abrdn Precious Metals Basket ETF Trust - Quarter Report: 2011 September (Form 10-Q)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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Form 10-Q |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended September 30, 2011 |
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Transition Period from ____________ to __________ |
Commission File Number: 001-34917
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ETFS PRECIOUS METALS BASKET TRUST |
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(Exact name of registrant as specified in its charter) |
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New York |
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27-2780046 |
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(State or other jurisdiction of incorporation or |
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(I.R.S. Employer Identification No.) |
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c/o ETF Securities USA LLC |
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48 Wall Street, 11th Floor |
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New York, NY |
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10005 |
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(Address of principal executive offices) |
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(Zip Code) |
Registrant’s telephone number, including area code:
(212) 918-4954
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer o |
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Non accelerated filer |
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Smaller reporting company o |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Yes o No x |
As of November 7, 2011, ETFS Precious Metals Basket Trust has 2,500,000 ETFS Physical Precious Metals Basket Shares outstanding.
ETFS PRECIOUS METALS BASKET TRUST
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2011
INDEX
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1 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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13 |
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13 |
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13 |
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14 |
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14 |
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15 |
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16 |
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ETFS PRECIOUS METALS BASKET TRUST
Item 1. Financial Statements (Unaudited)
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Condensed Statements of Financial Condition (Unaudited) |
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At September 30, 2011 and December 31, 2010 |
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September 30, 2011 |
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December 31, 2010 |
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ASSETS |
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Investment in Bullion (1) |
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Gold |
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$ |
112,471,491 |
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$ |
76,213,472 |
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Silver |
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$ |
86,636,118 |
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$ |
54,148,351 |
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Platinum |
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$ |
15,633,040 |
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$ |
12,716,653 |
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Palladium |
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$ |
9,528,808 |
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$ |
7,566,140 |
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$ |
224,269,457 |
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$ |
150,644,616 |
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Bullion receivable |
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— |
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4,378,396 |
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Total assets |
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$ |
224,269,457 |
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$ |
155,023,012 |
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LIABILITIES |
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Accounts payable to Sponsor |
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$ |
114,210 |
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$ |
78,202 |
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Total liabilities |
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$ |
114,210 |
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$ |
78,202 |
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REDEEMABLE SHARES |
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Shares at redemption value to investors (2) |
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$ |
237,389,542 |
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$ |
166,379,066 |
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Shareholders’ deficit |
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(13,234,295 |
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(11,434,256 |
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Total liabilities, redeemable Shares & shareholders’ deficit |
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$ |
224,269,457 |
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$ |
155,023,012 |
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(1) |
The market value of investment in Bullion was $237,503,752 at September 30, 2011 and $162,078,872 at December 31, 2010. Refer to Note 2.1 for a breakdown of market value per metal. |
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(2) |
Authorized share capital is unlimited and no par value per share. Shares issued and outstanding at September 30, 2011 were 2,600,000 and at December 31, 2010 were 1,900,000. |
See Notes to the Unaudited Condensed Financial Statements.
1
ETFS PRECIOUS METALS BASKET TRUST
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Condensed Statements of Operations (Unaudited) |
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For the three months ended September 30, 2011 and the nine months ended September 30, 2011 |
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Three Months |
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Nine Months |
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Ended |
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Ended |
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September 30, 2011 |
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September 30, 2011 |
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REVENUES |
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Value of Bullion transferred to pay expenses |
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$ |
388,297 |
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$ |
991,220 |
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Cost of Bullion transferred to pay expenses |
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(332,447 |
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(875,668 |
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Gain on Bullion transferred to pay expenses |
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$ |
55,850 |
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$ |
115,552 |
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Gain on Bullion distributed for the redemption of Shares |
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$ |
5,632,640 |
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$ |
11,321,552 |
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Unrealized loss on Bullion |
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(8,211,120 |
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(8,458,863 |
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Total (loss) / gain on Bullion |
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$ |
(2,522,630 |
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$ |
2,978,241 |
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EXPENSES |
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Sponsor’s Fee |
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$ |
387,740 |
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$ |
1,027,225 |
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Total expenses |
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$ |
387,740 |
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$ |
1,027,225 |
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Net (loss) /gain from operations |
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$ |
(2,910,370 |
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$ |
1,951,016 |
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Net (loss) / gain per Share |
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$ |
(1.14 |
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$ |
0.82 |
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Weighted average number of Shares |
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2,542,391 |
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2,372,344 |
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See Notes to the Unaudited Condensed Financial Statements
2
ETFS PRECIOUS METALS BASKET TRUST
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Condensed Statements of Cash Flows (Unaudited) |
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For the three months ended September 30, 2011 and the nine months ended September 30, 2011 |
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Three Months |
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Nine Months |
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Ended |
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Ended |
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September 30, 2011 |
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September 30, 2011 |
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INCREASE / (DECREASE) IN CASH FROM OPERATIONS: |
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Cash proceeds received from transfer of Bullion |
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$ |
— |
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$ |
— |
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Cash expenses paid |
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— |
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— |
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Increase in cash resulting from operations |
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$ |
— |
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$ |
— |
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Cash and cash equivalents at beginning of period |
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— |
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— |
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Cash and cash equivalents at end of period |
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$ |
— |
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$ |
— |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES: |
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Value of Bullion received for creation of Shares |
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$ |
43,218,748 |
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$ |
147,490,582 |
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Value of Bullion distributed for redemption of Shares - at average cost |
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$ |
21,904,191 |
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$ |
64,531,210 |
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RECONCILIATION OF NET (LOSS) / GAIN TO NET CASH PROVIDED BY OPERATING ACTIVITIES: |
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Net (loss) / gain from operations |
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$ |
(2,910,370 |
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$ |
1,951,016 |
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Adjustments to reconcile net (loss) / gain to net cash provided by operating activities: |
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Increase in Bullion assets |
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(12,770,990 |
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(73,624,841 |
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Decrease in Bullion receivable |
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— |
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4,378,396 |
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(Decrease) / increase in amounts payable to Sponsor |
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(560 |
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36,008 |
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Increase / (decrease) in redeemable Shares: |
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Creations |
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43,218,752 |
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143,112,185 |
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Redemptions |
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(27,536,832 |
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(75,852,764 |
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Net cash provided by operating activities |
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$ |
— |
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$ |
— |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: |
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Value of Bullion transferred to pay expenses |
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$ |
388,297 |
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$ |
991,220 |
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See Notes to the Unaudited Condensed Financial Statements
3
ETFS PRECIOUS METALS BASKET TRUST
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Condensed Statement of Changes in Shareholders’ Deficit (Unaudited) |
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For the nine months ended September 30, 2011 |
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Nine months |
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Ended |
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September 30, 2011 |
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Shareholders’ deficit - opening balance |
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$ |
(11,434,256 |
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Net gain for the period |
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1,951,016 |
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Adjustment of redeemable Shares to redemption value |
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(3,751,055 |
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Shareholders’ deficit - closing balance |
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$ |
(13,234,295 |
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See Notes to the Unaudited Condensed Financial Statements
4
ETFS PRECIOUS METALS BASKET TRUST
Notes to the Unaudited Condensed Financial Statements
1. Organization
The ETFS Precious Metals Basket Trust (the “Trust”) is an investment trust formed on October 18, 2010, under New York law pursuant to a depository trust agreement (the “Trust Agreement”) executed by ETF Securities USA LLC (the “Sponsor”) and the Bank of New York Mellon (the “Trustee”) at the time of the Trust’s organization. The Trust holds gold, silver, platinum and palladium in set ratios (together, “Bullion”) and issues shares (“Shares”) (in minimum blocks of 50,000 Shares, also referred to as “Baskets”) in exchange for deposits of Bullion and distributes Bullion in connection with the redemption of Baskets. Shares represent units of fractional undivided beneficial interest in and ownership of the Trust which are issued by the Trust. The Sponsor is a Delaware limited liability company and a wholly-owned subsidiary of ETF Securities Limited, a Jersey, Channel Islands based company. The Trust is governed by the Trust Agreement.
The investment objective of the Trust is for the Shares to reflect the performance of the price of gold, silver, platinum and palladium, less the Trust’s expenses and liabilities. The Trust is designed to provide an individual owner of beneficial interests in the Shares (a “Shareholder”) an opportunity to participate in the gold, silver, platinum and palladium market through an investment in securities. The fiscal year end for the Trust is December 31.
The accompanying unaudited financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial information and with the instructions for the Form 10-Q. In the opinion of management of the Sponsor, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of and for the three and nine months ended September 30, 2011 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010. The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the operating results for the full year.
2. Significant Accounting Policies
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires those responsible for preparing financial statements to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Trust.
2.1. Valuation of Bullion
Bullion is held by JPMorgan Chase Bank, N.A. (the “Custodian”), on behalf of the Trust, at its London, England vaulting premises on a segregated basis. The allocated Platinum and Palladium is held by UBS AG (the “Zurich Sub-Custodian”) at its Zurich, Switzerland vaulting Premises on a segregated basis. The Trust’s Bullion is valued, per individual metal type, for financial statement purposes, at the lower of cost or market. The cost of Bullion is determined according to the average cost method and the market value is based on the London Fix for each metal held by the Trust used to determine the net asset value (the “NAV”) of the Trust. Realized gains and losses on transfers of Bullion, or Bullion distributed for the redemption of Shares, are calculated on a trade date basis using average cost.
Once the value of Bullion has been determined, the NAV is computed by the Trustee by deducting all accrued fees, expenses and other liabilities of the Trust, including the remuneration due to the Sponsor (the “Sponsor’s Fee”), from the fair value of the Bullion and all other assets held by the Trust.
5
ETFS PRECIOUS METALS BASKET TRUST
2. Significant Accounting Policies (Continued)
2.1. Valuation of Bullion (Continued)
The table below summarizes the unrealized gains or losses on the Trust’s Bullion holdings as of September 30, 2011 and December 31, 2010:
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September 30, 2011 |
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Gold |
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Silver |
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Platinum |
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Palladium |
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Total |
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Investment in Bullion - average cost |
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$ |
112,471,491 |
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$ |
90,825,430 |
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$ |
18,153,847 |
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$ |
11,277,552 |
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$ |
232,728,320 |
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Unrealized gain / (loss) on investment in Bullion |
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13,234,295 |
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(4,189,312 |
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(2,520,807 |
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(1,748,744 |
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4,775,432 |
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Investment in Bullion - market value |
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$ |
125,705,786 |
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$ |
86,636,118 |
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$ |
15,633,040 |
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$ |
9,528,808 |
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$ |
237,503,752 |
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December 31, 2010 |
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Gold |
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Silver |
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Platinum |
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Palladium |
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Total |
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Investment in Bullion - average cost |
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$ |
76,213,472 |
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$ |
54,148,351 |
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$ |
12,716,653 |
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$ |
7,566,140 |
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$ |
150,644,616 |
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Unrealized gain on investment in Bullion |
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2,001,570 |
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8,140,827 |
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83,937 |
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1,207,922 |
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11,434,256 |
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Investment in Bullion - market value |
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$ |
78,215,042 |
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$ |
62,289,178 |
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$ |
12,800,590 |
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$ |
8,774,062 |
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$ |
162,078,872 |
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The Trust recognizes the diminution in value of the investment in Bullion which arises from market declines on an interim basis. Increases in the value of the investment in Bullion through market price recoveries in later interim periods of the same fiscal year are recognized in the later interim period. Increases in value recognized on an interim basis may not exceed the previously recognized diminution in value.
The per Share amount of Bullion exchanged for a purchase or redemption is calculated daily by the Trustee, using the London Fix for each metal held by the Trust to calculate the Bullion amount in respect of any liabilities for which covering Bullion sales have not yet been made, and represents the per Share amount of Bullion held by the Trust, after giving effect to its liabilities, to cover expenses and liabilities and any losses that may have occurred.
2.2. Bullion Receivable and Payable
Bullion receivable or payable represents the quantity of Bullion covered by contractually binding orders for the creation or redemption of Shares respectively, where the Bullion has not yet been transferred to or from the Trust’s account. Generally, ownership of the Bullion is transferred within three business days of the trade date. Bullion receivable or payable at September 30, 2011 and December 31, 2010 is set out below:
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September 30, 2011 |
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December 31, 2010 |
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Bullion receivable |
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$ |
— |
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$ |
4,378,396 |
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Bullion payable |
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$ |
— |
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$ |
— |
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6
ETFS PRECIOUS METALS BASKET TRUST
2. Significant Accounting Policies (Continued)
2.3. Creations and Redemptions of Shares (Continued)
The Trust expects to create and redeem Shares from time to time, but only in one or more Baskets. The Trust issues Shares in Baskets to Authorized Participants on an ongoing basis. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. An Authorized Participant is a person who (1) is 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) is a participant in The Depository Trust Company, (3) has entered into an Authorized Participant Agreement with the Trustee, and (4) has established an Authorized Participant Unallocated Account with the Trust’s Custodian. An Authorized Participant Agreement is an agreement entered into by each Authorized Participant, the Sponsor and the Trustee which provides the procedures for the creation and redemption of Baskets and for the delivery of the Bullion required for such creations and redemptions. An Authorized Participant Unallocated Account is an unallocated Bullion account, either loco London or loco Zurich, established with the Custodian or a Bullion clearing bank by an Authorized Participant.
The creation and redemption of Baskets is only made in exchange for the delivery to the Trust or the distribution by the Trust of the amount of Bullion represented by the Baskets being created or redeemed, the amount of which is based on the combined NAV of the number of Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem Baskets is properly received.
Authorized Participants may, on any business day, place an order with the Trustee to create or redeem one or more Baskets. The typical settlement period for Shares is three business days. In the event of a trade date at period end, where a settlement is pending, a respective account receivable and/or payable will be recorded. When Bullion is exchanged in settlement of a redemption, it is considered a sale of Bullion for financial statement purposes.
The amount of bullion represented by the Baskets created or redeemed can only be settled to the nearest 1/1000th of an ounce. As a result, the value attributed to the creation or redemption of Shares may differ from the value of bullion to be delivered or distributed by the Trust. In order to ensure that the correct metal is available at all times to back the Shares, the Sponsor accepts an adjustment to its management fees in the event of any shortfall or excess. For each transaction, this amount is not more than 1/1000th of an ounce.
The Shares of the Trust are classified as “Redeemable Capital Shares” for financial statement purposes, since they are subject to redemption at the option of Authorized Participants. Outstanding Shares are reflected at redemption value, which represents the maximum obligation (based on NAV per Share), with the difference from historical cost recorded as an offsetting amount to retained earnings. Changes in the Shares for the nine months ended September 30, 2011 and for the period from October 18, 2010 (the “Date of Inception”) through December 31, 2010 are set out below:
|
|
|
|
|
Period |
|
||
|
|
|
Nine months |
|
October 18, 2010* |
|
||
|
|
|
Ended |
|
Ended |
|
||
|
|
|
September 30, 2011 |
|
December 31, 2010 |
|
||
|
|
|
|
|
|
|
|
|
|
Number of redeemable Shares |
|
|
|
|
|
|
|
|
Opening balance |
|
|
1,900,000 |
|
|
— |
|
|
Creations |
|
|
1,450,000 |
|
|
1,900,000 |
|
|
Redemptions |
|
|
(750,000 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
2,600,000 |
|
|
1,900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable Shares |
|
|
|
|
|
|
|
|
Opening balance |
|
$ |
166,379,066 |
|
$ |
— |
|
|
Creations |
|
|
143,112,185 |
|
|
155,072,282 |
|
|
Redemptions |
|
|
(75,852,764 |
) |
|
— |
|
|
Adjustment to redemption value |
|
|
3,751,055 |
|
|
11,306,784 |
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
$ |
237,389,542 |
|
$ |
166,379,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption value per Share at period end |
|
$ |
91.30 |
|
$ |
87.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Date of inception. |
|
|
|
|
|
|
|
7
ETFS PRECIOUS METALS BASKET TRUST
2.4. Revenue Recognition Policy
The primary expense of the Trust is the Sponsor’s Fee, which is paid by the Trust through in-kind transfers of Bullion to the Sponsor. With respect to expenses not otherwise assumed by the Sponsor, the Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s Bullion as necessary to pay these expenses. When selling Bullion to pay expenses, the Trustee will endeavor to sell the smallest amounts of Bullion needed to pay these expenses in order to minimize the Trust’s holdings of assets other than Bullion.
Unless otherwise directed by the Sponsor, when selling Bullion the Trustee will endeavor to sell at the price established by the London Fix for each metal held by the Trust. The Trustee will place orders with dealers (which may include the Custodian) through which the Trustee expects to receive the most favorable price and execution of orders. The Custodian may be the purchaser of such Bullion only if the sale transaction is made at the London Fix for each metal held by the Trust used by the Trustee to value the Trust’s Bullion. A gain or loss is recognized based on the difference between the selling price and the average cost of the Bullion sold. Neither the Trustee nor the Sponsor is liable for depreciation or loss incurred by reason of any sale.
2.5. Income Taxes
The Trust is classified as a “grantor trust” for U.S. federal income tax purposes. As a result, the Trust itself will not be subject to U.S. federal income tax. Instead, the Trust’s income and expenses will “flow through” to the Shareholders, and the Trustee will report the Trust’s proceeds, income, deductions, gains, and losses to the Internal Revenue Service on that basis.
The Trust has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740-10, Income Taxes. The Sponsor has evaluated the application of ASC 740 to the Trust, to determine whether or not there are uncertain tax positions that require financial statement recognition. Based on this evaluation, the Trust has determined no reserves for uncertain tax positions are required to be recorded as a result of the application of ASC 740. As a result, no income tax liability or expense has been recorded in the accompanying financial statements.
8
ETFS PRECIOUS METALS BASKET TRUST
2. Significant Accounting Policies (Continued)
2.6. Investment in Bullion
Changes in ounces of Bullion and the respective values for the nine months ended September 30, 2011 and for the period from October 18, 2010 (the “Date of Inception”) through December 31, 2010 are set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September, 2011 |
|
|||||||||||||
|
|
|
Gold |
|
Silver |
|
Platinum |
|
Palladium |
|
Total |
|
|||||
|
Ounces of Bullion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
55,461.9 |
|
|
2,033,601.3 |
|
|
7,395.0 |
|
|
11,092.3 |
|
|
2,107,550.5 |
|
|
Creations |
|
|
44,859.8 |
|
|
1,644,859.4 |
|
|
5,981.3 |
|
|
8,972.0 |
|
|
1,704,672.5 |
|
|
Redemptions |
|
|
(22,417.1 |
) |
|
(821,962.8 |
) |
|
(2,989.0 |
) |
|
(4,483.4 |
) |
|
(851,852.3 |
) |
|
Transfers of Bullion |
|
|
(308.3 |
) |
|
(11,305.2 |
) |
|
(41.1 |
) |
|
(61.7 |
) |
|
(11,716.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
77,596.3 |
|
|
2,845,192.7 |
|
|
10,346.2 |
|
|
15,519.2 |
|
|
2,948,654.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Bullion (lower of cost or market): |
||||||||||||||||
|
Opening balance |
|
$ |
76,213,472 |
|
$ |
54,148,351 |
|
$ |
12,716,653 |
|
$ |
7,566,140 |
|
$ |
150,644,616 |
|
|
Creations |
|
|
68,061,096 |
|
|
61,734,789 |
|
|
10,720,634 |
|
|
6,974,063 |
|
|
147,490,582 |
|
|
Redemptions |
|
|
(31,373,565 |
) |
|
(24,726,989 |
) |
|
(5,211,936 |
) |
|
(3,218,720 |
) |
|
(64,531,210 |
) |
|
Transfers of Bullion |
|
|
(429,512 |
) |
|
(330,721 |
) |
|
(71,504 |
) |
|
(43,931 |
) |
|
(875,668 |
) |
|
Unrealized loss on Bullion |
|
|
— |
|
|
(4,189,312 |
) |
|
(2,520,807 |
) |
|
(1,748,744 |
) |
|
(8,458,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
$ |
112,471,491 |
|
$ |
86,636,118 |
|
$ |
15,633,040 |
|
$ |
9,528,808 |
|
$ |
224,269,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the period October 18, 2010* to December 31, 2010 |
|
|||||||||||||
|
|
|
|
Gold |
|
|
Silver |
|
|
Platinum |
|
|
Palladium |
|
|
Total |
|
|
Ounces of Bullion: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Creations (excluding bullion receivable at December 31, 2010 - 1,498.2, 54,935.7, 199.8 and 299.6, respectively) |
|
|
55,480.2 |
|
|
2,034,273.9 |
|
|
7,397.4 |
|
|
11,096.0 |
|
|
2,108,247.5 |
|
|
Redemptions |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Transfers of Bullion |
|
|
(18.3 |
) |
|
(672.6 |
) |
|
(2.4 |
) |
|
(3.7 |
) |
|
(697.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
|
55,461.9 |
|
|
2,033,601.3 |
|
|
7,395.0 |
|
|
11,092.3 |
|
|
2,107,550.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Bullion (lower of cost or market): |
||||||||||||||||
|
Opening balance |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Creations (excluding bullion receivable at December 31, 2010 - $2,112,900, $1,682,679, $345,795 and $237,022, respectively) |
|
|
76,238,609 |
|
|
54,165,816 |
|
|
12,720,869 |
|
|
7,568,584 |
|
|
150,693,878 |
|
|
Redemptions |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Transfers of Bullion |
|
|
(25,137 |
) |
|
(17,465 |
) |
|
(4,216 |
) |
|
(2,444 |
) |
|
(49,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance |
|
$ |
76,213,472 |
|
$ |
54,148,351 |
|
$ |
12,716,653 |
|
$ |
7,566,140 |
|
$ |
150,644,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
||||||||||||||||
|
*Date of inception. |
||||||||||||||||
9
ETFS PRECIOUS METALS BASKET TRUST
2. Significant Accounting Policies (Continued)
2.7. Expenses
The Trust will transfer Bullion to the Sponsor to pay the Sponsor’s Fee that will accrue daily at an annualized rate equal to 0.60% of the adjusted net asset value (the “ANAV) of the Trust, paid monthly in arrears.
The Sponsor has agreed to assume administrative and marketing expenses incurred by the Trust, including the Trustee’s monthly fee and out of pocket expenses, the Custodian’s fee and the reimbursement of the Custodian’s expenses, exchange listing fees, United States Securities and Exchange Commission (the “SEC”) registration fees, printing and mailing costs, audit fees and certain legal expenses.
For the three months ended September 30, 2011 the Sponsor’s Fee was $387,740. For the nine months ended September 30, 2011 the Sponsor’s Fee was $1,027,225. At September 30, 2011 and at December 31, 2010, the fees payable to the Sponsor were $114,210 and $78,202 respectively.
3. Related Parties
The Sponsor and the Trustee are considered to be related parties to the Trust. The Trustee’s fee is paid by the Sponsor and is not a separate expense of the Trust. The Trustee and the Custodian and their affiliates may from time to time act as Authorized Participants or purchase or sell Bullion or Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
4. Concentration of Risk
The Trust’s sole business activity is the investment in Bullion, and substantially all the Trust’s assets are holdings of Bullion which creates a concentration risk associated with fluctuations in the price of Bullion. Several factors could affect the price of Bullion, including: (i) global Bullion supply and demand, which is influenced by factors such as forward selling by Bullion producers, purchases made by Bullion producers to unwind Bullion hedge positions, central bank purchases and sales, and production and cost levels in major Bullion-producing countries; (ii) investors’ expectations with respect to the rate of inflation; (iii) currency exchange rates; (iv) interest rates; (v) investment and trading activities of hedge funds and commodity funds; and (vi) global or regional political, economic or financial events and situations. In addition, there is no assurance that Bullion will maintain its long-term value in terms of purchasing power in the future. In the event that the price of Bullion declines, the Sponsor expects the value of an investment in the Shares to decline proportionately. Each of these events could have a material effect on the Trust’s financial position and results of operations.
5. Indemnification
Under the Trust’s organizational documents, the Trustee (and its directors, employees and agents) and the Sponsor (and its members, managers, directors, officers, employees and affiliates) are indemnified by the Trust against any liability, cost or expense it incurs without gross negligence, bad faith or willful misconduct on its part and without reckless disregard on its part of its obligations and duties under the Trust’s organizational documents. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred.
6. Subsequent Events
In accordance with the provisions set forth in FASB ASC 855-10, Subsequent Events, the Trust’s management has evaluated the possibility of subsequent events existing in the Trust’s financial statements through the filing date. During this period, no material subsequent events were identified.
10
ETFS PRECIOUS METALS BASKET TRUST
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This information should be read in conjunction with the financial statements and notes to the financial statements included in Item 1 of Part 1 of this Form 10-Q. The discussion and analysis that follows may contain forward-looking statements with respect to the Trust’s financial conditions, operations, future performance and business. These statements can be identified by the use of the words “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or similar words and phrases. These statements are based upon certain assumptions and analyses the Sponsor has made based on its perception of historical trends, current conditions and expected future developments. Neither the Trust nor the Sponsor is under a duty to update any of the forward looking statements, to conform such statements to actual results or to reflect a change in management’s expectations or predictions.
Introduction
The Trust is a common law trust, formed under the laws of the state of New York on the Date of Inception. The Trust is not managed like a corporation or an active investment vehicle. It does not have any officers, directors, or employees and is administered by the Trustee pursuant to the Trust. The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. It will not hold or trade in commodity futures contracts, nor is it a commodity pool, subject to regulation as a commodity pool operator or a commodity trading adviser in connection with issuing Shares.
The Trust holds Bullion (consisting of gold, silver, platinum and palladium bullion in specified proportions) and is expected to issue Baskets in exchange for deposits of Bullion, and to distribute Bullion in connection with redemptions of Baskets. Shares issued by the Trust represent units of undivided beneficial interest in the ownership of the Trust. The investment objective of the Trust is for the Shares to reflect the performance of the price of gold, silver, platinum and palladium in the proportions held by the Trust, less the Trust’s expenses. The Trust holds Bullion in a ratio such that for every 0.03 ounces of gold, it holds 1.1 ounces of silver, 0.004 ounces of platinum and 0.006 ounces of palladium. The Sponsor believes that, for many investors, the Shares will represent a cost effective investment relative to traditional means of investing in Bullion.
The Trust issues and redeems Shares only with Authorized Participants in exchange for Bullion, only in aggregations of 50,000 or integral multiples thereof. A list of current Authorized Participants is available from the Sponsor or the Trustee.
Shares of the Trust trade on the New York Stock Exchange (the “NYSE”) Arca under the symbol “GLTR.”
Valuation of Bullion and Computation of Net Asset Value
On each business day, as promptly as practicable after 4:00 p.m., New York time, on such day (the “Evaluation Time”), the Trustee values the Bullion held by the Trust and determines both the ANAV and the NAV of the Trust.
At the Evaluation Time, the Trustee values the Trust’s Bullion on the basis of that day’s “London Fix” for such metal (the applicable fix for each metal of the price of an ounce of such metal and is performed in London, England by fixing members of the London Bullion Market Association (“LBMA”) or London Platinum and Palladium (“LPPM”), as applicable), or if no London Fix is made for a metal on such day or has not been announced by the Evaluation Time, the next most recent London Fix for such metal determined prior to the Evaluation Time will be used, unless the Sponsor determines that such price is inappropriate as a basis for Evaluation. In the case this determination is made, the Sponsor will identify an alternative basis for such evaluation to be used by the Trustee.
11
ETFS PRECIOUS METALS BASKET TRUST
Gold held by the Trust will typically be valued on the basis of the price of an ounce of gold as set by the afternoon session of the twice daily fix of the price of an ounce of gold which starts at 3:00 PM London, England time and is performed in London by the five members of the London gold fix. Silver held by the Trust will typically be valued on the basis of the price of an ounce of silver as set at approximately 12:00 noon London time and performed in London by three market making members of the LBMA. Platinum held by the Trust will typically be valued on the basis of the price of an ounce of platinum as set by the afternoon session of the twice daily fix of the price of an ounce of platinum which starts at 2:00 PM London, England time and is performed in London by the four fixing members of the LPPM. Palladium held by the Trust will typically be valued on the basis of the price of an ounce of palladium as set by the afternoon session of the twice daily fix of the price of an ounce of palladium which starts at 2:00 PM London, England time and is performed in London by the four fixing members of the LPPM.
Once the value of Bullion held by the Trust has been determined, the Trustee subtracts all estimated accrued but unpaid fees and other liabilities of the Trust from the total value of the Bullion and all other assets of the Trust. The resulting figure is the ANAV of the Trust. The ANAV is used to compute the Sponsor’s Fee.
The Trustee then subtracts from the ANAV the amount of Sponsor’s Fees computed for such day to determine the net asset value (“NAV”) of the Trust. The Trustee also determines the NAV per Share by dividing the NAV of the Trust by the number of Shares outstanding as of the close of trading on the NYSE Arca.
The Quarter Ended September 30, 2011
The NAV of the Trust is obtained by subtracting the Trust’s liabilities on any day from the value of the Bullion owned and receivable by the Trust on that day; the NAV per Share is obtained by dividing the NAV of the Trust on a given day by the number of Shares outstanding on that day.
The Trust’s NAV increased from $232,128,961 at June 30, 2011 to $237,389,542 at September 30, 2011, a 2.27% increase for the quarter. The increase in the Trust’s NAV resulted primarily from an increase in outstanding Shares, which rose from 2,450,000 Shares at June 30, 2011 to 2,600,000 Shares at September 30, 2011, a result of 400,000 Shares (8 Baskets) being created and 250,000 Shares (5 Baskets) being redeemed during the quarter.
There was a decrease in the price per ounce of gold, silver, platinum and palladium (the “Proportionate Price”) which fell 3.49% and an increase in outstanding Shares, which rose from 2,450,000 Shares at June 30, 2011 to 2,600,000 Shares at September 30, 2011, a result of 400,000 Shares (8 Baskets) being created and 250,000 Shares (5 Baskets) being redeemed during the quarter.
NAV per Share decreased 3.64% from $94.75 at June 30, 2011 to $91.30 at September 30, 2011. The Trust’s NAV per Share fell slightly more than the Proportionate Price due to Sponsor’s Fees, which were $387,740 for the quarter, or 0.60% of the Trust’s assets on an annualized basis.
The NAV per Share of $115.66 at August 22, 2011 was the highest during the quarter, compared with a low of $88.53 at September 26, 2011.
Net loss from operations for the quarter ended September 30, 2011 was $2,910,370, resulting from a net gain of $55,850 on the transfer of Bullion to pay expenses and a net gain of $5,632,640 on Bullion distributed for the redemption of Shares, offset by an unrealized loss on Bullion of $8,211,120 and Sponsor’s Fees of $387,740. Other than the Sponsor’s Fee, the Trust had no expenses during the quarter ended September 30, 2011.
The Nine Months Ended September 30, 2011
The Trust’s NAV increased from $166,379,066 at December 31, 2010 to $237,389,542 at September 30, 2011, a 42.68% increase for the period. The increase in the Trust’s NAV resulted primarily from an increase in the Proportionate Price, which rose 4.74% and an increase in outstanding Shares, which rose from 1,900,000 Shares at December 31, 2010 to 2,600,000 Shares at September 30, 2011, a result of 1,450,000 Shares (29 Baskets) being created and 750,000 Shares (15 Baskets) being redeemed during the period.
NAV per Share increased 4.26% from $87.57 at December 31, 2010 to $91.30 at September 30, 2011. The Trust’s NAV per Share rose slightly less than the Proportionate Price on a percentage basis due to Sponsor’s Fees, which were $1,027,225 for the period, or 0.60% of the Trust’s assets on an annualized basis.
NAV per Share of $115.66 at August 22, 2011 was the highest during the period, compared with a low of $80.76 at January 28, 2011.
Net gain from operations for the period ended September 30, 2011 was $1,951,016, resulting from a net gain of $115,552 on the transfer of Bullion to pay expenses and a net gain of $11,321,552 on Bullion distributed for the redemption of Shares, offset by an unrealized loss on Bullion of $8,458,863 and Sponsor’s Fees of $1,027,225. Other than the Sponsor’s Fee, the Trust had no expenses during the period ended September 30, 2011.
12
ETFS PRECIOUS METALS BASKET TRUST
Liquidity & Capital Resources
The Trust is not aware of any trends, demands, commitments, events or uncertainties that are reasonably likely to result in material changes to its liquidity needs. In exchange for the Sponsor’s Fee, the Sponsor has agreed to assume most of the expenses incurred by the Trust. As a result, the only ordinary expense of the Trust during the period covered by this report was the Sponsor’s Fee.
The Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust’s Bullion as necessary to pay the Trust’s expenses not otherwise assumed by the Sponsor. The Trustee will not sell Bullion to pay the Sponsor’s Fee but will pay the Sponsor’s Fee through in-kind transfers of Bullion to the Sponsor. At September 30, 2011 the Trust did not have any cash balances.
Off-Balance Sheet Arrangements
The Trust has no off-balance sheet arrangements.
Critical Accounting Estimates
The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements relies on estimates and assumptions that impact the Trust’s financial position and results of operations. These estimates and assumptions affect the Trust’s application of accounting policies. In addition, please refer to Note 2 to the financial statements for further discussion of accounting policies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
The authorized officers of the Sponsor performing functions equivalent to those that a principal executive officer and principal financial officer of the Trust would perform if the Trust had any officers, and with the participation of the Trustee, have evaluated the effectiveness of the Trust’s disclosure controls and procedures, and have concluded that the disclosure controls and procedures of the Trust have been effective as of the end of the period covered by this Form 10-Q.
There have been no changes in the Trust’s or Sponsor’s internal control over financial reporting that occurred during the Trust’s fiscal quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Trust’s or Sponsor’s internal control over financial reporting.
Item 4T. Controls and Procedures
Not applicable.
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ETFS PRECIOUS METALS BASKET TRUST
None.
There have been no material changes to the risk factors previously disclosed in the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Item 2(a). |
None. |
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Item 2(b). |
Not applicable. |
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Item 2(c). |
For the three months ended September 30, 2011: |
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8 Baskets were created. |
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5 Baskets were redeemed. |
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Total Baskets |
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Total Shares |
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Average Ounces of Bullion Per Share |
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Period |
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Gold |
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Silver |
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Platinum |
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Palladium |
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July 2011 |
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— |
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— |
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— |
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— |
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— |
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— |
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August 2011 |
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5 |
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250,000 |
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0.030 |
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1.094 |
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0.004 |
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0.006 |
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September 2011 |
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— |
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— |
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— |
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— |
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— |
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— |
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Total |
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5 |
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250,000 |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
None.
None.
14
ETFS PRECIOUS METALS BASKET TRUST
(a) Exhibits
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31.1 |
Chief Executive Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Chief Financial Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
Chief Executive Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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32.2 |
Chief Financial Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS |
XBRL Instance Document* |
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101.SCH |
XBRL Taxonomy Extension Schema Document* |
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101.CAL |
XBRL Taxonomy Extension Calculation Document* |
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101.DEF |
XBRL Taxonomy Extension Definitions Document* |
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101.LAB |
XBRL Taxonomy Extension Labels Document* |
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101.PRE |
XBRL Taxonomy Extension Presentation Document* |
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* |
In accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall be deemed to be “furnished” and not “filed.” |
15
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned in the capacities thereunto duly authorized.
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ETF SECURITIES USA LLC |
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Sponsor of the ETFS Precious Metals Basket Trust |
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(Registrant) |
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Date: November 9, 2011 |
/s/ Graham Tuckwell |
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Graham Tuckwell |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: November 9, 2011 |
/s/ Thomas Quigley |
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Thomas Quigley |
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Chief Financial Officer and Treasurer |
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(Principal Financial Officer and Principal |
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Accounting Officer) |
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* The Registrant is a trust and the persons are signing in their capacities as officers of ETF Securities USA LLC, the Sponsor of the Registrant.
16