Sprott commenced trading on their new Sprott Physical Silver Trust ETV (NYSE:PSLV) this morning. As of mid morning this ETF has traded around 4.5 million shares. The Trust was established on June 30, 2010 under the laws of the Province of Ontario, Canada pursuant to a trust agreement dated as of June 30, 2010, as amended and restated as of October 1, 2010. The Trust was created to invest and hold substantially all of its assets in physical silver bullion. The Trust seeks to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding physical silver bullion without the inconvenience that is typical of a direct investment in physical silver bullion. The Trust intends to invest primarily in long-term holdings of unencumbered, fully allocated, physical silver bullion and will not speculate with regard to short-term changes in silver prices. The Trust does not anticipate making regular cash distributions to unitholders. See “Business of the Trust.” Sprott Asset Management LP is the sponsor and promoter of the Trust and serves as manager of the Trust pursuant to a management agreement with the Trust. The material terms of the trust agreement and the management agreement are discussed in greater detail under the section “Description of the Trust Agreement” and “Certain Transactions,” respectively. Each outstanding unit represents an equal, fractional, undivided ownership interest in the net assets of the Trust attributable to the particular class of units. Expected advantages of investing in the units include:
Convenient Way to Own Physical Silver Bullion. The Trust intends to file an application to list its units on the NYSE Arca and the TSX. The Trust will provide institutional and retail investors with indirect access to the physical silver bullion market while providing them with the liquidity of an exchange traded security. The units may be bought and sold on the NYSE Arca and the TSX like any other exchange-listed securities.
Investment in Physical Silver Bullion Only. Except with respect to cash held by the Trust to pay expenses and anticipated redemptions, the Trust expects to own only London Good Delivery physical silver bullion. The Manager intends to invest and hold approximately 97% of the total net assets of the Trust in physical silver bullion in London Good Delivery bar form. The Trust will not invest in silver certificates or other financial instruments that represent silver or that may be exchanged for silver.
Lower Transaction Costs. The Manager expects that, for many investors, costs associated with buying and selling the units in the secondary market and the payment of the Trust’s ongoing expenses will be lower than the costs associated with buying and selling physical silver bullion and storing and insuring physical silver bullion in a traditional allocated silver bullion account.
Ability to Redeem Units for Physical Silver Bullion. Unitholders will have the ability, on a monthly basis and as described herein, to redeem their units for physical silver bullion for a redemption price equal to 100% of the NAV of the redeemed units, less redemption and delivery expenses, including the handling of the notice of redemption, the delivery of the physical silver bullion for units that are being redeemed and the applicable silver storage in-and-out fees, and subject to certain minimum redemption amounts. Redemption requests for silver must be for amounts that are at least equivalent in value to ten London Good Delivery bars or an integral multiple of one bar in excess thereof, plus applicable expenses. A “London Good Delivery bar” contains between 750 and 1,100 troy ounces of silver with a minimum fineness of 999.0 parts per thousand silver. Assuming a price of silver of $22.00 per troy ounce, bars of 1,000 troy ounces, in-and-out fees charged by the Mint at $5 per bar and estimated delivery expenses at $0.50 per troy ounce, a minimum redemption request would need to be in an amount of approximately $225,050. See “Redemption of Units.”
Storage at the Royal Canadian Mint. The Trust’s physical silver bullion will be fully allocated and stored at the Royal Canadian Mint, to which we will refer as the Mint (or, depending on the quantity of physical silver bullion that the Trust purchases, at a facility located in Canada leased by the Mint from a sub-custodian for this purpose). The Mint is a Canadian Crown corporation, which acts as an agent of the Canadian Government, and its obligations generally constitute unconditional obligations of the Canadian Government. The Mint will be responsible for and bear the risk of loss of, and damage to, the Trust’s physical silver bullion that is in the custody of the Mint (regardless of the location at which the Mint decides to store the physical silver bullion). The physical silver bullion will be subject to a physical count by a representative of the Manager periodically on a spot-inspection basis as well as subject to audit procedures by the Trust’s external auditors on at least an annual basis. See “Custody of the Trust’s Assets.” Under certain circumstances, the liability of the Mint may be limited. See “Risk Factors.”
Experienced Manager. The Trust will be administered by Sprott Asset Management LP. The Manager is a licensed portfolio manager that is wholly-owned by Sprott Inc., a public company whose shares are listed on the TSX. The Manager has considerable experience and a long track record of investing in precious metals on behalf of investors. See “Organization and Management Details of the Trust—The Manager.”
Potential Tax Advantage For Certain U.S. Investors. Any gains realized on the sale of units by an investor that is an individual, trust or estate, including such investors that own units through partnerships and other pass-through entities for U.S. federal income tax purposes, may be taxable as long-term capital gains (at a maximum rate of 15% under current law (scheduled to increase to 20% for taxable years beginning after December 31, 2010), compared to a long-term capital gains tax rate of 28% applicable to the disposition of physical silver bullion and other “collectibles” held for more than one year), provided that such U.S. investor has held the units for more than one year at the time of the sale and such U.S. investor has made a timely and valid Qualified Electing Fund, to which we will refer as QEF, election with respect to the units by filing IRS Form 8621 with his, her or its U.S. federal income tax return. The Trust intends to provide annually each U.S. holder of units with all necessary information in order to make and maintain a QEF election. See “Material Tax Considerations—Material U.S. Federal Income Tax Considerations—U.S. Federal Income Taxation of U.S. Holders” for further discussion of the U.S. federal taxation of U.S. investors in units.
Benefits of Investing in Silver. An investment in silver may provide several benefits to investors. Silver has strong supply and demand fundamentals with significant demand rooted in diverse sectors. While gold has performed slightly better than silver over the past ten years, silver has outperformed equity indices such as the S&P 500 Index and the S&P/TSX Composite Index during this time. In addition, silver has a negative or low correlation with many other asset classes, which the Manager believes makes it an effective portfolio diversifier. For additional historical information about the supply and demand for silver and the performance of silver as compared to other asset classes, please see “The Silver Industry.”
Related ETFs: iShares Silver Trust (NYSE:SLV), ETF Securities Silver Trust (NYSE:SIVR), PowerShares DB Silver Fund (NYSE:DBS), ProShares Ultra Silver (NYSE:AGQ), UltraShort Silver ETF (NYSE:ZSL), iPath Dow Jones-AIG Precious Metals Total Return Sub-Index ETN (NYSE:JJP), PowerShares DB Precious Metals Fund (NYSE:DBP).