abrdn Silver ETF Trust - Quarter Report: 2009 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, 2009 |
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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 ________ |
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Commission File Number: 001-34412 |
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ETFS SILVER TRUST |
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New York |
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26-4586763 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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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 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 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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
Accelerated filer o |
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Non-accelerated filer x |
Smaller reporting company o |
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
8,700,000 shares outstanding as of October 31, 2009.
ETFS SILVER TRUST
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2009
INDEX
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1 |
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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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12 |
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12 |
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12 |
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13 |
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13 |
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13 |
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13 |
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13 |
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13 |
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14 |
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15 |
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Item 1. Financial Statements (unaudited)
ETFS SILVER TRUST
Condensed Statement of Condition (unaudited)
September 30, 2009
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September 30, |
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ASSETS |
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Investment in silver (1) |
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$ |
106,713,342 |
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Total Assets |
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$ |
106,713,342 |
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LIABILITIES |
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Accounts payable to Sponsor, net of waiver (Note 2.6) |
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$ |
38,786 |
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Total Liabilities |
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$ |
38,786 |
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Redeemable Shares: |
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Shares at redemption value to investors (2) |
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124,926,660 |
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Shareholders’ Deficit |
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(18,252,104 |
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Total Liabilities, Redeemable Shares & Shareholders’ Deficit |
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$ |
106,713,342 |
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(1) |
The market value of investment in silver at September 30, 2009 is $124,965,446. |
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(2) |
Authorized share capital is unlimited and no par value per share. Shares issued and outstanding at September 30, 2009 are 7,600,000. |
See Notes to the Unaudited Condensed Financial Statements.
1
ETFS SILVER TRUST
Condensed Statement of Operations (unaudited)
For the period July 20, 2009* through September 30, 2009
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For the period |
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REVENUES |
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Value of silver transferred to pay expenses |
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$ |
36,294 |
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Cost of silver transferred to pay expenses |
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(34,526 |
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Gain on silver transferred to pay expenses |
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1,768 |
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Gain on silver distributed for the redemption of shares |
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— |
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Total Gain on silver |
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$ |
1,768 |
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EXPENSES |
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Sponsor fees |
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$ |
70,988 |
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Total Expenses |
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70,988 |
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Net Loss from Operations |
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$ |
(69,220 |
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Net Loss per share |
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$ |
(0.01 |
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Weighted average number of shares |
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6,007,246 |
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* Date of Inception.
See Notes to the Unaudited Condensed Financial Statements.
2
ETFS SILVER TRUST
Condensed Statement of Cash Flows (unaudited)
For the period July 20, 2009* through September 30, 2009
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For the period |
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INCREASE / (DECREASE) IN CASH FROM OPERATIONS: |
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Cash proceeds received from transfer of silver |
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$ |
- |
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Cash expenses paid |
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- |
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Increase in cash resulting from operations |
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- |
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Cash and cash equivalents at beginning of period |
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- |
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Cash and cash equivalents at end of period |
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$ |
- |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH |
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FINANCING ACTIVITIES: |
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Value of silver received for creation of shares |
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$ |
106,747,867 |
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Value of silver distributed for redemption of shares - at average cost |
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$ |
- |
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For the period |
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RECONCILIATION
OF NET GAIN/(LOSS) TO NET CASH |
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Net Loss from Operations |
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$ |
(69,220 |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
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Increase in silver assets |
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(106,713,342 |
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Increase in accounts payable to Sponsor |
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38,786 |
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Increase/(Decrease) in redeemable shares |
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Creations |
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106,743,776 |
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Redemptions |
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- |
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Net cash provided by operating activities |
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$ |
- |
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Supplemental Disclosure of Non-Cash Item: |
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Value of silver transferred to pay expenses |
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$ |
36,294 |
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* Date of Inception.
See Notes to the Unaudited Condensed Financial Statements.
3
ETFS SILVER TRUST
Condensed Statement of Changes in Shareholders’ Deficit (unaudited)
For the period July 20, 2009* through September 30, 2009
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For the period |
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Shareholders’ Deficit - Opening balance |
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$ |
- |
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Net Loss for the period |
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(69,220 |
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Adjustment of Redeemable Shares to redemption value |
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(18,182,884 |
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Shareholders’ Deficit – Closing balance |
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$ |
(18,252,104 |
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* Date of Inception.
See Notes to the Unaudited Condensed Financial Statements.
4
ETFS SILVER TRUST
Notes to the Unaudited Condensed Financial Statements
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1. |
Organization |
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The ETFS Silver Trust (the “Trust”) is an investment trust formed on July 20, 2009, under New York law pursuant to a trust agreement (the “Depositary Trust Agreement”) executed by the Sponsor and the Bank of New York Mellon (the “Trustee”) at the time of the Trust’s organization. The Trust holds silver bullion and issues shares (“Shares”)1 (in minimum blocks of 100,000 Shares, also referred to as “Baskets”) in exchange for deposits of silver and distributes silver in connection with redemption of Baskets. The Trust’s sponsor is ETF Securities USA LLC (the “Sponsor”), a Delaware limited liability company which is a wholly-owned subsidiary of ETF Securities Limited, a Jersey, Channel Islands’ based company. The Trust is governed by the Depositary Trust Agreement. |
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The investment objective of the Trust is for the Shares to reflect the performance of the price of silver, less the Trust’s expenses and liabilities. The Trust is designed to provide a vehicle for investors to own interests in silver. The fiscal year end for the Trust is December 31. |
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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 for the period July 20, 2009 (the “Date of Inception”) through September 30, 2009 have been made. |
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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 prospectus. The results of operations for the period from the Date of Inception through September 30, 2009 are not necessarily indicative of the operating results for the full year. |
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2. |
Significant Accounting Policies |
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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. |
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2.1. |
Valuation of Silver |
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Silver is held by HSBC Bank USA, National Association (the “Custodian”) on behalf of the Trust and is valued, for financial statement purposes, at the lower of cost or market. The cost of silver is determined according to the average cost method and the market value is based on the London Fix2 used to determine the Net Asset Value of the Trust. Realized gains and losses on sales of silver, or silver distributed for the redemption of Shares, are calculated on a trade date basis using average cost. |
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1 Shares meaning units of fractional undivided beneficial interest in and ownership of the Trust which are issued by the Trust. |
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2 The price for an ounce of silver is set by three market making members of the London Bullion Market Association at approximately 12:00 noon London Time, on each working day. |
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5
ETFS SILVER TRUST
Notes to the Unaudited Condensed Financial Statements
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2. |
Significant Accounting Policies (continued) |
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2.1. |
Valuation of Silver (continued) |
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Once the value of silver has been determined, the net asset value is computed by the Trustee by deducting all accrued fees, expenses and other liabilities of the Trust, including Sponsor’s fees, from the fair value of the silver and all other assets held by the Trust. |
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The table below summarizes the impact of unrealized gains or losses on the Trust’s silver holdings as of September 30, 2009: |
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September 30, |
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Investment in silver-average cost |
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$ |
106,713,342 |
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Unrealized Gain on investment in silver |
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18,252,104 |
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Investment in silver-market value |
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$ |
124,965,446 |
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The Trust recognizes the diminution in value of the investment in silver which arises from market declines on an interim basis. Increases in the value of the investment in silver 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. |
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The per share amount of silver exchanged for a purchase or redemption is calculated daily by the Trustee, using the London Fix to calculate the silver amount in respect of any liabilities for which covering silver sales have not yet been made, and represents the per-share amount of silver held by the Trust, after giving effect to its liabilities, to cover expenses and liabilities and any losses that may have occurred. |
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2.2. |
Creations and Redemptions of Shares |
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The Trust expects to create and redeem Shares from time to time, but only in one or more Baskets (a Basket equals a block of 100,000 Shares). The Trust issues Shares in Baskets to Authorized Participants3 on an ongoing basis. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. 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 silver and any cash represented by the Baskets being created or redeemed, the amount of which is based on the combined net asset value 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. |
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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 silver is exchanged in settlement of redemption, it is considered a sale of silver for financial statement purposes. |
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3 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. |
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ETFS SILVER TRUST
Notes to the Unaudited Condensed Financial Statements
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2. |
Significant Accounting Policies (continued) |
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2.2. |
Creations and Redemptions of Shares (continued) |
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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 only in Baskets. Outstanding Shares are reflected at redemption value, which represents the maximum obligation (based on net asset value per share), with the difference from historical cost recorded as an offsetting amount to Retained Earnings. Changes in the Shares for the period from the Date of Inception through September 30, 2009 are as follows: |
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For the period |
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Number of Redeemable Shares: |
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Opening Balance |
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- |
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Creations |
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7,600,000 |
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Redemptions |
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- |
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Closing Balance |
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7,600,000 |
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For the period |
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Redeemable Shares: |
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Opening Balance |
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$ |
- |
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Creations |
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106,743,776 |
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Redemptions |
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- |
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Adjustment to redemption value |
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18,182,884 |
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Closing Balance |
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$ |
124,926,660 |
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Redemption Value per Share at Period End |
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$ |
16.44 |
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*Date of Inception. |
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2.3. |
Revenue Recognition Policy |
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The primary expense of the Trust is the Sponsor’s fee, which is paid by the Trust through in-kind transfers of silver 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 silver as necessary to pay these expenses. When selling silver to pay expenses, the Trustee will endeavor to sell the smallest amounts of silver needed to pay these expenses in order to minimize the Trust’s holdings of assets other than silver. |
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ETFS SILVER TRUST
Notes to the Unaudited Condensed Financial Statements
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2. |
Significant Accounting Policies (continued) |
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2.3. |
Revenue Recognition Policy (continued) |
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Unless otherwise directed by the Sponsor, when selling silver the Trustee will endeavor to sell at the price established by the London Fix. 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 silver only if the sale transaction is made at the next London Fix following the sale order. A gain or loss is recognized based on the difference between the selling price and the average cost of the silver sold. Neither the Trustee nor the Sponsor is liable for depreciation or loss incurred by reason of any sale. |
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2.4. |
Income Taxes |
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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 (formerly FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes). |
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2.5. |
Investment in Silver |
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The following represents the changes in ounces of silver and the respective values for the period from the Date of Inception through September 30, 2009: |
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For the period |
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Ounces of Silver: |
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Opening Balance |
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- |
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Creations |
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7,599,181.1 |
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Redemptions |
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- |
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Transfers of silver |
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(2,497.4 |
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Closing Balance |
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7,596,683.7 |
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Investment in Silver (lower of cost or market): |
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Opening Balance |
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$ |
- |
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Creations |
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106,747,868 |
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Redemptions |
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- |
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Transfers of silver |
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(34,526 |
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Closing Balance |
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$ |
106,713,342 |
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* Date of Inception. |
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8
ETFS SILVER TRUST
Notes to the Unaudited Condensed Financial Statements
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2. |
Significant Accounting Policies (continued) |
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2.6. |
Expenses |
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The
Trust will pay to the Sponsor a fee that will accrue daily at an annualized
rate equal to 0.45% of the adjusted daily net asset value of the Trust, paid
monthly in arrears. Presently, the Sponsor intends to waive a portion of its
fee and reduce the Sponsor’s fee to 0.30% for the first year of the Trust’s
operations beginning on the Trust’s inception date and ending July 20, 2010.
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2.7. |
Organization Cost |
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Expenses incurred in organizing the Trust and the initial offering of the Shares, including applicable SEC registration fees, approximately $1,153,000, will be borne directly by the Sponsor. The Trust will not be obligated to reimburse the Sponsor. |
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3. |
Related Parties |
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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 Custodian and its affiliates may from time to time act as Authorized Participants or purchase or sell silver or Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion. |
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4. |
Concentration of Risk |
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The Trust’s sole business activity is the investment in silver, and substantially all the Trust’s assets are holdings of silver which creates a concentration risk associated with fluctuations in the price of silver. Several factors could affect the price of silver, including: (i) global silver supply and demand, which is influenced by factors such as forward selling by silver producers, purchases made by silver producers to unwind silver hedge positions, central bank purchases and sales, and production and cost levels in major silver-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 silver will maintain its long-term value in terms of purchasing power in the future. In the event that the price of silver declines, the Sponsor expects the value of an investment in the Shares to decline proportionately. Each of these events could have a material affect on the Trust’s financial position and results of operations. |
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5. |
Indemnification |
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Under the Trust’s organizational documents, each of the Trustee (and its directors, employees and agents) and the Sponsor (and its members, managers, directors, officers, employees and affiliates) is indemnified by the Trust against any liability, cost or expense it incurs without gross negligence, bad |
9
ETFS SILVER TRUST
Notes to the Unaudited Condensed Financial Statements
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5. |
Indemnification (continued) |
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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. |
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6. |
Subsequent Events |
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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 issuance date, November 13, 2009. Management has determined that there are no material events that would require disclosure in the Trust’s financial statements through this date. |
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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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 Statements “may, “will”, “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. |
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Introduction. |
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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 Depositary Trust Agreement. 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. |
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The
Trust holds silver and is expected to issue Baskets in exchange for deposits
of silver, and to distribute silver in connection with redemptions of
Baskets. Shares issued by the Trust represent units of undivided beneficial
interest in and ownership of the Trust. The investment objective of the Trust
is for the Shares to reflect the performance of the price of silver, less the
Trust’s expenses. The Sponsor believes that, for many investors, the Shares
will represent a cost effective investment relative to traditional means of
investing in silver. |
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Shares of the Trust trade on the New York Stock Exchange (the “NYSE”) Arca under the symbol “SIVR”. |
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Valuation of Silver and Computation of Net Asset Value. |
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As of the London Fix on each day that the NYSE Arca is open for regular trading or as soon as practicable after 4:00 p.m. New York time, (the “Evaluation Time”) the Trustee values the silver held by the Trust and determines both the adjusted net asset value (the “ANAV”) and the net asset value (the “NAV”) of the Trust. |
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At the Evaluation Time, the Trustee values the Trust’s silver on the basis of that day’s London Fix, or, if no London Fix is made on such day or has not been announced by the Evaluation Time, the next most recent London Fix determined prior to the Evaluation Time is used, unless the Sponsor determines that such price is inappropriate as a basis for valuation. In the case this determination is made, the Sponsor will identify an alternative basis for such evaluation to be used by the Trustee. |
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Once the value of the silver held by the Trust has been determined, the Trustee subtracts all estimated accrued but unpaid fees, expenses and other liabilities of the Trust from the total value of the silver 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. |
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The Trustee then subtracts from the ANAV the amount of accrued fees (including the Trustee’s fee) computed for such day to determine the NAV of the Trust. The Trustee also determines the NAV per Shares by dividing the NAV of the Trust by the number of Shares outstanding as of the close of trading on the NYSE Arca. |
11
12
None.
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There have been no material changes to the risk factors since last disclosed in the prospectus included in the registrant’s registration statement filed on Form S-1 on July 21, 2009. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 2(a). None.
Item 2(b). Not applicable.
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Item 2(c). From the Date of Inception through September 30, 2009, 76 Baskets were created and no Baskets redeemed as follows: |
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Period |
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Total Baskets Created |
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Total Authorized Shares |
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7/20/09 to 7/30/09 |
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55 |
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5,500,000 |
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8/1/09 to 8/31/09 |
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14 |
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1,400,000 |
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9/1/09 to 9/30/09 |
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7 |
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700,000 |
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Total |
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76 |
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7,600,000 |
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
None.
13
(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. |
14
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 Silver Trust |
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(Registrant) |
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Date: November 13, 2009 |
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/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 13, 2009 |
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/s/ Greg Burgess |
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Greg Burgess |
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Chief Financial Officer and Treasurer |
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(Principal Financial Officer and Principal |
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Accounting Officer) |
* 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.
15
Exhibit Index
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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. |