iShares Silver Trust - Quarter Report: 2018 March (Form 10-Q)

 

Table of Contents

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

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
	For the quarterly period ended March 31, 2018

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ________ to ________

 

Commission File Number: 001-32863

 

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iShares® Silver Trust

(Exact name of registrant as specified in its charter)

 

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New York		13-7474456
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

c/o iShares Delaware Trust Sponsor LLC

400 Howard Street

San Francisco, California 94105

Attn: Product Management Team

iShares Product Research & Development

(Address of principal executive offices)(Zip Code)

 

(415) 670-2000

(Registrant’s telephone number, including area code)

 

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N/A

(Former name, former address and former fiscal year, if changed since last report) 

 

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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 ☒ No ☐

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐	Emerging growth company ☐
(Do not check if a smaller reporting company)

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

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		March 31,				December 31,
		2018				2017
Assets
Investment in silver bullion, at fair value(a)		$	5,193,516,929			$	5,407,419,250
Total Assets			5,193,516,929				5,407,419,250
Liabilities
Sponsor’s fees payable			2,226,359				2,225,399
Total Liabilities			2,226,359				2,225,399
Commitments and contingent liabilities (Note 6)			—				—
Net Assets		$	5,191,290,570			$	5,405,193,851
Shares issued and outstanding(b)			338,450,000				339,750,000
Net asset value per Share (Note 2C)		$	15.34			$	15.91

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		Three Months Ended March 31,
		2018				2017
Expenses
Sponsor’s fees		$	6,543,868			$	7,165,596
Total expenses			6,543,868				7,165,596
Net investment loss			(6,543,868	)			(7,165,596	)
Net Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Silver bullion sold to pay expenses			(506,462	)			(510,077	)
Silver bullion distributed for the redemption of Shares			(13,779,803	)			(15,533,659	)
Net realized loss			(14,286,265	)			(16,043,736	)
Net change in unrealized appreciation/depreciation			(168,596,426	)			630,795,770
Net realized and unrealized gain (loss)			(182,882,691	)			614,752,034
Net increase (decrease) in net assets resulting from operations		$	(189,426,559	)		$	607,586,438
Net increase (decrease) in net assets per Share		$	(0.56	)		$	1.72

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		Three Months Ended				Year Ended
		March 31, 2018				December 31, 2017
Net Assets, Beginning of Period		$	5,405,193,851			$	5,541,130,643
Operations:
Net investment loss			(6,543,868	)			(28,299,587	)
Net realized loss			(14,286,265	)			(92,120,817	)
Net change in unrealized appreciation/depreciation			(168,596,426	)			337,891,452
Net increase (decrease) in net assets resulting from operations			(189,426,559	)			217,471,048
Capital Share Transactions:
Contributions for Shares issued			182,901,133				873,170,446
Distributions for Shares redeemed			(207,377,855	)			(1,226,578,286	)
Net decrease in net assets from capital share transactions			(24,476,722	)			(353,407,840	)
Decrease in net assets			(213,903,281	)			(135,936,792	)
Net Assets, End of Period		$	5,191,290,570			$	5,405,193,851
Shares issued and redeemed
Shares issued			11,600,000				55,800,000
Shares redeemed			(12,900,000	)			(75,950,000	)
Net decrease in Shares issued and outstanding			(1,300,000	)			(20,150,000	)

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		Three Months Ended March 31,
		2018				2017
Cash Flows from Operating Activities
Proceeds from silver bullion sold to pay expenses		$	6,542,908			$	7,056,499
Expenses – Sponsor’s fees paid			(6,542,908	)			(7,056,499	)
Net cash provided by operating activities			—				—
Increase (decrease) in cash			—				—
Cash, beginning of period			—				—
Cash, end of period		$	—			$	—
Reconciliation of Net Increase (Decrease) in Net Assets Resulting from Operations to Net Cash Provided by (Used in) Operating Activities
Net increase (decrease) in net assets resulting from operations		$	(189,426,559	)		$	607,586,438
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Proceeds from silver bullion sold to pay expenses			6,542,908				7,056,499
Net realized (gain) loss			14,286,265				16,043,736
Net change in unrealized appreciation/depreciation			168,596,426				(630,795,770	)
Change in operating assets and liabilities:
Sponsor’s fees payable			960				109,097
Net cash provided by (used in) operating activities		$	—			$	—
Supplemental disclosure of non-cash information:
Silver bullion contributed for Shares issued		$	182,901,133			$	84,171,380
Silver bullion distributed for Shares redeemed		$	(207,377,855	)		$	(269,671,252	)

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iShares Silver Trust

Schedules of Investments (Unaudited)

At March 31, 2018 and December 31, 2017

 

 

 

 

See notes to financial statements.

 

 

iShares Silver Trust

Notes to Financial Statements (Unaudited)

March 31, 2018

 

 

1 - Organization

 

The iShares Silver Trust (the “Trust”) was organized on April 21, 2006 as a New York trust. The trustee is The Bank of New York Mellon (the “Trustee”), which is responsible for the day-to-day administration of the Trust. The Trust’s sponsor is iShares Delaware Trust Sponsor LLC, a Delaware limited liability company (the “Sponsor”). The Trust is governed by the provisions of the Second Amended and Restated Depositary Trust Agreement (the “Trust Agreement”) executed by the Trustee and the Sponsor as of December 22, 2016. The Trust issues units of beneficial interest (“Shares”) representing fractional undivided beneficial interests in its net assets.

 

The Trust seeks to reflect generally the performance of the price of silver. The Trust seeks to reflect such performance before payment of the Trust’s expenses and liabilities. The Trust is designed to provide a vehicle for investors to make an investment similar to an investment in silver.

 

The accompanying unaudited financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all material adjustments, consisting only of normal recurring adjustments considered necessary for a fair statement of the interim period financial statements, have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Trust’s financial statements included in its Annual Report on Form 10‑K for the year ended December 31, 2017, as filed with the SEC on February 28, 2018.

 

The Trust qualifies as an investment company solely for accounting purposes and not for any other purpose and follows the accounting and reporting guidance under the Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services - Investment Companies, but is not registered, and is not required to be registered, as an investment company under the Investment Company Act of 1940, as amended.

 

 

2 - Significant Accounting Policies

 

A.	Basis of Accounting

 

The following significant accounting policies are consistently followed by the Trust in the preparation of its financial statements in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

B.	Silver Bullion

 

JPMorgan Chase Bank N.A., London branch (the “Custodian”), is responsible for the safekeeping of silver bullion owned by the Trust.

 

Fair value of the silver bullion held by the Trust is based on the price per ounce of silver determined in an electronic auction hosted by ICE Benchmark Administration (“IBA”) that begins at 12:00 p.m. (London time) and published shortly thereafter, on each day that the London silver market is open for business (such price, the “LBMA Silver Price”). If there is no announced LBMA Silver Price on any day, the Trustee is authorized to use the most recently announced LBMA Silver Price unless the Trustee, in consultation with the Sponsor, determines that such price is inappropriate as a basis for evaluation. Prior to October 2, 2017, the LBMA Silver Price was determined using an electronic auction administered by CME Group Inc. (“CME Group”) and published by Thomson Reuters. Effective as of October 2, 2017, IBA replaced CME Group and Thomson Reuters as the administrator for the LBMA Silver Price and began administering the electronic auction for the LBMA Silver Price.

 

Gain or loss on sales of silver bullion is calculated on a trade date basis using the average cost method.

 

 

The following tables summarize activity in silver bullion for the three months ended March 31, 2018 and 2017:

 

 

 

C.	Calculation of Net Asset Value

 

On each business day, as soon as practicable after 4:00 p.m. (New York time), the net asset value of the Trust is obtained by subtracting all accrued fees, expenses and other liabilities of the Trust from the fair value of the silver and other assets held by the Trust. The Trustee computes the net asset value per Share by dividing the net asset value of the Trust by the number of Shares outstanding on the date the computation is made.

 

D.	Offering of the Shares

 

Trust Shares are issued and redeemed continuously in aggregations of 50,000 Shares in exchange for silver bullion rather than cash. Individual investors cannot purchase or redeem Shares in direct transactions with the Trust. The Trust only transacts with registered broker-dealers that are eligible to settle securities transactions through the book-entry facilities of the Depository Trust Company and that have entered into a contractual arrangement with the Trustee and the Sponsor governing, among other matters, the creation and redemption of Shares (such broker-dealers, the “Authorized Participants”). Holders of Shares of the Trust may redeem their Shares at any time acting through an Authorized Participant and in the prescribed aggregations of 50,000 Shares; provided, that redemptions of Shares may be suspended during any period while regular trading on NYSE Arca, Inc. (“NYSE Arca”) is suspended or restricted, or in which an emergency exists as a result of which delivery, disposal or evaluation of silver is not reasonably practicable.

 

The per Share amount of silver exchanged for a purchase or redemption represents the per Share amount of silver held by the Trust, after giving effect to its liabilities.

 

When silver bullion is exchanged in settlement of a redemption, it is considered a sale of silver bullion for accounting purposes.

 

 

E.	Federal Income Taxes

 

The Trust is treated as a grantor trust for federal income tax purposes and, therefore, no provision for federal income taxes is required. Any interest, expenses, gains and losses are passed through to the holders of Shares of the Trust.

 

The Sponsor has reviewed the tax positions as of March 31, 2018 and has determined that no provision for income tax is required in the Trust’s financial statements.

 

 

3 - Trust Expenses

 

The Trust pays to the Sponsor a Sponsor’s fee that accrues daily at an annualized rate equal to 0.50% of the net asset value of the Trust, paid monthly in arrears. The Sponsor has agreed to assume the following administrative and marketing expenses incurred by the Trust: the Trustee’s fee, the Custodian’s fee, NYSE Arca listing fees, SEC registration fees, printing and mailing costs, audit fees and expenses, and up to $100,000 per annum in legal fees and expenses.

 

 

4 - 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.

 

 

5 - Indemnification

 

The Trust Agreement provides that the Sponsor and its shareholders, directors, officers, employees, affiliates and subsidiaries shall be indemnified by the Trust for any loss, liability or expense incurred by any such person that arises out of or in connection with the performance of obligations under the Trust Agreement or any actions taken in accordance with the provisions of the Trust Agreement, absent such person’s negligence, bad faith, willful misconduct, willful malfeasance or reckless disregard of such person’s duties and obligations.

 

The Trust has agreed that the Custodian will only be responsible for any loss or damage suffered by the Trust as a direct result of the Custodian’s negligence, fraud or willful default in the performance of its duties.

 

 

6 - Commitments and Contingent Liabilities

 

In the normal course of business, the Trust may enter into contracts with service providers that contain general indemnification clauses. 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.

 

 

7 - Concentration Risk

 

Substantially all of the Trust’s assets are holdings of silver bullion, which creates a concentration risk associated with fluctuations in the price of silver. Accordingly, a decline in the price of silver will have an adverse effect on the value of the Shares of the Trust. Factors that may have the effect of causing a decline in the price of silver include a change in economic conditions (such as a recession), an increase in the hedging activities of silver producers, and changes in the attitude of speculators, investors and other market participants towards silver.

 

 

 

8 - Financial Highlights

 

The following financial highlights relate to investment performance and operations for a Share outstanding for the three months ended March 31, 2018 and 2017.

 

  

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(a)	Based on average Shares outstanding during the period.
(b)	The amounts reported for a Share outstanding may not accord with the change in aggregate gains and losses on investment for the period due to the timing of Trust Share transactions in relation to the fluctuating fair values of the Trust’s underlying investment.
(c)	Based on the change in net asset value of a Share during the period.
(d)	Percentage is not annualized.
(e)	Percentage is annualized.

 

 

9 - Investment Valuation

 

U.S. GAAP defines fair value as the price the Trust would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Trust’s policy is to value its investment at fair value.

 

Various inputs are used in determining the fair value of assets and liabilities. Inputs may be based on independent market data (“observable inputs”) or they may be internally developed (“unobservable inputs”). These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting purposes. The level of a value determined for an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are as follows:

 

Level 1 –

Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2 –

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and

 

Level 3 –

Unobservable inputs that are unobservable for the asset or liability, including the Trust’s assumptions used in determining the fair value of investments.

 

At March 31, 2018 and December 31, 2017, the value of the silver bullion held by the Trust is categorized as Level 1.

 

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