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GLTR > SEC Filings for GLTR > Form 10-K on 28-Feb-2014All Recent SEC Filings

Show all filings for ETFS PRECIOUS METALS BASKET TRUST

Form 10-K for ETFS PRECIOUS METALS BASKET TRUST


28-Feb-2014

Annual Report


Item 7. 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 with this report. The discussion and analysis that follows may contain statements that relate to future events or future performance. In some cases, such forward-looking statements can be identified by terminology such as "may," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other comparable terminology. Neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of forward-looking statements. 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 a change in the Sponsor's expectations or predictions.

Introduction.

The ETFS Precious Metals Basket Trust (the "Trust") is a trust formed under the laws of the State of New York. The Trust does not have any officers, directors, or employees, and is administered by The Bank of New York Mellon (the "Trustee") acting as trustee pursuant to the Depositary Trust Agreement (the "Trust Agreement") between the Trustee and ETF Securities USA LLC, the sponsor of the Trust (the "Sponsor"). The Trust issues shares ("Shares") representing fractional undivided beneficial interests in its net assets. The assets of the Trust consist of gold, silver, platinum and palladium bullion ("Bullion") held by a custodian as an agent of the Trust and responsible only to the Trustee.

The Trust is a passive investment vehicle and the objective of the Trust is merely for the value of each Share to approximately reflect, at any given time, the price of the Bullion owned by the Trust, less the Trust's liabilities (anticipated to be principally for accrued operating expenses), divided by the number of outstanding Shares. The Trust does not engage in any activities designed to obtain a profit from, or ameliorate losses caused by, changes in the price of Bullion.

The Trust issues and redeems Shares only in exchange for Bullion, only in aggregations of 50,000 or integral multiples thereof (each, a "Basket"), and only in transactions with registered broker-dealers that have previously entered into an agreement with the Trust governing the terms and conditions of such issuance (such dealers, the "Authorized Participants"). As of the date of this annual report the Authorized Participants that have signed an Authorized Participant Agreement with the Trust are Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., EWT, LLC, Goldman Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA, LLC, Scotia Capital (USA) Inc., UBS Securities LLC and Virtu Financial BD, LLC.

Shares of the Trust trade on the NYSE Arca under the symbol "GLTR."

Investing in the Shares does not insulate the investor from certain risks, including price volatility. The following table illustrates the movement in the price of the Shares and NAV of the Shares against the price per ounce of gold, silver, platinum and palladium in the proportions held by the Trust (the "Proportionate Price") since inception.

NAV per Share vs. Proportionate Price from the Date of Inception to December 31, 2013

[[Image Removed: Picture 2]]

The divergence of the NAV per Share from the Proportionate Price over time reflects the cumulative effect of the Trust expenses that arise if an investment had been held since inception.


Critical Accounting Policy

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 assumption that impact the Trust's financial position and results of operations. These estimates and assumptions affect the Trust's application of accounting policies. Below we describe the valuation of Bullion, a critical accounting policy that we believe is important to the understanding of our results of operations and financial position. In addition, please refer to Note 2 to the Financial Statements for further discussion of our accounting policies.

Valuation of Bullion

Bullion is valued, 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 NAV of the Trust. Realized gains and losses on transfers of Bullion to pay the Sponsor's Fee, 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 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.

The table below summarizes the unrealized gains or realized losses on the Trust's Bullion holdings as of December 31, 2013 and 2012:

                                               December 31, 2013      December 31, 2012
(Amounts in 000's of US$)
Investment in Bullion - average cost          $          308,780     $          187,427
Realized loss on investment in Bullion                   (48,858)                     -
Investment in Bullion - lower of cost or
market value                                             259,922                187,427
Unrealized gain on investment in Bullion                     554                 16,919
Investment in Bullion - market value          $          260,476     $          204,346

Inspection of Bullion

Under the Custody Agreements, the Trustee, the Sponsor and the Sponsor's auditors and inspectors may, only up to twice a year, visit the premises of the Custodian and the Zurich Sub-Custodians for the purpose of examining the Trust's Bullion and certain related records maintained by the Custodian. Visits by auditors and inspectors to the Zurich Sub-Custodians' facilities will be arranged through the Custodian. Other than with respect to the Zurich Sub-Custodians, the Trustee has no right to visit the premises of any sub-custodian for the purposes of examining the Trust's Bullion or any records maintained by the sub-custodian, and no sub-custodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such sub-custodian.

The Sponsor has exercised its right to visit the Custodian, in order to examine the Bullion and the records maintained by the Custodian. The inspection held as of December 31, 2013 by Inspectorate International Limited, a leading commodity inspection and testing company, confirmed that the Custodian's records of Bullion held in the vault were accurate. The Sponsor has not exercised its right to visit the premises of the Zurich Sub-Custodian for the purpose of examining the Trust's gold and related records.

Liquidity

The Trust is not aware of any trends, demands, conditions, 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 expense of the Trust during the period covered by this report was the Sponsor's Fee. The Trust's only source of liquidity is its transfers and sales of Bullion.

The Trustee will, at the direction of the Sponsor or in its own discretion, sell the Trust's Bullion (only in the specified proportion of gold, silver, platinum and palladium held by the Trust) 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 December 31, 2013 and 2012, the Trust did not have any cash balances.


Review of Financial Results

Financial Highlights





                                             December 31, 2013     December 31, 2012     December 31, 2011
(Amounts in 000's of US$)
Total (loss) / gain on Bullion              $          (52,947)    $           1,649     $          (1,504)
Net (loss) / gain from operations           $          (54,148)    $             481     $          (2,907)
Net cash provided by operating activities   $                -     $               -     $               -

The year ended December 31, 2013

The net asset value ("NAV") of the Trust is obtained by subtracting the Trust's expenses and liabilities on any day from the value of the Bullion owned by the Trust on that day; the NAV per Share is obtained by dividing NAV of the Trust on a given day by the number of Shares outstanding on that day.

The Trust's NAV increased from $202,243,499 at December 31, 2012 to $260,358,530 at December 31, 2013, a 28.74% increase for the year. The increase in the Trust's NAV resulted primarily from an increase in outstanding Shares, which rose from 2,200,000 Shares at December 31, 2012 to 3,950,000 Shares at December 31, 2013, a result of 2,050,000 Shares (41 Baskets) being created and 300,000 Shares (6 Baskets) being redeemed during the year.

There was a decrease in the prices per ounce of gold, silver, platinum and palladium in the proportions held by the Trust (the "Proportionate Price") which fell 27.87% from December 31, 2012 to December 31, 2013.

NAV per Share decreased 28.30% from $91.93 at December 31, 2012 to $65.91 at December 31, 2013. The Trust's NAV per Share fell slightly more than the Proportionate Price on a percentage basis due to Sponsor's Fee, which were $1,201,105 for the year, or 0.60% of the Trust's assets on an annualized basis.

The NAV per Share of $95.99 at January 23, 2013 was the highest during the year, compared with a low of $64.58 at June 28, 2013.

Net loss from operations for the year ended December 31, 2013 was $54,147,827, resulting from a net loss of $78,639 on the transfer of Bullion to pay expenses and a net loss of $4,010,203 on Bullion distributed for the redemption of Shares, a realized loss on Bullion of $48,857,880 and Sponsor's Fee of $1,201,105. Other than the Sponsor's Fee, the Trust had no expenses during the year ended December 31, 2013.

The year ended December 31, 2012

The Trust's NAV increased from $182,586,013 at December 31, 2011 to $202,243,499 at December 31, 2012, a 10.77% increase for the year. The increase in the Trust's NAV resulted primarily from an increase in the Proportionate Price which rose 6.37% from December 31, 2011 to December 31, 2012 and an increase in outstanding Shares, which rose from 2,100,000 Shares at December 31, 2011 to 2,200,000 Shares at December 31, 2012, a result of 250,000 Shares (5 Baskets) being created and 150,000 Shares (3 Baskets) being redeemed during the year.

NAV per Share increased 5.73% from $86.95 at December 31, 2011 to $91.93 at December 31, 2012. The Trust's NAV per Share rose slightly less than the Proportionate Price on a percentage basis due to Sponsor's Fee, which were $1,168,126 for the year, or 0.60% of the Trust's assets on an annualized basis.

The NAV per Share of $104.43 at February 29, 2012 was the highest during the year, compared with a low of $84.23 at July 12, 2012.

Net gain from operations for the year ended December 31, 2012 was $480,805, resulting from a net gain of $119,131 on the transfer of Bullion to pay expenses and a net gain of $1,529,799 on Bullion distributed for the redemption of Shares, offset by Sponsor's Fee of $1,168,126. Other than the Sponsor's Fee, the Trust had no expenses during the year ended December 31, 2012.


Review of Financial Results (continued)

The year ended December 31, 2011

The Trust's NAV increased from $166,379,066 at December 31, 2010 to $182,586,013 at December 31, 2011, a 9.74% increase for the year. The increase in the Trust's NAV resulted primarily from an increase in outstanding Shares, which rose from 1,900,000 Shares at December 31, 2010 to 2,100,000 Shares at December 31, 2011, a result of 1,450,000 Shares (29 Baskets) being created and 1,250,000 Shares (25 Baskets) being redeemed during the year.

The Proportionate Price decreased 0.11% from December 31, 2010 to December 31, 2011.

NAV per Share decreased 0.71% from $87.57 at December 31, 2010 to $86.95 at December 31, 2011. The Trust's NAV per Share fell slightly more than the Proportionate Price on a percentage basis due to Sponsor's Fee, which were $1,402,637 for the year, 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 year, compared with a low of $80.76 at January 28, 2011.

Net loss from operations for the year ended December 31, 2011 was $2,907,486, resulting from a net gain of $159,838 on the transfer of Bullion to pay expenses and a net gain of $11,787,629 on Bullion distributed for the redemption of Shares, offset by a realized loss on Bullion of $13,452,316 and Sponsor's Fee of $1,402,637. Other than the Sponsor's Fee, the Trust had no expenses during the year ended December 31, 2011.

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