether the accounting policies are appropriate to the company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance that
the financial statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation
of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view, in accordance with International
Financial Reporting Standards, of the state of the company's affairs as at 31 December 2007 and of its
profit for the year then ended and have been properly prepared in accordance with the Companies
(Jersey) Law 1991.
RP/'r- g ~~t) L~
Jersey, Channel Islands
Date: '7 - Á.-T
£-6 'Ju-,e- ¿(fc; ~
- 12-
INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
Note
Year ended
Period ended
31 December 2007
USD
31 December 2006
USD
156,814,806
4,385,374
266,468
3,986,790
7,744
182,043
Revenue From Ordinary Activities
Increase in fair value of Commodity Contracts
Increase in fair value of Forward Commodity Contracts
Creation and Redemption Fees
Management Fee and License Allowance
8
8
2
2
Bank Interest Received
11,753
42,127
31
Foreign Exchange Gain
8
165.461.182
235,962
156,814,806
4,385,374
3,986,790
336
3.143
182,043
Expenses From Ordinary Activities
Increase in the fair value of Commodity Securities
Increase in the fair value of Forward Commodity Securities
Management Fee and License Allowance
Bank Charges
Foreign Exchange Loss
9
9
2
2
165,190.449
-
42,127
29
-
224,199
270,733
11,763
Retained profit brought forward
Profit from ordinary activities
Dividend Payable
11,763
270,733
11,763
Retained Profit carried forward
282.496
11,763
Profit From Ordinary Activities
The directors consider the Company's activities are continuing,
Retained Profit
The notes on pages 17 to 33 form part of these financial statements
.13.
BALANCE SHEET AS AT 31 DECEMBER 2007
2007
2006
USD
USD
1,329,077,665
52,397,983
14,644,034
56,496,423
9,180
588,137
98,644
174,744
14,644,034
2
23,001
11,761
7,597.788
1.411.634.421
71,726,765
56,496,423
9
1,329,077665
52,397,983
14,644,034
23,001
9
588,137
70
14,644,034
7,597,788
1.411 ,351 ,923
71 ,715.000
Note
Current Assets
Financial Assets at fair value through profit or loss
Commodity Contracts held
Forward Commodity Contracts held
8
8
8
Commodity Contracts awaiting settlement
7,597,788
Other current assets
Debtors
7
Management Fee and License Allowance receivable
Creation and Redemption Fees receivable
Cash
Amounts Receivable on Commodity Securities awaiting settlement
8
Total Current Assets
2
Current Liabilties
Financial Liabilties at fair value through profit or loss
9
Commodity Securities in issue
Forward Commodity Securities in issue
Commodity Securities awaiting settlement
9
Other current liabilities
Trade Creditors
Other Creditors and Accruals
Amounts Payable on Commodity Contracts awaiting settlement
Total Current Liabilties
7,597,788
Equity
2
2
282.496
11,763
282.498
11.765
1.411.634.421
71.726,765
10
Stated Capital
Retained Profits
Total Equity
he financial tatements 0\2to 33 were approved by the board of directors and signed on its behalf on 25
June 2008,
rCe~ ~.
raeme DRoss
Director
.14.
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
Year ended
31 December 2007
USD
Period ended
31 December 2006
USD
Cash Flows from Operating Activities
3,421,654
1,115,939,493
48,012,609
179,585
19,125
63,912,168
(1,115,939,493)
(48,012,609)
(3,421,654)
(63,912,168)
(266)
(29)
179,319
(29)
Bank Interest received
4,146
l1
Net cash provided by investing activities
4,146
31
Cash Flows from Financing Activities
Loans made
(5,580)
Net cash (used in) financing activities
(5,580)
Management Fee and License Allowance received
Net Proceeds from the issue of Commodity Securities
Net Proceeds from the issue of Forward Commodity Securities
Creation and Redemption Fees received
Net Payment for purchase of Commodity Contracts
Net Payment for purchase of Forward Commodity Contracts
Management Fee and License Allowance paid
Bank Charges paid
Net cash provided by operating activities
(19,125)
Cash Flows from Investing Activities
177,885
Net Increase in Cash and Cash Equivalents
Exchange adjustment on revaluation of bank account
Cash and Cash Equivalents at the beginning of
(3,143)
the year/period
Cash and Cash Equivalents at the end of the year/period
2
174.744
. 15.
-
2
-
..
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007
Total
Share
Premium
Retained
profit
equity
USD
USD
USD
Opening Balance at 16 August 2005
Profit for the period
-
11,763
11,763
-
f
Share premium issued
f
Balance at 31 December 2006
~
11,763
11,765
Opening Balance as at 1 January 2007
2
11,763
11,765
Profit for the year
--
270,733
270,733
Balance at 31 December 2007
~
282.496
282.498
.16.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007
1. Accounting Policies
The main accounting policies of the Company are described below,
Basis of preparation
The financial statements have been prepared for the year ended 31 December 2007 as permitted by the Companies
(Jersey) Law 1991.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
issued by the International Accounting Standards Board (IASB), and interpretations issued by the International
Financial Reporting Interpretations Committee of the IASB. The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of financial assets held at fair value through profit or loss,
The presentation of financial statements in conformity with IFRS requires the use of accounting estimates. It also
requires management to exercise its judgement in the process of applying the company's accounting policies. The
accounting policies appropriate to the company are detailed below,
Standards, amendments and interpretations not impacting on the company, issued but not effective for the
year ended 31 December 2007:
IFRS 8, Operating Segments
IAS 23, Borrowing Costs, Revised
IFRIC 11, IFRS2: Group and Treasury Share Transactions
IFRIC 12, Service Concession Arrangements
IFRIC 13, Customer Loyalty Programmes
IFRIC 14, The Limit on a Defined Benefit Asset Minimum Funding Requirements and their Interaction
Going concern
These financial statements have been prepared on the going concern basis as the Directors consider the operations
of the Company to be ongoing. However, due to the nature of the company's business, consideration must be given
to the following points as these situations may arise at some point and this may result in the early redemption of the
outstanding Commodity Securities.
The Issuer may, at any time, upon not less than 30 days' notice (or seven days' notice in the event that the Facility
Agreement is terminated) by RIS announcement to the Security Holders, redeem all Individual Securities or Micro
Index Securities of a particular category. The Trustee may, at any time, where an
Issuer Insolvency Event or AIG Default has occurred and is continuing, upon 20 Business Days' notice to the Issuer,
require the Issuer to redeem all Micro and Commodity Securities whereupon the Issuer will exercise its right to
Securities of a particular class or all
redeem such Securities.
If a particular commodity ceases to be a component of the DJ-AIG Commodity Indices, Dow Jones may cease to
publish that Individual Commodity Index. If so, all Micro Securities and Individual Securities of that class will be
redeemed
. 17.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007. CONTINUED
Under the Facility Agreement, AIG-FP has the right to terminate some or all of the Commodity Contracts of a
particular class if for any reason it is unable to maintain the hedging positions which (acting reasonably) it attributes
to the hedging of its obligations in connection with the Facility Agreement or Commodity Contracts of one or more
classes. In such a case, the Issuer has, and will exercise, the right to redeem the Micro Securities and Individual
Securities of that class. In some cases this may require the Issuer to redeem Index Securities if Micro Securities of
that class are comprised therein.
The issuer may, at any time by not less than seven nor more than 14 Trading Days' written notice, redeem any Micro
and Commodity Securities held by Prohibited US Persons or Prohibited Benefit Plan Investors, held by Security
Holders who have not provided appropriate certifications as to their status in accordance with the Conditions or in
certain other circumstances specified in the Conditions.
AIG-FP has only agreed to provide Commodity Contracts to the Issuer for five years and six months from 21
September 2006, If AIG-FP does not agree to provide Commodity Contracts beyond such date, then the Commodity
Contracts will expire and unless AIG-FP is replaced by a new Commodity Contract Counterparty the Issuer will elect
to redeem the outstanding Micro and Commodity Securities,
Consequently, an investment in Micro and Commodity Securities may be redeemed earlier than desired by a
Security Holder,
Foreign currency translation
The presentational and functional currencies of the Company are both USD,
Transactions of the Company that are denominated in foreign currencies are translated into USD at the rates ruling
at the date of the transactions, Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are translated at rates ruling at that date. The resulting differences are accounted for in the income
statement.
Revenue/Expenses
Fees received for the issue and redemption of securities are recognised at the date on which the transaction
becomes legally binding. The Management Fee and License Allowance income is recognised on an accruals basis
as is the Management Fee and License Allowance expense, Other income/expenses are recognised on an accruals
basis.
Gains or losses recognised on ETFS Commodity Securities and Commodity Contracts represent the difference
between the fair value of the ETFS Commodity Securities/Commodity Contracts on issue/purchase and their fair
value at the balance sheet date, These are shown in the income statement as revenue/expenses.
Segmental Reporting
The Company has not provided segment information, as the Company has only one business/geographical segment
and all information relevant to the understanding of the Company's activities is included in these financial statements,
Listings
Islands, the debt securities
list
of
the
UK
Listing
Authority
under
the
debt
listing
rules and admitted to
of which have been admitted to the official
trading on the London Stock Exchange (LSE). The Company's Commodity Securities (LSE Code: COMMODITYB)
are quoted on the London SE, Borsa Italiana, Euronext Amsterdam, Frankfurt SE and Euronext Paris,
ETFS Commodity Securities Limited is a public company incorporated in Jersey, Channel
The securities are now also cross-listed on the NextWarrants segment of Eurolist by Euronext.
. 18.
1. Accounting Policies. continued
Contracts/Securities Awaiting Settlement
The issue/redemption of Commodity Securities, and the purchase/sale of Commodity Contracts is accounted for on
Trade date. Where settlement pricing is applied, the trade will not settle unti T +3. Where trades are awaiting
settlement at the year end, they are separately disclosed as such with the relevant assets and liabilities recognised
on the balance sheet.
Revenue Recognition
Revenue is recognised to the extent that the economic benefits will flow to the Company and the revenue can be
reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates,
and other sales taxes or duty.
Interest Income
Revenue is recognised as interest accrues (using the effective interest rate, that is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the
financial asset).
Borrowing Costs
Borrowing costs are recognised as an expense when incurred,
Capital Management
The Company's principal activity is the listing and issue of ETFS Commodity Securities, Due to the nature of the
Company's business it issues ETFS Commodity Securities from time to time as demand dictates. It also holds a
corresponding amount of Commodity Contracts to exactly match any security issued,
The Company is a wholly owned subsidiary company of ETFSL,
Financial
Instruments
Cash and Cash Equivalents
Cash and Cash Equivalents includes cash in hand and deposits held at call with banks,
Loans and Receivables
The loans and receivables are non-derivative financial assets with a fixed payment amount and are not quoted in an
active market. After initial measurement the loans and receivables are carried at amortised cost using the effective
interest method less any allowance for impairment. Gains and losses on loans and receivables which are impaired
are recognised immediately in the Income Statement.
ETFS Commodity Securities & Contracts
i) Issuance and Redemption
The Company has entered into a Facility Agreement with AIG-FP to permit the Company to purchase and redeem
Commodity Contracts at prices equivalent to Commodity Securities issued or redeemed on the same day. Each time
a Commodity Security is issued or redeemed by the Company a matching number and value of Commodity
Contracts are purchased or redeemed from AIG-FP, The Commodity Contracts represent financial assets of the
liabilities.
Company and the Commodity Securities give rise to financial
.19 -
1. Accounting Policies. continued
Financial assets and liabilities are recognised and de-recognised on the trade date (the date on which the Authorised
Participant applies for or redeems Commodity Securities).
When Commodity Contracts are redeemed from AIG-FP they are redeemed from the earliest Commodity Contract
issued and then the next earliest contract until the redemption has been satisfied. This method is known as first in
first out ("FIFO").
The Redemption Amount for each Commodity Contract is determined in accordance with the Facility Agreement and
is equivalent to the amount payable on the redemption of a Commodity Security.
ii) Pricing
The amount payable on the issue and redemption of Micro and Commodity Securities can be established in two
different ways: Agreed Pricing and Settement Pricing.
When Agreed Pricing is used, the amount payable for the issue or redemption of the relevant Micro and Commodity
Securities is agreed between an Authorised Participant and AIG-FP, and notified to the Company.
All Commodity Securities will be priced off individual Commodity Indices published by Dow Jones & Company, Inc,
("Dow Jones"). These indices are constructed and published pursuant to a joint arrangement between AIG-FP, a
wholly owned subsidiary of American International Group, Inc. ("AIG") and Dow Jones. The methodology used to
calculate these indices is set out in the DJ-AIGCI Handbook.
Each Individual Commodity Index tracks a designated futures contract - generally among the most liquid futures
contract for that commodity. NYMEX contracts are used for the energy indices, LME and COMEX contracts are used
for the metal indices, and CME, CBOT and NYBOT contracts are used for the livestock and agriculture indices.
Dow Jones also publishes an index of all the commodities, the Dow Jones - AIG Commodity IndexsM "DJ.AIGClsM",
and a number of sub-indices thereof, All are constructed using the same inputs as the relevant Individual Commodity
Indices. The weighting to be given to each commodity in the DJ-AIGClsM is determined and adjusted annually (a
process called rebalancing) and the weightings for the sub-indices are adjusted accordingly,
The Price for each type of Micro and Commodity Security applies to both issues and redemptions of Micro and
Commodity Securities - there is no spread between the issue price and the redemption price,
The Multiplier is the same for each class of Individual Security, The Multiplier, the Price for each class of Individual
Security and the Price for each category of Index Security are calculated as at the end of each Pricing Day (after the
Settlement Prices for that day on the futures exchanges have been published and the resultant indices published by
Dow Jones) and posted on the Company's website at http://www.etfsecurities.com/csl.
Individual Securities
Each Individual Commodity Index is designed to reflect two components:
The current market price (or spot price) of the commodity (which can rise or fall), determined from Settlement Prices
on a futures exchange which trades that commodity; and
The effect of backwardation or contango in that futures market (if the market is in backwardation, the index may tend
to rise over time as lower futures prices converge to higher spot prices; if it is in contango the index may tend to fall
over time, as higher futures prices converge to lower spot prices),
.20.
ii) Pricing continued
The Price for each class of Classic Individual Security and Forward Individual Security will be calculated in US
Dollars as:
Price = Individual Commodity Index x Multiplier x Pool Factor /10
The Multiplier is a factor used to include in the Price the benefit from the capital enhancement component, and to
reflect the Management Fee and Licence Allowance. It changes daily, and will grow as long as the capital
enhancement component is greater than the sum of the Management Fee and the License Allowance, The Pool
Factor is a number that will always be 1 unless Micro or Commodity Securities are divided as described in the
Prospectus.
The Multipliers for each class of Individual Security are adjusted daily based on the Capital Adjustment applicable to
that class of Individual Security,
Index Securities
Each Index Security is priced by reference to Micro Securities, The Price for each Index Security is equal to the sum
of the value of those Micro Securities or the Forward Micro Securities, determined in the same manner as Individual
Micro Securities
A single Commodity Contract is equivalent in Price to a single Micro Security and when an Individual Security or an
Index Security is issued, a number of Commodity Contracts equivalent in the aggregate to that Individual Security or
Index Security is created.
The price of a Forward Micro Security of a particular class would track the price of an individual Commodity of a
corresponding class on the DJ-AIGCI-F3sM
ii) Designation to Fair Value through Profit or Loss
Each Commodity Security/Contract comprises a debt instrument whose redemption price is linked directly to the
price of the underlying Commodity future on a one-to-one basis.
These instruments are designated as at fair value through the profit or loss upon initial recognition, This is in order to
eliminate a measurement mismatch enabling gains or losses on both the Commodity Security and Commodity
Contract to be shown in the income statement. This treatment is appropriate for the assets and liabilities (Commodity
Contracts and Commodity Securities) as it is intended that the asset and liability are equally matched.
2. Profit from Ordinary Activities
Profit from ordinary activities includes the following items of revenue and expense:
Year ended Period ended
31 December 2007 31 December 2006
USD USD
a)
Revenue from ordinary activities includes:
266,68
Creation Fees
3,617,669
369,121
4.253.258
Management Fee receivable from AIG
License allowance receivable from AIG
.21 .
11,753
38,226
3,901
53.880
The Creation and Redemption Fees are receivable from the Authorised Participants, The amount received was £500
for each day that an Authorised Participant creates and/or redeems, regardless of the number of creations and/or
redemptions that they issue and/or redeem.
The Management Fee is calculated at 0.49% per annum and the License allöwance is calculated at 0.05% per
annum, based on the total daily value of Commodity Contracts outstanding,
USD USD
b)
Expenses include:
Management Fee and License Allowance payable to ETFSL
Bank Charges
3,986,790
336
3.987.126
42,127
29
42.156
In conducting its business, the Company receives and pays for services from a number of Jersey and UK based
suppliers. All the above-mentioned costs have been incurred in the normal course of business. The establishment
costs were paid by individual shareholders of the parent company and are not liabilities of, or recorded within, the
financial statements of the Company,
With effect from the commencement of the Company's activities, a Service Agreement was entered into by the
Company and ETFSL (the parent company), Jersey registered company no 88370, Pursuant to this Agreement,
ETFSL is responsible for supplying the following services required by the Company:
. any advisory or consultancy services required by the Company in connection with establishing or
running the Programme; and
. any advertising services in connection with the Programme, together with such other services as the
parties may from time to time agree,
. all transactions are carried out at arms length.
In return for ETFSL performing its obligations under the Service Agreement, the Company pays to ETFSL a fee
equal to the Management Fee received from AIG - FP,
The License allowance is payable to the initial Authorised Participants and is calculated at 0,05% per annum, based
on the total daily value of Commodity Securities outstanding.
3. Directors' Remuneration
The directors of ETFS Commodity Securities Limited during the year were:
. Mr Graham John Tuckwell
. Dr Vincent William John FitzGerald
. Dr Leanne Baker
. Mr Graeme David Ross
. Mr Craig Andrew Stewart
. Mr Ben Cukier (appointed 20 March 2007)
.22.
The parent entity reviews and revises remuneration packages of all specified directors from time-to-time. The
following table discloses the remuneration of the directors of the Company, and details of whether these have been
paid by the Company or ETFSL during the year:
Fees Fees
Specified Directors:
Graham J Tuckwell
John Stuart Thomas (resigned 7 August 2006) (paid by ETFSL)
Vincent W J FitzGerald
Graeme D Ross (paid by ETFSL)
Craig A Stewart (paid by ETFSL)
Ben Cukier (appointed 20 March 2007)
Nil
Nil
Nil
£14,000
Nil
Nil
£5,000
£5,000
£1,250
£1,250
Nil
Nil
Mr Tuckwell and Mr Cukier are not entitled to receive any emoluments in respect of their Directorships, Dr FitzGerald
and Dr Baker received ordinary shares in the Holding Company in respect of their Directors fees for the period, the
details of which are disclosed in the financial statements of the Holding Company, None of the Director's have
agreed to waive or have waived any of their emoluments from the Company.
4. Jersey Exempt Company
Under Aricle 123A of
the Income Tax (Jersey) law 1961, as amended, the Company has obtained Jersey exempt
company status for the period and is therefore exempt from Jersey income tax on non-Jersey source income and
bank interest (by concession), A £600 annual exempt company fee is payable by the company, This fee is paid by
ETFSL and is not recognised within these financial statements,
5. Remuneration of Auditors
GBP GBP
22.000
Audit of annual financial statements
20,000
The fees paid or payable in respect of the Company for the financial year are paid by the parent entity.
6. Employee Benefits
The Company has no employees and has paid no remuneration or benefits during the period in respect of
employees,
7.
Debtors
Unpaid Share Premium (see note 10)
Bank Interest Receivable
Due from ETFSL (see note 12)
.23.
2007
2006
USD
USD
2
2
3,598
5,580
9,180
-
i
Commodity Contracts held for Commodity Securities Issued
8.
Individual securities
Contract
Contracts on
issue
Financial assets at fair
value through profit or
Change in fair
Fair Value at
value
Balance Sheet
date
loss
Natural Gas
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
29,645,521
301,803
91,100
94,100
767,000
288,153
384,517
499,941
7,172,453
2,659,548
905,226
1,587,000
6,805,500
17,012,598
1,075,100
3,068,605
15,475,885
4,584,000
357,323
USD
USD
USD
89,459,268
(8,980,044)
3,309,335
2,328,445
6,290,427
11,330,519
5,796,593
21,997,511
70,975,916
47,362,572
10,622,672
4,075,628
25,570,885
32,075,250
15,214,385
45,017,685
35,717,764
14,110,404
2,659,131
(34,894,113)
26,097,851
1,280,138
605,689
(752,434)
(812,492)
(1,670,575)
(5,513,661)
13,885,545
1,418,653
(1,342,099)
(671,297)
7,461,959
5,131,276
3,686,465
1,601,155
3,025,783
1,146,880
1,007,213
54,565,155
17,117,807
4,589,473
2,934,134
5,537,993
10,518,027
4,126,018
16,483,850
84,861,461
48,781,225
9,280,573
3,404,331
33,032,844
37,206,526
18,900,850
46,618,840
38,743,547
15,257,284
3,666,344
434,934,346
20,691,936
455,626,282
3
41
(1 )
2
16
17
57
21
8
11
32
0
8
34
37
38
3
(4)
(5)
9
16
2
12
18
11
0
11
3
3
(1 )
2
2
5
2
0
11
3
7
(2)
0
0
2
18
15
7
4
11
277
52
329
434,934,623
20,691,988
455,626,611
Micro securities
Natural Gas
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
Sub Total
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
34
14
17
2
.24.
3
51
10
33
2
3
Indexed Securities
Contract
Contracts on
issue
Change in fair
value
date
loss
USD
All Commodities
Energy
Ex-Energy
Petroleum
Industrial Metals
Precious Metals
Livestock
Agriculture
Grains
Softs
2,730,500
420,426
1,905,000
78,811
896,475
7,565,944
1,355,190
44,456,919
23,492,760
16,633,000
Total
Fair Value at
Balance Sheet
USD
USD
48,050,906
10,456,405
21,733,016
2,473,941
21,481,833
86,430,171
8,995,946
312,758,196
123,211,964
101,726,872
6,058,010
1,722,895
1,832,268
1,455,072
(3,736,435)
18,045,086
(792,093)
61,102,313
47,396,453
3,048,235
54,108,916
12,179,300
23,565,284
3,929,013
17,745,398
104,475,257
8,203,853
373,860,509
170,608,417
104,775,107
737,319,250
136,131,804
873,451,054
1,172,253,873
156,823,792
1,329,077,665
Commodity Contracts to be purchased on settlement date
Contract
Contracts on
issue
Change in fair
value
loss
Gold
Silver
Live Cattle
Cotton
500,000
50,000
30,000
150,000
Fair Value at
Balance Sheet
date
USD
USD
5,871,236
910,710
307,527
374,218
44,555
6,386
40
1,304
USD
5,915,791
917,096
307,567
375,522
7,463,691
52,285
7,515,976
Indexed Securities
Contract
Contracts on
issue
Change in fair
value
loss
USD
Fair Value at
Balance Sheet
date
USD
USD
5,088,076
1,476,174
625,079
(42,375)
(23,740)
4,844
5,045,701
1,452,434
629,923
Total
7,189,329
(61,271)
7,128,058
Total
14,653,020
(8,986)
14,644,034
Total
1,186,906,893
156,814,806
1,343,721,699
Agriculture
Grains
Softs
600,000
200,000
100,000
.25.
Forward Commodity Contracts held for Forward Commodity Securities Issued
Forward Individual securities
Contract
Contracts on
issue
Change in fair
value
date
loss
Natural Gas
Crude Oil
Fair Value at
Balance Sheet
5,000
USD
149,811
USD
126
149,937
USD
500
33,237
644
33,881
2,000
6,000
29,869
165,096
350
(3,863)
30,219
161,233
378,013
(2,743)
375,270
31
(1 )
30
82
88
56
19
19
12
101
11
(1 )
(11 )
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
Forward Micro securities
Natural Gas
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
Sub Total
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
63
18
57
(4)
(9)
107
68
10
52
14
48
10
18
15
2
0
12
19
15
29
(2)
27
14
4
13
17
4
4
12
0
14
5
17
19
1
1
4
2
1
5
0
3
4
15
546
36
582
378,559
(2,707)
375,852
.26.
Forward Indexed Securities
Contracts on
Contract
issue
Change in fair
value
loss
date
USD
USD
All Commodities
Energy
Ex-Energy
Petroleum
Industrial Metals
Livestock
Agriculture
Grains
Softs
51,000
1,000
11,000
26,000
6,000
21,000
2,382,000
1,367,000
10,000
Total
9.
Fair Value at
Balance Sheet
USD
1,667,304
66,646
208,248
2,277,156
173,011
447,266
28,813,481
13,893,404
87,534
64,946
8,904
4,036
200,378
(8,161)
(1,564)
2,171,760
1,945,079
2,703
1,732,250
75,550
212,284
2,477,534
164,850
445,702
30,985,241
15,838,483
90,237
47,634,050
4,388,081
52,022,131
48,012,609
4,385,374
52,397,983
Commodity Securities in Issue
Security
Securities on
issue
Financial
liabilties at
fair value through profit
Change in fair
value
date
or loss
Natural Gas
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
29,645,521
301,803
91,100
94,100
767,000
288,153
384,517
499,941
7,172,453
2,659,548
905,226
1,587,000
6,805,500
17,012,598
1,075,100
3,068,605
15,475,885
4,584,000
357,323
Fair Value at
Balance Sheet
USD
USD
USD
89,459,268
(8,980,044)
3,309,335
2,328,445
6,290,427
11,330,519
5,796,593
21,997,511
70,975,916
47,362,572
10,622,672
4,075,628
25,570,885
32,075,250
15,214,385
45,017,685
35,717,764
14,110,404
2,659,131
(34,894,113)
26,097,851
1,280,138
605,689
(752,434)
(812,492)
(1,670,575)
(5,513,661)
13,885,545
1,418,653
(1,342,099)
(671,297)
7,461,959
5,131,276
3,686,465
1,601,155
3,025,783
1,146,880
1,007,213
54,565,155
17,117,807
4,589,473
2,934,134
5,537,993
10,518,027
4,126,018
16,483,850
84,861,461
48,781,225
9,280,573
3,404,331
33,032,844
37,206,526
18,900,850
46,618,840
38,743,547
15,257,284
3,666,344
434,934,346
20,691,936
455,626,282
3
41
(1 )
2
57
Micro securities
Natural Gas
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
34
21
8
34
14
38
.27.
16
17
51
11
32
0
3
37
(4)
(5)
33
8
10
Micro securities
continued
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
2
12
18
11
0
11
3
3
(1 )
2
2
5
2
2
18
15
3
0
7
(2)
0
0
7
4
11
277
52
329
434,934,623
20,691,988
455,626,611
3
9
16
11
17
2
Sub Total
2
3
Indexed Securities
Security
Securities on
issue
liabilties at
Financial
Change in fair
value
or loss
USD
All Commodities
Energy
Ex-Energy
Petroleum
Industrial Metals
Precious Metals
Livestock
Agriculture
Grains
Softs
2,730,500
420,426
1,905,000
78,811
896,475
7,565,944
1,355,190
44,456,919
23,492,760
16,633,000
Total
Fair Value at
Balance Sheet
date
USD
USD
48,050,906
10,456,405
21,733,016
2,473,941
21,481,833
86,430,171
8,995,946
312,758,196
123,211,964
101,726,872
6,058,010
1,722,895
1,832,268
1,455,072
(3,736,435)
18,045,086
(792,093)
61,102,313
47,396,453
3,048,235
54,108,916
12,179,300
23,565,284
3,929,013
17,745,398
104,475,257
8,203,853
373,860,509
170,608,417
104,775,107
737,319,250
136,131,804
873,451,054
1,172,253,873
156,823,792
1,329,077 ,665
Commodity Securities to be issued on settlement date
Security
Contracts on
issue
Change in fair
value
loss
Gold
Silver
Live Cattle
Cotton
500,000
50,000
30,000
150,000
Fair Value at
Balance Sheet
date
USD
USD
5,871,236
910,710
307,527
374,218
44,555
6,386
40
1,304
USD
5,915,791
917,096
307,567
375,522
7,463,691
52,285
7,515,976
.28.
Indexed Securities
Security
Contracts on
Change in fair
issue
loss
value
Fair Value at
Balance Sheet
date
USD
USD
USD
5,088,076
1,476,174
625,079
(42,375)
(23,740)
4,844
5,045,701
1,452,434
629,923
Total
7,189,329
(61,271 )
7,128,058
Total
14,653,020
(8,986)
14,644,034
Total
1,186,906,893
156,814,806
1,343,721,699
Agriculture
Grains
Softs
600,000
200,000
100,000
Forward Commodity Securities in Issue
Forward Individual securities
Security
Securities on
issue
Financial
liabilties at
Change in fair
value
or loss
Natural Gas
Fair Value at
Balance Sheet
date
5,000
USD
149,811
USD
126
149,937
500
33,237
644
33,881
2,000
6,000
29,869
165,096
350
(3,863)
30,219
161,233
378,013
(2,743)
375,270
USD
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
.29.
Forward Micro securities
Security
Securities on
issue
Financial
liabilties at
Change in fair
value
date
or loss
USD
Natural Gas
Crude Oil
Gasoline
Heating Oil
Aluminium
Copper
Zinc
Nickel
Gold
Silver
Live Cattle
Lean Hogs
Wheat
Corn
Soybeans
Sugar
Cotton
Coffee
Soybean Oil
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
USD
USD
30
31
(1 )
82
88
56
19
19
12
11
(1 )
10
63
(11 )
52
18
(4)
(9)
2
48
57
101
107
68
14
0
12
19
15
29
(2)
27
14
4
13
17
4
4
12
0
14
5
17
19
10
18
15
Sub Total
Fair Value at
Balance Sheet
1
1
4
2
1
5
0
3
4
15
546
36
582
378,559
(2,707)
375,852
Forward Indexed Securities
Security
Securities on
issue
Financial
liabilties at
fair value through profi
or loss
USD
All Commodities
Energy
Ex-Energy
Petroleum
Industrial Metals
Livestock
Agriculture
Grains
Softs
Total
51,000
1,000
11,000
26,000
6,000
21,000
2,382,000
1,367,000
10,000
Change in fair
value
Fair Value at
Balance Sheet
date
USD
USD
447,266
28,813,481
13,893,404
87,534
64,946
8,904
4,036
200,378
(8,161)
(1,564)
2,171,760
1,945,079
2,703
1,732,250
75,550
212,284
2,477,534
164,850
445,702
30,985,241
15,838,483
90,237
47,634,050
4,388,081
52,022,131
48,012,609
4,385,374
52,397,983
1,667,304
66,646
208,248
2,277,156
173,011
.30.
10. Issued Stated Capital
2007
2006
USD
USD
2 shares of Nil Par Value
The Company has an unlimited capital of nil par value shares,
All shares issued by ETFS Commodity Securities Limited carry one vote per share without restriction and carry the
right to dividends, All shares are held by the parent entity, ETFSL, a Jersey registered company,
Shares issued at a premium
2007
2006
No.
USD
USD
2
f
f
2
2
Balance at end of period
11. Contingent Liabilties and Contingent Assets
The Company does not have any material contingent liabilities or contingent assets at 31 December 2007,
12. Related Part Disclosures
The immediate and ultimate parent company is ETFSL, a Jersey company registered No: 88370.
Entities which have a significant influence over the Company through the ownership of ETFSL shares, or by virtue of
being a director or trustee of the Company or the holding company are related parties of ETFS Commodity Securities
Limited,
The following transactions with ETFSL took place during the year:
Management Fee and License Allowance for the year
2007
2006
USD
USD
3.986,790
42,127
(588.137)
(23,001 )
This management fee has been calculated in accordance with the prospectus,
The following balances were due (to)/from ETFSL at the year end:
Management Fees and License Allowance
payable at the end of the year
--
f
5,582
~
5,580
Loan receivable
Share premium receivable
The loan is interest free and there is no set date for repayment.
As disclosed in note 3 above, ETFSL paid Directors fees in respect of the Company of £10,000.
Islands) Limited, the
Registrar and R&H Fund Services (Jersey) Limited, the Corporate Administrator, During the year, ETFSL incurred
Graeme Ross and Craig Stewart are directors of Computershare Investor Services (Channel
registrar and administration fees of £55,962 (2006: £9,135), £35,000 (2006: £9,135) was outstanding at the year end.
Benjamin Cukier is also a Partner of FTVentures (L.P.) ("FTV"), FTV own the majority of the preference shares in the
Company's holding company, ETFSL,
.31 .
13. Financial risk management
The Company is exposed to market risk, credit risk and liquidity risk arising from its activities, The risk
management policies employed by the Company to manage these risks are discussed below,
(a) Interest Rate Risk
The Company does not have significant exposure to interest rate risk as neither the Commodity Contracts or
the Commodity Securities bear any interest.
The Company holds a current account at a large International Bank and this is where the cash received from
the creation and redemption fees is held. The rate of interest received on the account is at the Banks variable
rate, Due to the level of cash held in the account the Director's do not believe that any move in interest rates
would seriously effect the operations of the Company,
(b) Market Risk
The Company's liabiliy in respect of the Commodity Securities issued is related to the commodity price by
reference to the futures market as quoted on the relevant futures Exchanges and is managed by the
Company by entering into Commodity Contracts with AIG-FP which exactly match the liability created by the
issue of Commodity Securities. The Company therefore bears no financial risk from a change in the price of
commodity by reference to the futures price,
However there is an inherent risk from the point of view of investors as the price of commodities, and thus the
value of the Commodity Securities, may vary widely. The market price of Commodity Securities is a function
of supply and demand amongst investors wishing to buy and sell Commodity Securities and the bid/offer
spread that the market makers are willing to quote.
(c) Credit Risk
The value of Commodity Securities and the ability of the Company to repay the redemption price is dependent
on the receipt of such amount from AIG-FP and may be affected by the credit rating attached to AIG.
The obligation of AIG-FPI under the Commodity Contracts ranks only as an unsecured claim against AIG-FP.
However, those obligations are supported by a Guarantee from AIG-FP.
(d) Liquidity Risk
Liquidity risk is borne by the Authorised Participants as they are the market makers for the Commodity
Securities.
(e) Settlement Risk
There is an element of risk in respect of the settlement of the securities, given that the Authorised Participants
could fail to deliver the cash/securities on the given settlement date.
The risk is minimised by the fact that the Company is only dealing with Authorised Participants all of whom are
large institutional investors.
Amounts outstanding in respect of positions yet to settle are disclosed in Notes 8 and 9,
.32.
14. Additional Company Information
Islands, the debt securities
list of the UK Listing Authority under the debt listing rules and admitted to
trading on the London Stock Exchange (LSE). The Company's Commodity Securities (LSE Code: COMMODITYB)
are quoted on the London SE, Borsa Italiana, Euronext Amsterdam, Frankfurt SE and Euronext Paris.
ETFS Commodity Securities Limited is a public company incorporated in Jersey, Channel
of which have been admitted to the offcial
The securities are now also cross-listed on the NextWarrants segment of Eurolist by Euronext.
15. Post Balance Sheet Events
On 24 January 2008 the Directors approved the issuance of up to USD1,OOO,OOO,OOO ETFS Short and Leveraged
Commodity Securities compromising 66 different classes of debt security, being 33 classes of Short Commodity
Securities and 33 classes of Leveraged Commodity Securities, There will be 23 classes of Short Individual
Securities, 10 classes of Short Index Securities, 23 classes of Leveraged Individual Securities and 10 classes of
Leveraged Index Securities.
It was noted that an application would be made to the UK Listing Authority for admission to trading on the London
Stock Exchange,
16. Ultimate Controllng Part
The ultimate controllng party is Graham Tuckwell,
.33.

ETFS COMMODITY SECURITIES LIMITED

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