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PALL > SEC Filings for PALL > Form 10-Q on 8-May-2013All Recent SEC Filings

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Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This information should be read in conjunction with the unaudited condensed financial statements and notes to the unaudited condensed 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.


The Trust is a common law trust, formed under the laws of the state of New York on December 30, 2009. 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 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.

The Trust holds palladium and is expected to issue Baskets in exchange for deposits of palladium, and to distribute palladium 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 palladium, 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 palladium.

The Trust issues and redeems Shares only with Authorized Participants in exchange for palladium, 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 "PALL".

Valuation of Palladium and Computation of Net Asset Value

As of the London PM 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 on such day, (the "Evaluation Time") the Trustee values the palladium 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 palladium on the basis of that day's London PM Fix, or, if no London PM Fix is made on such day or has not been announced by the Evaluation Time, the next most recent London palladium price (AM or PM) 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.

Once the value of the palladium 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 palladium 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 March 31, 2013

The NAV of the Trust is obtained by subtracting the Trust's liabilities on any day from the value of the palladium 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 $497,765,121 at December 31, 2012 to $589,047,279 at March 31, 2013, an 18.34% increase for the quarter. The increase in the Trust's NAV resulted primarily from an increase in the price per ounce of palladium, which rose 10.16% from $699.00 at December 31, 2012 to $770.00 at March 31, 2013, and an increase in outstanding Shares from 7,250,000 Shares at December 31, 2012 to 7,800,000 Shares at March 31, 2013, a result of 650,000 Shares (13 Baskets) being created and 100,000 Shares (2 Baskets) being redeemed during the quarter.

NAV per Share increased 9.99% from $68.66 at December 31, 2012 to $75.52 at March 31, 2013. The Trust's NAV per Share rose slightly less than the price per ounce of palladium on a percentage basis due to Sponsor's Fees, which were $821,098 for the quarter, or 0.60% of the Trust's assets on an annualized basis.

The NAV per Share of $75.94 at March 11, 2013 was the highest during the quarter, compared with a low of $66.09 at January 8, 2013.

Net loss from operations for the quarter ended March 31, 2013 was $92,456, resulting from a net gain of $96,497 on the transfer of palladium to pay expenses and a net gain of $632,145 on palladium distributed for the redemption of Shares, offset by Sponsor's Fees of $821,098. Other than the Sponsor's Fee, the Trust had no expenses during the quarter ended March 31, 2013.


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 palladium as necessary to pay the Trust's expenses not otherwise assumed by the Sponsor. The Trustee will not sell palladium to pay the Sponsor's Fee but will pay the Sponsor's Fee through in-kind transfers of palladium to the Sponsor. At March 31, 2013 the Trust did not have any cash balances.

Off-Balance Sheet Arrangements

The Trust has no off-balance sheet arrangements.

Critical Accounting Policies

The unaudited condensed financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited condensed 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 unaudited condensed financial statements for further discussion of accounting policies.

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