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ISHARES SILVER TRUST - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 8, 2014

This information should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of Part I of this Form 10-Q. 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," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or the negative of these terms or other comparable terminology. Except as required by applicable disclosure laws, neither the Sponsor, nor any other person assumes responsibility for the accuracy or completeness of any 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 iShares® Silver Trust (the "Trust") is a grantor 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 First Amended and Restated Depositary Trust Agreement (the "Trust Agreement") between the Trustee and iShares® Delaware Trust Sponsor LLC, the sponsor of the Trust (the "Sponsor"). The Trust issues units of beneficial interest (or "Shares") representing fractional undivided beneficial interests in its net assets. The assets of the Trust consist primarily of silver bullion held by a custodian as an agent of the Trust responsible only to the Trustee.

The Trust is a passive investment vehicle and 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 does not engage in any activities designed to obtain a profit from, or ameliorate losses caused by, changes in the price of silver.

The Trust issues and redeems Shares only in exchange for silver, only in aggregations of 50,000 Shares 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 broker-dealers, the "Authorized Participants"). A list of current Authorized Participants is available from the Sponsor or the Trustee.

Shares of the Trust trade on NYSE Arca, Inc. under the symbol "SLV."

Valuation of Silver; Computation of Net Asset Value

On each business day, as soon as practicable after 4:00 p.m. (New York time), the Trustee evaluates the silver held by the Trust and determines the net asset value of the Trust and the net asset value per Share. The Trustee values the silver held by the Trust using the announced price for an ounce of silver set each working day by three market making members of The London Bullion Market Association ("London Fix"). Having valued the silver held by the Trust, the Trustee then subtracts all accrued fees, expenses and other liabilities of the Trust from the value of the silver and other assets of the Trust. The result is the net asset value of 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.

Liquidity



The Trust is not aware of any trends, demands, conditions or events that are reasonably likely to result in material changes to its liquidity needs. In exchange for a 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 Trust's only source of liquidity is its sales of silver.

Critical Accounting Policies



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 assumptions 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 silver bullion, a critical accounting policy that we believe is important to understanding our results of operations and financial position. In addition, please refer to Note 2 to the financial statements for further discussion of the Trust's accounting policies.

Valuation of Silver Bullion



Beginning January 1, 2014, the silver bullion held by the Trust is valued at fair value. Prior to January 1, 2014, silver bullion held by the Trust was recorded at the lower of cost or market. In applying the lower of cost or market valuation, if the fair value of the silver bullion held was lower than its average cost during the interim periods, an adjustment ("market value reserve") to cost was recorded by the Trust to reflect fair value. If the fair value of the silver bullion held increased subsequent to the market value reserve being recorded, a "market value recovery" was recorded during an interim period in the same fiscal year that the market value reserve had been recorded by the Trust. The market value recovery recorded at an interim period could not exceed the previously recognized market value reserve. At the end of the Trust's fiscal year, management made a determination as to whether the reserve was recovered or whether the cost basis of silver bullion was written down. The market value reserve, market value recovery and inventory write down each were reported as a component of "Adjustment to silver bullion inventory."

There are other indicators of the value of silver bullion that are available that could be different than that chosen by the Trust. The London Fix is used by the Trust because it is commonly used by the U.S. silver market as an indicator of the value of silver, and is permitted to be used under the Trust Agreement. The use of an indicator of the value of silver bullion other than the London Fix could result in materially different fair value pricing of the silver in the Trust.

The Sponsor expects to determine that (i) following the publicly announced discontinuation of the London Fix on August 14, 2014, the price of silver fixed by CME Group/Thomson Reuters as of any date (the "London Silver Price") will fairly represent the commercial value of the Trust's silver on such day and shall be used in the daily evaluation of the Trust's silver; and (ii) with effect on and after September 16, 2014, the "Benchmark Price" (as such term is used in the Trust Agreement), as of any day, will be such day's London Silver Price.

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Table Of Contents Results of Operations



The Quarter Ended June 30, 2014

The Trust's net asset value grew from $6,554,103,131 at March 31, 2014 to $6,735,679,192 at June 30, 2014, a 2.77% increase. The increase in the Trust's net asset value resulted primarily from an increase in the London Fix, which rose 4.51% from $19.97 at March 31, 2014 to $20.87 at June 30, 2014. The increase in the Trust's net asset value was partially offset by a decrease in outstanding Shares, which fell from 341,400,000 Shares at March 31, 2014 to 336,150,000 Shares at June 30, 2014, a consequence of 11,900,000 Shares (238 Baskets) being created and 17,150,000 Shares (343 Baskets) being redeemed during the quarter.

The 4.38% rise in the Trust's net asset value per Share from $19.20 at March 31, 2014 to $20.04 at June 30, 2014 is directly related to the 4.51% increase in the London Fix.

The Trust's net asset value per Share increased slightly less than the price of silver on a percentage basis due to the Sponsor's fees, which were $8,071,959 for the quarter, or 0.12% of the Trust's average weighted assets of $6,477,137,808 during the quarter. The net asset value per Share of $20.28 on June 24, 2014 was the highest during the quarter, compared with a low during the quarter of $18.02 on June 4, 2014. The net asset value of the Trust is obtained by subtracting the Trust's expenses and liabilities on any day from the value of the silver owned by the Trust on that day; the net asset value per Share is obtained by dividing the net asset value of the Trust on a given day by the number of Shares outstanding on that day.

Net income for the quarter ended June 30, 2014 was $288,934,689, resulting from a net investment loss of $8,071,959, a net realized loss of $146,883 from investment in silver bullion sold to pay expenses, a net realized gain of $5,553,626 on silver bullion distributed for the redemption of Shares and a net change in unrealized appreciation/depreciation on investment in silver bullion of $291,599,905. Other than the Sponsor's fees of $8,071,959, the Trust had no expenses during the quarter.

The Six Months Ended June 30, 2014

The Trust's net asset value grew from $6,240,747,397 at December 31, 2013 to $6,735,679,192 at June 30, 2014, a 7.93% increase. The increase in the Trust's net asset value resulted primarily from an increase in the London Fix, which rose 7.03% from $19.50 at December 31, 2013 to $20.87 at June 30, 2014. The Trust's net asset value also benefited from an increase in outstanding Shares, which rose from 332,500,000 Shares at December 31, 2013 to 336,150,000 Shares at June 30, 2014, a consequence of 31,300,000 Shares (626 Baskets) being created and 27,650,000 Shares (553 Baskets) being redeemed during the period.

The 6.77% rise in the Trust's net asset value per Share from $18.77 at December 31, 2013 to $20.04 at June 30, 2014 is directly related to the 7.03% increase in the London Fix.

The Trust's net asset value per Share increased slightly less than the price of silver on a percentage basis due to the Sponsor's fees, which were $16,244,209 for the period, or 0.25% of the Trust's average weighted assets of $6,554,259,686 during the period. The net asset value per Share of $21.21 on February 24, 2014 was the highest during the period, compared with a low during the period of $18.02 on June 4, 2014. The net asset value of the Trust is obtained by subtracting the Trust's expenses and liabilities on any day from the value of the silver owned by the Trust on that day; the net asset value per Share is obtained by dividing the net asset value of the Trust on a given day by the number of Shares outstanding on that day.

Net income for the six months ended June 30, 2014 was $426,829,736, resulting from a net investment loss of $16,244,209, a net realized gain of $108,129 from investment in silver bullion sold to pay expenses, a net realized gain of $15,303,724 on silver bullion distributed for the redemption of Shares and a net change in unrealized appreciation/depreciation on investment in silver bullion of $427,662,092. Other than the Sponsor's fees of $16,244,209, the Trust had no expenses during the period.


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Source: Edgar Glimpses


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