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Report on Initial Trading of GBS (LSE) Nik Bienkowski CFA Posted 16 December, 2003 Head of Institutional Investment, Gold Bullion Limited Melbourne, Australia The table below represents the first week's LSE trading and issuance of Gold Bullion Securities (GBS). Total trust assets: As at 15 December, 2003 there was a total of 889,476 ounces (27.7 tonnes) held on trust on behalf of Gold Bullion Securities Holders' for the United Kingdom and Australian GBS products. The combined value of Trust assets is approximately US$363 million. Trust assets and a list of all gold bars can be viewed on the GBS website at www.goldbullion.com. LSE trading and liquidity of Gold Bullion Securities: LSE trading refers to all trading on the London Stock Exchange (LSE). . GBS is similar to an exchange traded fund. As a result, the liquidity of GBS is supported by two sources: (1) LSE trading; and (2) the underlying physical gold market through creations and redemptions. If, for example, demand on the LSE is greater than supply, the market makers in GBS can create more securities by purchasing gold in the physical gold market and delivering it to the Trust in return for GBS. Therefore, as long as gold can be purchased or sold in the OTC gold market, GBS can be created or redeemed. Creating additional Gold Bullion Securities: The offer for Gold Bullion Securities ("GBS") is a continuous offer of up to 1,000,000,000 GBS. Creations refer to the issuance of new GBS (a "creation") which can occur if demand for GBS exceeds supply or if an arbitrage exists as a result of a pricing inconsistency between the GBS and the underlying gold. Additional GBS are only issued once gold has been received as allocated gold in to the Gold Trust. Therefore, all GBS are always fully backed by allocated London Good Delivery gold bars. . The Creation process: . An investor purchases GBS via a broker on the LSE . If there is not enough supply of GBS on the LSE, a market maker can create additional GBS to meet demand . To create GBS, a market maker must complete an Application for new GBS and send this to the Share Registrar, Computershare. The application will be accompanied by the delivery of gold to the Gold Trust . Once gold has been received by the Custodian, HSBC, it will then notify both the Share Registrar and the Trustee that gold has been received. The gold is then allocated in to the Gold Trust's allocated account by the next morning. When the allocation process is complete, the Custodian provides a weight list of all the gold bars to the Gold Trustee. No GBS are issued until the gold has been allocated . The Share Registrar will request the LSE to admit the issuance of additional GBS . When the LSE's approval for the creation of new GBS is received and the gold has been allocated, the Share Registrar will then issue a news release through the Regulatory News Service (RNS) titled "Gold Bullion Secs. Issue of Debt" or "Pricing Supplement." The news release will detail the amount of GBS to be issued and the cumulative GBS outstanding . The newly created GBS are then delivered to the market maker . These series of events, which may take up to 2 days, completes the Creation process for additional Gold Bullion Securities. . The diagram below illustrates the parties involved and the flow of gold and securities: Redemption of GBS & tracking error: A Redemption of GBS can also occur whereby GBS are returned to the Company and cancelled. The redemption process is similar to the reverse of the creation process, whereby gold is either sold on behalf of the Holder or delivered to one of the market markers. The creation and redemption process is an important feature of Gold Bullion Securities. The ability of Approved Applicants to deliver gold and receive GBS or to redeem GBS and receive gold ensures that the return from holding gold bullion and the return from holding GBS (less fees) will not differ materially. This arbitrage feature is designed to minimise tracking error. ** A full description to the Creation and Redemption process can be found in the GBS Prospectus on pages 21-22 and 30-32. Nik Bienkowski CFA nb@goldbullion.com.au Head of Institutional Investment, Gold Bullion Limited Melbourne, Australia 14 December, 2003 Posted at 321gold Inc Miami USA