Item 1. Business
Item
1. Business
The
purpose of the Aberdeen Standard Silver ETF Trust (the “Trust”) is to own silver transferred to the Trust in
exchange for shares issued by the Trust (“Shares”). Each Share represents a fractional undivided beneficial interest
in and ownership of the Trust. The assets of the Trust consist solely of silver bullion. The Trust was formed on
July 20, 2009 when an initial deposit of silver was made in exchange for the issuance of two Baskets (a “Basket”
consists of 50,000 Shares).
The
sponsor of the Trust is Aberdeen Standard Investments ETFs Sponsor LLC (the “Sponsor”). The trustee of the Trust is
The Bank of New York Mellon (the “Trustee”). The number of shares that constitutes a Basket for the purpose of creations
and redemptions was reduced from 100,000 Shares to 50,000 Shares effective on August 11, 2016.
The
Trust’s Shares at redeemable value increased from $407,463,630 at December 31, 2019 to $863,664,235 at December 31, 2020,
the Trust’s fiscal year end. Outstanding Shares in the Trust increased from 23,300,000 Shares at December 31, 2019 to 33,750,000
Shares outstanding at December 31, 2020.
The
Trust is not managed like a corporation or an active investment vehicle. The Trust has no directors, officers or employees. It
does not engage in any activities designed to obtain a profit from or to improve the losses caused by changes in the price of silver.
The silver held by the Trust will only be delivered to pay the remuneration due to the Sponsor (the “Sponsor’s
Fee”), distributed to Authorized Participants (defined below) in connection with the redemption of Baskets or sold (1) on
an as-needed basis to pay Trust expenses not assumed by the Sponsor, (2) in the event the Trust terminates and liquidates its
assets, or (3) as otherwise required by law or regulation.
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. The Trust does not and will not hold or trade in commodities futures contracts, “commodity interests” or
any other instruments regulated by the Commodity Exchange Act (the “CEA”), as administered by the Commodity Futures
Trading Commission (the “CFTC”) and the National Futures Association (“NFA”). The Trust is not a commodity
pool for purposes of the CEA and the Shares are not “commodity interests,” and neither the Sponsor nor the Trustee
is subject to regulation as a commodity pool operator or a commodity trading advisor in connection with the Shares. The Trust
has no fixed termination date.
The
Sponsor of the registrant maintains an Internet website at www.aberdeenstandardetfs.us through which the registrant’s annual
reports on Form 10-K, quarterly reports on Form 10-Q, and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, are made available free of charge as soon as
reasonably practicable after they have been filed or furnished to the Securities and Exchange Commission (the “SEC”).
Additional information regarding the Trust may also be found on the SEC’s EDGAR database at www.sec.gov.
Trust
Objective
The
investment objective of the Trust is for the Shares to reflect the performance of the price of silver bullion, less the expenses
of the Trust’s operations. The Shares are intended to constitute a simple and cost-effective means of making an investment
similar to an investment in physical silver. An investment in physical silver requires expensive and sometimes complicated
arrangements in connection with the assay, transportation, warehousing and insurance of the metal. Traditionally, such expense
and complications have resulted in investments in physical silver being efficient only in amounts beyond the reach of many
investors.
The
Shares are intended to provide institutional and retail investors with a simple and cost-efficient means, with minimal credit
risk, of gaining investment benefits similar to those of holding silver bullion. The Shares offer an investment that:
3
● Is
Easily Accessible . The Shares trade on the NYSE Arca and provide institutional and retail investors with indirect access to
the silver bullion market. The Shares are bought and sold on the NYSE Arca like any other exchange-listed securities.
The close of the NYSE Arca trading session is 4:00 p.m. New York time.
● Is
Relatively Cost Effective . The Sponsor expects that, for many investors, costs associated with buying and selling the Shares
in the secondary market and the payment of the Trust’s ongoing expenses will be lower than the costs associated with buying
and selling silver bullion and storing and insuring silver bullion in a traditional allocated silver account.
● Has
Minimal Credit Risk . The Shares represent an interest in physical bullion owned by the Trust (other than an amount held
in unallocated form which is not sufficient to make up a whole bar of which is held temporarily to effect a creation or
redemption of Shares). Physical bullion of the Trust in the Custodian’s possession is not subject to borrowing
arrangements with third parties. Other than the silver temporarily being held in an unallocated silver account with
the Custodian, the physical bullion of the Trust is not subject to counterparty or credit risks. See “Risk
Factors—Silver held in the Trust’s unallocated silver account and any Authorized Participant’s
unallocated silver account is not segregated from the Custodian’s assets...” This contrasts with most
other financial products that gain exposure to bullion through the use of derivatives that are subject to counterparty and
credit risks.
Investing
in the Shares does not insulate the investor from certain risks, including price volatility. See “Risk Factors.”
Overview
of the Silver Industry
This
section provides a brief introduction to the silver industry by looking at some of the key participants, detailing the
primary sources of demand and supply and, outlining the role of the
“official” sector (i.e., central banks) in the market.
In
this annual report, the term “ounces” refers to troy ounces.
Market
Participants
The
participants in the world silver market may be classified in the following sectors: the mining and producer sector, the banking
sector, the official sector, the investment sector, and the manufacturing sector. A brief description of each follows.
Mining
and Producer Sector
This
group includes mining companies that specialize in silver and silver production, mining companies that produce silver as a by-product
of other production (such as a copper or gold producer), scrap merchants and recyclers.
Banking
Sector
Bullion
banks provide a variety of services to the silver market and its participants, thereby facilitating interactions between other
parties. Services provided by the bullion banking community include traditional banking products as well as mine financing, physical
silver purchases and sales, hedging and risk management, inventory management for industrial users and consumers and silver leasing.
The
Official Sector
There
are no official statistics published by the International Monetary Fund, Bank of International Settlements, or national banks
on silver holdings by national governments. The main reason for this is that silver is generally not recognized as a reserve asset.
Consequently, there are very limited silver stocks held by governments. According to The Silver Institute World Silver Survey
2020, at the end of 2019, government-held silver bullion stocks total 89.1 million ounces.
4
The
Investment Sector
This
sector includes the investment and trading activities of both professional and private investors and speculators. These participants
range from large hedge and mutual funds to day-traders on futures exchanges, and retail-level coin collectors.
The
Manufacturing Sector
The
fabrication and manufacturing sector represents all the commercial and industrial users of silver. Industrial applications comprise
the largest use of silver. The jewelry and silverware sector is the second largest, followed by the photographic industry (although
the latter has been declining over a number of years as a result of the spread of digital photography).
World
Silver Supply and Demand 2010-2019
The
following table sets forth a summary of the world silver supply and demand for the period from 2010 to 2019 and is based
on information reported by the World Silver Survey 2020, published by The Silver Institute.
(in
millions of ounces)
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Supply
Mine
Production
753
758.3
791.7
823.3
867.8
895.1
888.6
852.1
855.7
836.5
Net
Government Sales
44.2
12
7.4
7.9
—
—
—
—
—
—
Scrap
227.2
261.2
253.8
191
165.4
141.1
139.7
138.1
151.3
169.9
Net
Hedging Supply
50.4
12.2
-47.1
-34.8
16.8
7.8
-18.9
1.4
-2.8
15.7
Total
Supply
1,074.80
1,043.80
1,005.80
987.4
1,050.00
1,044.00
1,009.40
991.6
1,004.20
1,022.10
Demand
Jewelry
190
191.5
187.4
220.6
226.4
226.7
205
209.1
212.5
201.3
Coins
& Bars
150.3
212.7
159.7
241.1
234.1
292.1
207.8
151.1
181.2
186.1
Silverware
51.9
47.5
43.8
59.3
61.2
63.2
52.4
58.4
61.1
59.8
Industrial
Fabrication
633.8
661.5
600.1
604.6
596.3
583.2
576.8
599
578.6
510.9
Electrical
& Electronics
301.2
290.8
266.7
266
263.9
246
233.9
242.9
248.5
230
Brazing
Alloys & Solders
61.2
63.2
61.1
63.7
66.7
61.5
55.3
57.5
58
50
Photography
67.5
61.2
54.2
50.5
48.5
46.6
45.2
44
39.3
33.7
Photovoltaic
—
75.8
58.2
55.9
51.8
59.2
79.3
94.1
80.5
98.7
Ethylene
Oxide
8.7
6.2
4.7
7.7
5
10.2
10.2
6.9
5.4
4
Other
Industrial
195.2
164.2
155.1
160.8
160.6
159.8
152.9
153.7
146.9
94.5
ETP
Inventory Build
129.5
-24
55.3
2.5
1.4
-17.8
49.8
2.4
-20.3
81.7
Exchange
Inventory Build
-7.4
12.2
62.2
8.8
-5.3
12.6
79.8
6.8
71.2
10
Total
Demand
1,148.10
1,101.40
1,108.50
1,136.90
1,114.10
1,160.00
1,171.60
1,026.80
1,084.30
1,049.80
Net
Balance
-73.2
-57.5
-102.6
-149.5
-64
-116.1
-162.1
-35.2
-80.1
-27.8
Source:
The Silver Institute - World Silver Survey 2020
The
following are some of the main characteristics of the silver market illustrated by the table.
Like
gold, silver has also been used as a currency in the past. However, the main difference between gold and silver is that while
approximately half of gold demand is used for jewelry, approximately half of silver fabrication demand is used for industrial
applications.
New
mine production accounts for approximately 82% of total silver supply. Recycled silver accounts for around 17% of total supply.
The total of producer hedging, government sales and implied “net disinvestment” has been in decline but together account
for the balance of total supply.
Industrial
applications and jewelry demand accounted for over 68% of total demand in 2019. Photography has been taking a lower share of overall
silver demand falling from 6% in 2010 to 3% in 2019, while photovoltaic demand has risen in recent years accounting for 9%
in 2019. Investment in coins and bars has amounted to 18% of demand in 2019.
5
Historical
chart of the price of Silver
The
price of silver is volatile and fluctuations are expected to have a direct impact on the value of the Shares. However, movements
in the price of silver in the past are not a reliable indicator of future movements. Movements may be influenced by various factors,
including announcements from central banks regarding a country’s reserve silver holdings, agreements among central banks,
political uncertainties around the world, and economic concerns. The following chart illustrates the movements in the price of
an ounce of silver in dollars from December 31, 2010 to December 31, 2020 and is based on information provided by Bloomberg:
Starting in early 2011, when prices peaked at $48.44 per ounce, silver prices began a downward trend, albeit with multiple upwards rallies
(that have often lasted several months). The rise in the value of the U.S. Dollar, sluggish industrial growth and a tame inflation
environment (which led some investors to revise their expectations of the effects of monetary expansion) were some of the
drivers behind the fall in silver prices from 2011 to 2019. Silver reversed course in 2020, as prices rose 46.75%, closing at
$26.49 per ounce. The global pandemic caused
by COVID-19 contributed to the large returns, as increased stimulus and uncertainty, coupled with a low US dollar and interest
rates, increased the appeal of silver.
6
Operation
of the Silver Bullion Market
The
global trade in silver consists of Over-the-Counter (“OTC”) transactions in spot, forwards, and options and other
derivatives, together with exchange-traded futures and options.
Global
Over-The-Counter Market
The
OTC silver market includes spot, forward, and option and other derivative transactions conducted on a principal-to-principal basis.
While this is a global, nearly 24-hour per day market, its main centers are London (the biggest venue) and New York. Market makers,
as well as others in the OTC market, trade with each other and with their clients on a principal-to-principal basis. All risks
and issues of credit are between the parties directly involved in the transaction. Market makers include the market making members
of the London Bullion Market Association (“LBMA”), the trade association that acts as the coordinator for activities
conducted on behalf of its members and other participants in the London bullion market. The twelve market-making members of the
LBMA are: BNP Paribas SA, Citibank N.A. HSBC, Goldman Sachs International, ICBC Standard Bank Plc, JPMorgan Chase Bank, The Bank
of Nova Scotia, Merrill Lynch International, Morgan Stanley & Co. International Ltd, Standard Chartered Bank, Toronto-Dominion
Bank and UBS AG. The OTC market provides a relatively flexible market in terms of quotes, price, size, destinations for delivery
and other factors. Bullion dealers customize transactions to meet clients’ requirements. The OTC market has no formal structure
and no open outcry meeting place. Mining companies, central banks, manufacturers of jewelry and industrial products, together
with investors and speculators, tend to transact their business through one of these market centers. Centers such as Dubai and
several cities in the Far East also transact substantial OTC market business, typically involving jewelry and small bars of silver
(1 kilogram or less) and will hedge their exposure by selling into one of these main OTC centers. Bullion dealers have offices
around the world and most of the world’s major bullion dealers are either members or associate members of the LBMA. There
are a further 74 full members, plus a number of associate members around the world. The number of LBMA market-making, clearing
and full members reported in this annual report are as of the date of this annual report. These numbers may change from time to
time as new members are added and existing members drop out. In the OTC market for silver, the standard size of trades between
market makers is 100,000 ounces. Liquidity in the OTC market can vary from time to time during the course of the 24-hour trading
day. Fluctuations in liquidity are reflected in adjustments to dealing spreads—the differential between a dealer’s
“buy” and “sell” prices. The period of greatest liquidity in the bullion markets generally occurs at the
time of day when trading in the European time zones overlaps with trading in the United States, which is when OTC market trading
in London, New York, Zurich and other centers coincides with futures and options trading on the Commodity Exchange, Inc. (“COMEX”).
This period lasts for approximately four hours each New York business day morning.
The
London Silver Bullion Market
Although
the market for physical silver is distributed globally, most OTC market trades are cleared through London. In addition to coordinating
market activities, the LBMA acts as the principal point of contact between the market and its regulators. A primary function of
the LBMA is its involvement in the promotion of refining standards by maintenance of the “Good Delivery List,” which
is a list of LBMA accredited refiners of silver. The LBMA also coordinates market clearing and vaulting, promotes good trading
practices and develops standard documentation.
7
The
term “loco London” silver refers to silver physically held in London that meets the specifications for weight, dimensions,
fineness (or purity), identifying marks (including the assay stamp of a LBMA acceptable refiner) and appearance set forth in “The
Good Delivery Rules for Gold and Silver Bars” published by the LBMA. Silver bars meeting these requirements are described
in this prospectus from time to time as “Silver Good Delivery Bars.” The unit of trade in London is the troy ounce,
whose conversion between grams is: 1,000 grams equals 32.1507465 troy ounces and 1 troy ounce equals 31.1034768 grams. A Silver
Good Delivery Bar is acceptable for delivery in settlement of a transaction on the OTC market. A Silver Good Delivery Bar must
contain between 750 troy ounces and 1,100 troy ounces of silver with a minimum fineness (or purity) of 999.0 parts per 1,000.
A Silver Good Delivery Bar must also bear the stamp of one of the refiners who are on the LBMA-approved list. Unless otherwise
specified, the silver spot price always refers to that of a Silver Good Delivery Bar. Business is generally conducted over the
phone and through electronic dealing systems.
On
July 14, 2017, the LBMA announced that ICE Benchmark Administration (“IBA”) had been selected to be the third-party
administrator for the “LBMA Silver Price”. Effective from October 2, 2017, IBA is providing the auction platform and
methodology as well as the overall administration and governance for the LBMA Silver Price benchmark. IBA operates an “equilibrium
auction”, which is an electronic, tradable and auditable, over-the-counter auction for LBMA-authorized participating silver
bullion banks or market makers and sponsored clients of direct participants (“silver participants”) that establishes
a reference silver price for that day’s trading, often referred to as the “LBMA Silver Price”. The LBMA Silver
Price equilibrium auction operated by CME Group Inc. and Refinitiv prior to October 2, 2017 was selected by the LBMA as
the silver valuation replacement for the London silver fix previously determined by the London Silver Market Fixing Ltd. that
was discontinued on August 14, 2014. The LBMA Silver Price has become a widely used benchmark for daily silver prices and is quoted
by various financial information sources as the London silver fix was previously.
The
LBMA Silver Price is the result of an “equilibrium auction” because it establishes a price for a troy ounce of Silver
Good Delivery Bars that clears the maximum amount of bids and offers for silver entered by order-submitting silver participants
each day. IBA uses ICE’s front-end system, WebICE, as the technology platform that allows direct participants, as well as
sponsored clients of direct participants, to manage their orders in the auction in real time via their own desktops. As the IBA
electronic silver auction market develops, IBA expects to admit additional silver participants to the order submission process.
The benchmark is published when the auction finishes, typically a few minutes after 12:00 noon (London time).
At
the opening of each auction, IBA in the role of auction chairman (“Chairman”) announces an opening price (in U.S.
Dollars), that takes into account current market conditions and begins auction rounds, with an expected duration of at least 30
seconds each. During each auction round, participants may enter the volume they wish to buy or sell at that price, and such orders
will be part of the price formation. Aggregate bid and offer volume is shown live on WebICE. At the end of each auction round,
the total net volume is calculated. If this “imbalance” is larger than the imbalance tolerance (normally 500,000 oz.)
then the Chairman sets a new price (based on the current market conditions, and the direction and magnitude of the imbalance in
the round) and begins a new auction round. If the imbalance is less than the tolerance, then the auction is complete with all
volume tradeable at that price. The price is then set in U.S. Dollars and also converted into other currencies, including Australian
Dollars, British Pounds, Canadian Dollars, Euros, Onshore and Offshore Yuan, Indian Rupees, Japanese Yen, Malaysian Ringgit, Russian
Rubles, Singapore Dollars, South African Rand, Swiss Francs, New Taiwan Dollars, Thai Baht and Turkish Lira. The auction is run
at 12:00 noon (London time).
During
the auction, the price at the start of each round, and the volumes at the end of each round are available through major market
data vendors. As soon as the auction finishes, the final prices and volumes are available through major market data vendors. IBA
also publishes transparency reports, detailing the prices, volumes and times for each round of the auction. These transparency
reports are available through major market data vendors and IBA when the auction finishes. The process can also be observed real-time
through a WebICE screen. The auction mechanism provides a complete audit trail.
There
are currently twelve direct participants who have been accredited to contribute to the LBMA Silver Price: Citibank N.A. London
Branch, Coin 'N Things Inc., Goldman Sachs International plc, HSBC Bank USA NA, INTL FC Stone, Jane Street Global Trading LLC,
JP Morgan Chase Bank N.A London Branch, Koch Supply and Trading LP, Marex Financial Limited, Morgan Stanley, Standard Chartered
Bank and The Toronto Dominion Bank.
8
Since
April 1, 2015, the LBMA Silver Price has been regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom
(“UK”). IBA is authorized as a regulated benchmark administrator by the FCA. Under the UK benchmark regulation, the
governance structure for a regulated benchmark must include an Oversight Committee, made up of market participants, industry bodies,
direct participant representatives, infrastructure providers and the administrator (i.e., IBA). Through the Oversight Committee
the LBMA continues to have significant involvement in the oversight of the auction process, including, among other matters, changes
to the methodology and accreditation of direct participants. The price discovery process for the LBMA Silver Price is subject
to surveillance by IBA. IBA has been formally assessed against the IOSCO Principles for Financial Benchmarks (the “IOSCO
Principles”). In order to meet the IOSCO Principles, the price discovery used for the LBMA Silver Price benchmark is auditable
and transparent.
The
LBMA Silver Price is viewed as a full and fair representation of all market interest at the conclusion of the auction. IBA’s
auction process is similar to CME Group’s auction process, which in turn was similar to the non-electronic process previously
used to establish the London silver fix where the London silver fix process adjusted the silver price up or down until all the
buy and sell orders are matched, at which time the price was declared fixed. Nevertheless, the LBMA Silver Price has several advantages
over the previous London silver fix. IBA’s auction process is fully transparent in real-time to direct participants and
sponsored clients and, at the close of each auction, to the general public. IBA’s auction process is also fully auditable
since an audit trail exists for every change made in the process. Moreover, the audit trail and active surveillance of the auction
process by IBA, as well as the FCA’s oversight of IBA, deters manipulative and abusive conduct in establishing each day’s
LBMA Silver Price.
Since
August 15, 2014, the Sponsor determined that the London silver fix, which ceased to be published as of that date, would be an
inappropriate basis for valuing silver bullion received upon purchase of the Trust’s Shares, delivered upon redemption of
the Trust’s Shares and otherwise held by the Trust on a daily basis, and that the LBMA Silver Price is an appropriate alternative
for determining the value of the Trust’s silver each trading day. The Sponsor also determined that the LBMA Silver Price
fairly represents the commercial value of silver bullion held by the Trust and that the “Benchmark Price” (as defined
in the Trust Agreement) as of any day is the LBMA Silver Price for such day.
Futures
Exchanges
The
most significant silver futures exchanges are the COMEX, a designated contract market within the CME Group, and the Tokyo Commodity Exchange ("TOCOM").
Futures exchanges seek to provide a neutral, regulated marketplace for the trading of derivatives contracts for commodities. Futures
contracts are defined by the exchange for each commodity. For each commodity traded, this contract specifies the precise quality
and quantity standards. The contract’s terms and conditions also define the location and timing of physical delivery.
An
exchange does not buy or sell those contracts, but seeks to offer a transparent forum where members, on their own behalf or on
the behalf of customers, can trade the contracts in a safe, efficient and orderly manner. During regular trading hours at the
COMEX, the commodity contracts are traded on CME Globex system, an electronic; a auction in which all bids, offers and trades
must be publicly announced to all members and, upon execution, centrally cleared. Electronic trading is offered by the exchange
almost 24 hours a day (except for a short break in the evening), six days a week.
In
addition to the public nature of the pricing, futures exchanges in the United States are regulated at two levels: internal and
external governmental supervision. The internal is performed through self-regulation and consists of regular monitoring of the
following: the central algorithmic matching process to ensure that it is conducted in conformance with all exchange rules; the
orderly trading and settlement of futures and options; the financial condition of all exchange member firms to ensure that they
continuously meet financial commitments; and the volume positions of commercial and non-commercial customers to ensure that physical
delivery and other commercial commitments can be met, and that pricing is not being improperly affected by the size of any particular
customer positions. External governmental oversight is performed by the CFTC, which reviews all the rules and regulations of United
States futures exchanges and clearing houses and monitors their enforcement.
9
Market
Regulation
The
global silver markets are overseen and regulated by both governmental and self-regulatory organizations. In addition, certain
trade associations have established rules and protocols for market practices and participants. In the United Kingdom, responsibility
for the regulation of the financial market participants, including the major participating members of the LBMA falls under
the authority of the Financial Conduct Authority (“FCA”) as provided by the Financial Services and Markets Act 2000
(“FSM Act”). Under this act, all UK-based banks, together with other investment firms, are subject to a range of requirements,
including fitness and properness, capital adequacy, liquidity, and systems and controls.
The
FCA is responsible for regulating investment products, including derivatives, and those who deal in investment products. Regulation
of spot, commercial forwards, and deposits of silver not covered by the FSM Act is provided for by The London Code of Conduct
for Non-Investment Products, which was established by market participants in conjunction with the Bank of England.
The
TOCOM has authority to perform financial and operational surveillance on its members’ trading activities, scrutinize positions
held by members and large-scale customers, and monitor the price movements of futures markets by comparing them with cash and
other derivative markets’ prices. To act as a Futures Commission Merchant Broker on the TOCOM, a broker must obtain a license
from Japan’s Ministry of Economy, Trade and Industry (“METI”), the regulatory authority that oversees the operations
of the TOCOM.
The
US Commodity Futures Trading Commission (“CFTC”) regulates trading in commodity contracts, such as futures, options
and swaps. In addition, under the Commodity Exchange Act of 1936 (“CEA”), the CFTC has jurisdiction to prosecute manipulation
and fraud in any commodity (including precious metals) traded in interstate commerce as spot as well as deliverable forwards.
The CFTC is the exclusive regulator of U.S. commodity exchanges and clearing houses.
Secondary
Market Trading
While
the Trust’s investment objective is for the Shares to reflect the performance of silver bullion, less the expenses
of the Trust, the Shares may trade in the secondary market on the NYSE Arca at prices that are lower or higher relative to their
net asset value (the value of the Trust’s assets less its liabilities (“NAV”)) per Share. The amount of the
discount or premium in the trading price relative to the NAV per Share may be influenced by non-concurrent trading hours between
the NYSE Arca, COMEX and the London silver markets. While the Shares trade on the NYSE Arca until 4:00 PM New York time, liquidity
in the global silver market is reduced after the close of the COMEX at 1:30 PM New York time. As a result, during this time,
trading spreads, and the resulting premium or discount, on the Shares may widen.
Valuation
of Silver and Computation of Net Asset Value
On
each day that the NYSE Arca is open for regular trading, as promptly as practicable after 4:00 p.m., New York time,
on such day (“Evaluation Time”), the Trustee evaluates the silver held by the Trust and determine both the ANAV and
the NAV of the Trust.
At
the Evaluation Time, the Trustee values the Trust’s silver on the basis of that day’s “LBMA Silver Price”
(the daily price of an ounce of silver determined by an electronic, over-the-counter auction that starts at 12:00 noon London,
England time in which LBMA-accredited bullion banks or market makers participate), or, if no LBMA Silver Price is made
on such day, the next most recent LBMA Silver Price determined prior to the Evaluation Time will be used, unless the Sponsor
determines that such price is inappropriate as a basis for evaluation. In the event the Sponsor determines that the LBMA Silver
Price or such other publicly available price as the Sponsor may deem fairly represents the commercial value of the Trust’s
silver is not an appropriate basis for evaluation of the Trust’s silver, it shall identify an alternative basis for such
evaluation to be employed by the Trustee. Neither the Trustee nor the Sponsor shall be liable to any person for the determination
that the LBMA Silver Price or such other publicly available price is not appropriate as a basis for evaluation of the Trust’s
silver or for any determination as to the alternative basis for such evaluation provided that such determination is made in good
faith. See “ Operation of the Silver Bullion Market–The London Silver Bullion Market ” for a description
of the LBMA Silver Price.
10
Once
the value of the silver has been determined, the Trustee subtracts all estimated accrued but unpaid fees (other than the
fees accruing for such day on which the valuation takes place which are computed by reference to the value of the Trust or
its assets), expenses and other liabilities of the Trust from the total value of the silver and any other assets of
the Trust. The resulting figure is the adjusted net asset value (“ANAV”) of the Trust. The ANAV of the Trust is used
to compute the Sponsor’s Fee.
All
fees accruing for the day on which the valuation takes place which are computed by reference to the value of the Trust or
its assets shall be calculated using the ANAV calculated for such day. The Trustee shall subtract from the ANAV the amount of
accrued fees so computed for such day and the resulting figure is the NAV of the Trust. The Trustee also determines the NAV
per Share by dividing the NAV of the Trust by the number of the Shares outstanding as of the close of trading on the NYSE Arca
(which includes the net number of any Shares created or redeemed on such evaluation day).
The
Trustee’s estimation of accrued but unpaid fees, expenses and liabilities are conclusive upon all persons interested
in the Trust and no revision or correction in any computation made under the Trust Agreement will be required by reason of any
difference in amounts estimated from those actually paid.
Trust
Expenses
The
Trust’s only ordinary recurring expense is the Sponsor’s Fee. In exchange for the Sponsor’s Fee, the Sponsor
has agreed to assume the following administrative and marketing expenses incurred by the Trust: the Trustee’s monthly fee
and out-of-pocket expenses, the Custodian’s fee and reimbursement of the Custodian’s expenses under the Custody Agreements,
Exchange listing fees, SEC registration fees, printing and mailing costs, audit fees and up to $100,000 per annum in legal expenses.
The
Sponsor’s Fee accrues daily at an annualized rate equal to 0.45% of the ANAV of the Trust and is payable monthly in arrears.
The Sponsor, from time to time, may temporarily waive all or a portion of the Sponsor’s Fee at its discretion for a stated
period of time. The Sponsor has decided to waive a portion of the Sponsor’s Fee to reduce the Sponsor’s Fee to 0.30%.
This fee waiver has been in existence since the Trust was formed. Presently, the Sponsor is continuing to waive a portion of its
fee and reduce the Sponsor’s fee to 0.30%. In the future, the Sponsor may continue its fee waiver, waive a larger or smaller
portion of its fee or not renew its fee waiver. If, at any point in the future, the Sponsor does not continue its partial fee
waiver, the full Sponsor’s Fee will accrue and be paid to the Sponsor for subsequent periods. The Sponsor is under no obligation
to continue to waive all or part of the Sponsor’s Fee on an ongoing basis.
The
Sponsor’s Fee is paid monthly by delivery of silver to an account maintained by the Custodian for the Sponsor on an unallocated
basis. The Trustee will, when directed by the Sponsor, and, in the absence of such direction, may, in its discretion, sell silver
in such quantity and at such times as may be necessary to permit payment in cash of Trust expenses not assumed by the Sponsor.
The Trustee is authorized to sell silver at such times and in the smallest amounts required to permit such payments as they become
due, it being the intention to avoid or minimize the Trust’s holdings of assets other than silver. Accordingly, the amount
of silver to be sold will vary from time to time depending on the level of the Trust’s expenses and the market price of
silver. The Custodian has agreed to purchase from the Trust, at the request of the Trustee, silver needed to cover Trust expenses
not assumed by the Sponsor at a price at least equal to the price used by the Trustee to determine the value of the silver held
by the Trust on the date of the sale.
The
Sponsor’s Fee, net of waiver, for the year ended December 31, 2020 was $1,787,310 (December 31, 2019: $1,087,303; December
31, 2018: $984,811).
Cash
held by the Trustee pending payment of the Trust’s expenses will not bear any interest.
11
Deposit
of Silver; Issuance of Shares
The
Trust creates and redeems Shares from time to time, but only in one or more Baskets of 50,000 Shares. Only
registered broker-dealers, or other securities market participants not required to register as broker-dealers such as banks or
other financial institutions, who (1) are participants in the DTC and (2) have entered into written agreements with the Sponsor
and the Trustee (each an “Authorized Participant”) can deposit silver and receive Baskets of Shares in exchange. The
creation and redemption of Baskets is only made in exchange for the delivery to the Trust or the distribution by the Trust of
the amount of silver represented by the Baskets being created or redeemed, the amount of which is based on the combined NAV
of the number of Shares included in the Baskets being created or redeemed determined on the day the order to create or redeem
Baskets is properly received.
All
silver bullion deposited with the Custodian must be of at least a minimum fineness (or purity) of 999.0 parts per 1,000 and otherwise
conform to the rules, regulations practices and customs of the LBMA, including the specifications for a London Good Delivery Bar.
Creation
and redemption orders are accepted on “business days” the NYSE Arca is open for regular trading. Settlements of such
orders requiring receipt or delivery, or confirmation of receipt or delivery, of silver in the United Kingdom, occurs
on “business days” when (1) banks in the United Kingdom, and (2) the London silver markets are regularly open for
business. If such banks or the London silver markets are not open for regular business for a full day, such a day will only be
a “business day” for settlement purposes if the settlement procedures can be completed by the end of such day.
On
any business day, an Authorized Participant may place an order with the Trustee to purchase one or more Baskets. Purchase orders
must be placed no later than 3:59:59 p.m. on each business day the NYSE Arca is open for regular trading. A purchase order so
received is effective on the date it is received in satisfactory form by the Trustee. By placing a purchase order, an Authorized
Participant agrees to deposit silver with the Trust, as described below. Prior to the delivery of Baskets for a purchase
order, the Authorized Participant must also have wired to the Trustee the non-refundable transaction fee due for the purchase
order (as explained under “Creation and Redemption Transaction Fee” below).
An
Authorized Participant who places a purchase order is responsible for crediting its Authorized Participant Unallocated Account,
with the required silver deposit amount by the second business day in London following the purchase order date. Upon receipt
of the silver deposit amount, the Custodian, after receiving appropriate instructions from the Authorized Participant and
the Trustee, will transfer on the second business day following the purchase order date the silver deposit amount from the
Authorized Participant Unallocated Account to the unallocated silver account of the Trust established with the Custodian
under the Unallocated Account Agreement between the Trustee and the Custodian (the “Trust Unallocated Account”) and
the Trustee will direct the Depository Trust Company (the “DTC”) to credit the number of Baskets ordered to the Authorized
Participant’s DTC account. Acting on standing instructions given by the Trustee, the Custodian will transfer the silver
deposit amount from the Trust Unallocated Account to the allocated silver account of the Trust established with the Custodian
under the Allocated Account Agreement between the Trustee and the Custodian (the “Trust Allocated Account”), by transferring
specific silver bars from its inventory to the Trust Allocated Account. The Trust’s Unallocated Account Agreement
and Allocated Account Agreement are referred to collectively as the “Custody Agreements.”
Withdrawal
of Silver; Redemption of Shares
The
procedures by which an Authorized Participant can redeem one or more Baskets mirror the procedures for the creation of Baskets.
On any business day, an Authorized Participant may place an order with the Trustee to redeem one or more Baskets. Redemption orders
must be placed no later than 3:59:59 p.m. on each business day the NYSE Arca is open for regular trading. A redemption order so
received is effective on the date it is received in satisfactory form by the Trustee. The redemption procedures allow Authorized
Participants to redeem Baskets and do not entitle an individual owner of beneficial interests in the Shares (a “Shareholder”)
to redeem any Shares in an amount less than a Basket, or to redeem Baskets other than through an Authorized Participant.
12
By
placing a redemption order, an Authorized Participant agrees to deliver the Baskets to be redeemed through DTC’s book-entry
system to the Trust not later than the second business day following the effective date of the redemption order. Prior to the
delivery of the redemption distribution for a redemption order, the Authorized Participant must also have wired to the Trustee
the non-refundable transaction fee due for the redemption order (as explained under “Creation and Redemption Transaction
Fee” below).
The
redemption distribution from the Trust consists of a credit to the redeeming Authorized Participant’s Authorized Participant
Unallocated Account, representing the amount of the silver held by the Trust evidenced by the Shares being redeemed. Fractions
of a fine ounce of silver included in the redemption distribution smaller than 0.001 of a fine ounce are disregarded. Redemption
distributions are subject to the deduction of any applicable tax or other governmental charges which may be due.
Creation
and Redemption Transaction Fee
To
compensate the Trustee for services in processing the creation and redemption of Baskets, an Authorized Participant is required
to pay a transaction fee to the Trustee of $500 per order to create or redeem Baskets. An order may include multiple Baskets.
The transaction fee may be reduced, increased or otherwise changed by the Trustee with the consent of the Sponsor. The Trustee
shall notify DTC of any agreement to change the transaction fee and will not implement any increase in the fee for the redemption
of Baskets until 30 days after the date of the notice.
The
Sponsor
The
Sponsor is a Delaware limited liability company and a wholly-owned subsidiary of Aberdeen Standard Investments Inc. (“ASII”).
Aberdeen Standard Investments is a brand of the investment businesses of Standard Life Investments plc, its affiliates and subsidiaries.
In the United States, Aberdeen Standard Investments is the marketing name for the following affiliated, registered investment
advisers: ASII, Aberdeen Asset Managers Ltd., Aberdeen Standard Investments Australia Ltd., Aberdeen Standard Investments (Asia)
Ltd., Aberdeen Capital Management, LLC, Aberdeen Standard Investments ETFs Advisors LLC and Standard Life Investments (Corporate
Funds) Ltd.
The
Sponsor’s office is located at c/o Aberdeen Standard Investments ETFs Sponsor LLC, 712 Fifth Avenue, 49th Floor, New York,
NY 10019. Under the Delaware Limited Liability Company Act and the governing documents of the Sponsor, the sole member of the
Sponsor, ASII, is not responsible for the debts, obligations and liabilities of the Sponsor solely by reason of being the sole
member of the Sponsor.
The
Sponsor’s Role
The
Sponsor arranged for the creation of the Trust, the registration of the Shares for their public offering in the United States
and the listing of the Shares on the NYSE Arca. The Sponsor has agreed to assume the following administrative and marketing expenses
incurred by the Trust: the Trustee’s monthly fee and out-of-pocket expenses, the Custodian’s fee and the reimbursement
of the Custodian’s expenses under the Custody Agreements, Exchange listing fees, SEC registration fees, printing and mailing
costs, audit fees and up to $100,000 per annum in legal expenses. The Sponsor also paid the costs of the Trust’s organization
and the initial sale of the Shares, including the applicable SEC registration fees.
13
The
Sponsor does not exercise day-to-day oversight over the Trustee or the Custodian. The Sponsor may remove the Trustee and appoint
a successor Trustee (i) if the Trustee ceases to meet certain objective requirements (including the requirement that it have capital,
surplus and undivided profits of at least $150 million), (ii) if, having received written notice of a material breach of its obligations
under the Trust Agreement, the Trustee has not cured the breach within 30 days, or (iii) if the Trustee refuses to consent to
the implementation of an amendment to the Trust’s initial Internal Control Over Financial Reporting. The Sponsor also has
the right to replace the Trustee during the 90 days following any merger, consolidation or conversion in which the Trustee is
not the surviving entity or, in its discretion, on the fifth anniversary of the creation of the Trust or on any subsequent third
anniversary thereafter. The Sponsor also has the right to approve any new or additional custodian that the Trustee may wish to
appoint.
The
Sponsor or one of its affiliates or agents (1) develops a marketing plan for the Trust on an ongoing basis, (2) prepares marketing
materials regarding the Shares, including the content of the Trust’s website and (3) executes the marketing plan for the
Trust.
The
Trustee
The
Bank of New York Mellon, a banking corporation organized under the laws of the State of New York with trust powers (“BNYM”),
serves as the Trustee. BNYM has a trust office at 2 Hanson Place, Brooklyn, New York 11217. BNYM is subject to supervision by
the New York State Financial Services Department and the Board of Governors of the Federal Reserve System. Information regarding
creation and redemption Basket composition, NAV of the Trust, transaction fees and the names of the parties that have each executed
an Authorized Participant Agreement may be obtained from BNYM. A copy of the Trust Agreement is available for inspection at BNYM’s
trust office identified above. Under the Trust Agreement, the Trustee is required to have capital, surplus and undivided profits
of at least $150 million. As of December 31, 2020, the Trustee was in compliance with these conditions.
The
Trustee’s Role
The
Trustee is generally responsible for the day-to-day administration of the Trust, including keeping the Trust’s operational
records. The Trustee’s principal responsibilities include (1) transferring the Trust’s silver as needed to pay
the Sponsor’s Fee in silver (silver transfers are expected to occur approximately monthly in the ordinary course),
(2) valuing the Trust’s silver and calculating the NAV of the Trust and the NAV per Share, (3) receiving and processing
orders from Authorized Participants to create and redeem Baskets and coordinating the processing of such orders with the Custodian
and DTC, (4) selling the Trust’s silver as needed to pay any extraordinary Trust expenses that are not assumed by the
Sponsor, (5) when appropriate, making distributions of cash or other property to Shareholders, and (6) receiving and reviewing
reports from or on the Custodian’s custody of and transactions in the Trust’s silver. The Trustee shall, with respect
to directing the Custodian, act in accordance with the instructions of the Sponsor. If the Custodian resigns, the Trustee shall
appoint an additional or replacement Custodian selected by the Sponsor. The Trustee intends to regularly communicate with the
Sponsor to monitor the overall performance of the Trust. The Trustee does not monitor the performance of the Custodian, or any
other sub-custodian other than to review the reports provided by the Custodian pursuant to the Custody Agreements. The Trustee,
along with the Sponsor, will liaise with the Trust’s legal, accounting and other professional service providers as needed.
The Trustee will assist and support the Sponsor with the preparation of all periodic reports required to be filed with the SEC
on behalf of the Trust.
The
Trustee’s monthly fees and out-of-pocket expenses are paid by the Sponsor.
Affiliates
of the Trustee may from time to time act as Authorized Participants or purchase or sell silver or Shares for their own account,
as agent for their customers and for accounts over which they exercise investment discretion. Affiliates of the Trustee are subject
to the same transaction fee as other Authorized Participants.
14
The
Custodian
Effective
March 29, 2019, the Trust’s custodian is JPMorgan Chase Bank N.A. (“JPMorgan”) (the “Custodian”).
Prior to March 29, 2019, the custodian was HSBC Bank plc. JPMorgan is a national banking association organized under the laws
of the United States of America. JPMorgan is subject to supervision by the Federal Reserve Bank of New York and the Federal Deposit
Insurance Corporation. JPMorgan’s London office is regulated by the FCA and is located at 25 Bank Street, Canary Wharf,
London, E14 5JP, United Kingdom. JPMorgan is a subsidiary of JPMorgan Chase & Co. While the United Kingdom operations of the
Custodian are regulated by the FCA, the custodial services provided by the Custodian and any sub-custodian under the Custody Agreements,
are presently not a regulated activity subject to the supervision and rules of the FCA.
The
Custodian’s Role
The
Custodian is responsible for safekeeping of the Trust’s silver deposited with it by Authorized Participants in connection
with the creation of Baskets. The Custodian is also responsible for selecting sub-custodians, if any. The Custodian facilitates
the transfer of silver in and out of the Trust through the unallocated silver accounts it will maintain for each Authorized Participant
and the unallocated and allocated silver accounts it will maintain for the Trust. The Custodian holds the Trust’s allocated
silver at a sub-custodian. The Custodian is responsible for allocating specific bars of silver bullion to the Trust Allocated
Account. The Custodian provides the Trustee with regular reports detailing the silver transfers in and out of the Trust’s
unallocated and allocated silver accounts and identifying the silver bars held in the Trust’s allocated silver account.
The
Custodian’s fees and expenses under the Custody Agreements are paid by the Sponsor.
The
Custodian and its affiliates may from time to time act as Authorized Participants or purchase or sell silver or Shares for their
own account, as agent for their customers and for accounts over which they exercise investment discretion. The Custodian and its
affiliates are subject to the same transaction fee as other Authorized Participants.
Inspection
of Silver
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 for the purpose of examining the Trust’s silver and certain related records maintained
by the Custodian. the Trustee and the Sponsor have no right to visit the premises of any sub-custodian for the purposes of examining
the Trust’s silver or any records maintained by the sub-custodian, and no sub-custodian is obligated to cooperate in any
review the Trustee or the Sponsor 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 silver and the records maintained by them.
Inspections were conducted by Inspectorate International Limited, a leading commodity inspection and testing company retained
by the Sponsor, as of August 14, 2020. Due to unprecedented social lock-down policies implemented in the UK and Switzerland to help prevent the spread of COVID-19, neither the
Sponsor, nor Inspectorate, were able to perform a physical inspection of the Trust's silver at December 31, 2020. In lieu of a physical
inspection, the Sponsor performed alternative procedures to verify the silver held by the Trust at December 31, 2020. These procedures
included confirmation of the silver bar list and total ounces of silver held by the Custodian at December 31, 2020, and an independent
recalculation of ounces of silver for each creation or redemption transaction from August 14, 2020, the date of the last physical inspection,
through December 31, 2020.
Description
of the Shares
General
The
Trustee is authorized under the Trust Agreement to create and issue an unlimited number of Shares. The Trustee creates Shares
only in Baskets (a Basket equals a block of 50,000 Shares) and only upon the order of an Authorized Participant. The Shares represent
units of fractional undivided beneficial interest in and ownership of the Trust and have no par value. Any creation and issuance
of Shares above the amount registered on the Trust’s then-current and effective registration statement with the SEC will
require the registration of such additional Shares.
Description
of Limited Rights
The
Shares do not represent a traditional investment and Shareholders should not view them as similar to shares of a corporation operating
a business enterprise with management and a board of directors. Shareholders do not have the statutory rights normally associated
with the ownership of shares of a corporation, including, for example, the right to bring “oppression” or “derivative”
actions. All Shares are of the same class with equal rights and privileges. Each Share is transferable, is fully paid and non-assessable
and entitles the holder to vote on the limited matters upon which Shareholders may vote under the Trust Agreement. The Shares
do not entitle their holders to any conversion or pre-emptive rights, or, except as provided below, any redemption rights or rights
to distributions.
15
Distributions
If
the Trust is terminated and liquidated, the Trustee will distribute to the Shareholders any amounts remaining after the satisfaction
of all outstanding liabilities of the Trust and the establishment of such reserves for applicable taxes, other governmental charges
and contingent or future liabilities as the Trustee shall determine. Shareholders of record on the record date fixed by the Trustee
for a distribution will be entitled to receive their pro rata portion of any distribution.
Voting
and Approvals
Under
the Trust Agreement, Shareholders have no voting rights, except in limited circumstances. The Trustee may terminate the Trust
upon the agreement of Shareholders owning at least 75% of the outstanding Shares. In addition, certain amendments to the Trust
Agreement require advance notice to the Shareholders before the effectiveness of such amendments, but no Shareholder vote or approval
is required for any amendment to the Trust Agreement.
Redemption
of the Shares
The
Shares may only be redeemed by or through an Authorized Participant and only in Baskets.
Book-Entry
Form
Individual
certificates will not be issued for the Shares. Instead, one or more global certificates is deposited by the Trustee with DTC
and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding
at any time. Under the Trust Agreement, Shareholders are limited to (1) participants in DTC such as banks, brokers, dealers and
trust companies (DTC Participants), (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC
Participant (Indirect Participants), and (3) those banks, brokers, dealers, trust companies and others who hold interests in the
Shares through DTC Participants or Indirect Participants. The Shares are only transferable through the book-entry system of DTC.
Shareholders who are not DTC Participants may transfer their Shares through DTC by instructing the DTC Participant holding their
Shares (or by instructing the Indirect Participant or other entity through which their Shares are held) to transfer the Shares.
Transfers will be made in accordance with standard securities industry practice.
Custody
of the Trust’s Silver
Custody
of the silver bullion deposited with and held by the Trust is provided by a sub-custodian selected by the Custodian. The Custodian
is a market maker, clearer and approved weigher under the rules of the LBMA.
The
Custodian is the custodian of the silver bullion credited to Trust Allocated Account in accordance with the Custody Agreements.
The Custodian segregates the silver bullion credited to the Trust Allocated Account from any other precious metal it holds or
holds for others by entering appropriate entries in its books and records. Under the Custody Agreements, the Trustee, the Sponsor
and the Sponsor’s auditors and inspectors may inspect the vaults of the Custodian. See “ Inspection of Silver ”.
The
Custodian, as instructed by the Trustee on behalf of the Trust, is authorized to accept, on behalf of the Trust, deposits of silver
in unallocated form. Acting on standing instructions specified in the Custody Agreements, the Custodian allocates silver deposited
in unallocated form with the Trust by selecting bars of silver bullion for deposit to the Trust Allocated Account. All silver
bullion allocated to the Trust must conform to the rules, regulations, practices and customs of the LBMA .
16
The
process of withdrawing silver from the Trust for a redemption of a Basket follows the same general procedure as for depositing silver
with the Trust for a creation of a Basket, only in reverse. Each transfer of silver between the Trust Allocated Account and
the Trust Unallocated Account connected with a creation or redemption of a Basket may result in a small amount of silver
being held in the Trust Unallocated Account after the completion of the transfer. In making deposits and withdrawals between the
Trust Allocated Account and the Trust Unallocated Account, the Custodian will use commercially reasonable efforts to minimize
the amount of silver held in the Trust Unallocated Account as of the close of each business day. See “Deposit of Silver;
Issuance of Shares” and “Withdrawal of Silver; Redemption of Shares.”
United
States Federal Income Tax Consequences
The
following discussion of the material US federal income tax consequences generally applies to the purchase, ownership and disposition
of Shares by a US Shareholder (as defined below), and certain US federal income tax consequences that may apply to an investment
in Shares by a Non-US Shareholder (as defined below). The discussion is based on the United States Internal Revenue Code of 1986
as amended (the “Code”). The discussion below is based on the Code, United States Treasury Regulations (“Treasury
Regulations”) promulgated under the Code and judicial and administrative interpretations of the Code, all as in effect on
the date of this annual report and all of which are subject to change either prospectively or retroactively. The tax treatment
of Shareholders may vary depending upon their own particular circumstances. Certain Shareholders (including broker-dealers, traders,
banks and other financial institutions, insurance companies, real estate investment trusts, tax-exempt entities, Shareholders
whose functional currency is not the U.S. Dollar or other investors with special circumstances) may be subject to special rules
not discussed below. In addition, the following discussion applies only to investors who hold Shares as “capital assets”
within the meaning of Code section 1221 and not as part of a straddle, hedging transaction or a conversion or constructive sale
transaction. Moreover, the discussion below does not address the effect of any state, local or foreign tax law or any transfer
tax on an owner of Shares. Purchasers of Shares are urged to consult their own tax advisors with respect to all federal, state,
local and foreign tax law or any transfer tax considerations potentially applicable to their investment in Shares, including substantial
changes to the Code made in the Tax Cuts and Jobs Act (P.L. 115-97).
For
purposes of this discussion, a “US Shareholder” is a Shareholder that is:
● An
individual who is treated as a citizen or resident of the United States for US federal income tax purposes;
● A
corporation (or other entity treated as a corporation for US federal tax purposes) created or organized in or under the laws of
the United States or any political subdivision thereof;
● An
estate, the income of which is includible in gross income for US federal income tax purposes regardless of its source; or
● A
trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one
or more US persons have the authority to control all substantial decisions of the trust.
A
Shareholder that is not a US Shareholder as defined above (other than a partnership, or an entity treated as a partnership for
US federal tax purposes) generally is considered a “Non-US Shareholder” for purposes of this discussion. For US federal
income tax purposes, the treatment of any beneficial owner of an interest in a partnership, including any entity treated as a
partnership for US federal income tax purposes, generally depends upon the status of the partner and upon the activities of the
partnership. Partnerships and partners in partnerships should consult their tax advisors about the US federal income tax consequences
of purchasing, owning and disposing of Shares.
17
Taxation
of the Trust
The
Trust is classified as a “grantor trust” for US federal income tax purposes. As a result, the Trust itself is not
subject to US federal income tax. Instead, the Trust’s income and expenses “flow through” to the Shareholders,
and the Trustee reports the Trust’s income, gains, losses and deductions to the Internal Revenue Service (“IRS”)
on that basis.
Taxation
of US Shareholders
Shareholders
generally are treated, for US federal income tax purposes, as if they directly owned a pro rata share of the underlying assets
held by the Trust. Shareholders are also treated as if they directly received their respective pro rata share of the Trust’s
income, if any, and as if they directly incurred their respective pro rata share of the Trust’s expenses. In the case of
a Shareholder that purchases Shares for cash, its initial tax basis in its pro rata share of the assets held by the Trust at the
time it acquires its Shares is equal to its cost of acquiring the Shares. In the case of a Shareholder that acquires its Shares
as part of a creation of a Basket, the delivery of silver to the Trust in exchange for the Shares is not a taxable event
to the Shareholder, and the Shareholder’s tax basis and holding period for the Shares are the same as its tax basis and
holding period for the silver delivered in exchange therefore (except to the extent of any cash contributed for such Shares).
For purposes of this discussion, it is assumed that all of a Shareholder’s Shares are acquired on the same date and at the
same price per Share. Shareholders that hold multiple lots of Shares, or that are contemplating acquiring multiple lots of Shares,
should consult their tax advisors.
When
the Trust sells or transfers silver, for example to pay expenses, a Shareholder generally will recognize gain or loss in an amount
equal to the difference between (1) the Shareholder’s pro rata share of the amount realized by the Trust upon the sale or
transfer and (2) the Shareholder’s tax basis for its pro rata share of the silver that was sold or transferred. Such gain
or loss will generally be long-term or short-term capital gain or loss, depending upon whether the Shareholder has a holding period
in its Shares of longer than one year. A Shareholder’s tax basis for its share of any silver sold by the Trust generally
will be determined by multiplying the Shareholder’s total basis for its Shares immediately prior to the sale, by a fraction
the numerator of which is the amount of silver sold, and the denominator of which is the total amount of the silver held by the
Trust immediately prior to the sale. After any such sale, a Shareholder’s tax basis for its pro rata share of the silver
remaining in the Trust will be equal to its tax basis for Shares immediately prior to the sale, less the portion of such basis
allocable to its share of the silver that was sold.
Upon
a Shareholder’s sale of some or all of its Shares, the Shareholder will be treated as having sold a pro rata share of the silver
held in the Trust at the time of the sale. Accordingly, the Shareholder generally will recognize a gain or loss on the sale in
an amount equal to the difference between (1) the amount realized pursuant to the sale of the Shares, and (2) the Shareholder’s
tax basis for the Shares sold, as determined in the manner described in the preceding paragraph.
A
redemption of some or all of a Shareholder’s Shares in exchange for the underlying silver represented by the Shares
redeemed generally will not be a taxable event to the Shareholder. The Shareholder’s tax basis for the silver received
in the redemption generally will be the same as the Shareholder’s tax basis for the Shares redeemed. The Shareholder’s
holding period with respect to the silver received should include the period during which the Shareholder held the Shares
redeemed. A subsequent sale of the silver received by the Shareholder will be a taxable event.
An
Authorized Participant and other investors may be able to re-invest, on a tax-deferred basis, in-kind redemption proceeds received
from exchange-traded products that are substantially similar to the Trust in the Trust’s Shares. Authorized Participants
and other investors should consult their tax advisors as to whether and under what circumstances the reinvestment in the Shares
of proceeds from substantially similar exchange-traded products can be accomplished on a tax-deferred basis.
Under
current law, gains recognized by individuals, estates or trusts from the sale of “collectibles,” including physical
silver, held for more than one year are taxed at a maximum federal income tax rate of 28%, rather than the 20% rate applicable
to most other long-term capital gains. For these purposes, gains recognized by an individual upon the sale of Shares held for
more than one year, or attributable to the Trust’s sale of any physical silver which the Shareholder is treated (through
its ownership of Shares) as having held for more than one year, generally will be taxed at a maximum rate of 28%. The tax rates
for capital gains recognized upon the sale of assets held by an individual US Shareholder for one year or less or by a corporate
taxpayer are generally the same as those at which ordinary income is taxed.
18
In
addition, high-income individuals and certain trusts and estates are subject to a 3.8% Medicare contribution tax that is imposed
on net investment income and gain. Shareholders should consult their tax advisor regarding this tax.
Brokerage
Fees and Trust Expenses
Any
brokerage or other transaction fees incurred by a Shareholder in purchasing Shares is treated as part of the Shareholder’s
tax basis in the Shares. Similarly, any brokerage fee incurred by a Shareholder in selling Shares reduces the amount realized
by the Shareholder with respect to the sale.
Shareholders
will be required to recognize gain or loss upon a sale of silver by the Trust (as discussed above), even though some or all
of the proceeds of such sale are used by the Trustee to pay Trust expenses. Shareholders may deduct their respective pro rata
share of each expense incurred by the Trust to the same extent as if they directly incurred the expense. Shareholders who are
individuals, estates or trusts, however, may be required to treat some or all of the expenses of the Trust, to the extent that
such expenses may be deducted, as miscellaneous itemized deductions. Under the Tax Cuts and Jobs Act (P.L. 115-97),
miscellaneous itemized deductions, including expenses for the production of income, will not be deductible for either regular
federal income tax or alternative minimum tax purposes for taxable years beginning after December 31, 2017 and before January
1, 2026.
Investment
by Regulated Investment Companies
Mutual
funds and other investment vehicles which are “regulated investment companies” within the meaning of Code section
851 should consult with their tax advisors concerning (1) the likelihood that an investment in Shares, although they are a “security”
within the meaning of the Investment Company Act of 1940, may be considered an investment in the underlying silver for purposes
of Code section 851(b), and (2) the extent to which an investment in Shares might nevertheless be consistent with preservation
of their qualification under Code section 851. In recent administrative guidance, the IRS stated that it will no longer issue
rulings under Code section 851(b) relating to the determination of whether or not an instrument or position is a “security”,
but, instead, intends to defer to guidance from the SEC for such determination.
United
States Information Reporting and Backup Withholding Tax for US and Non-US Shareholders
The
Trustee or the appropriate broker will file certain information returns with the IRS, and provides certain tax-related information
to Shareholders, in accordance with applicable Treasury Regulations. Each Shareholder will be provided with information regarding
its allocable portion of the Trust’s annual income (if any) and expenses.
A
US Shareholder may be subject to US backup withholding tax in certain circumstances unless it provides its taxpayer identification
number and complies with certain certification procedures. Non-US Shareholders may have to comply with certification procedures
to establish that they are not a US person in order to avoid the backup withholding tax.
The
amount of any backup withholding tax will be allowed as a credit against a Shareholder’s US federal income tax liability
and may entitle such a Shareholder to a refund, provided that the required information is furnished to the IRS.
Income
Taxation of Non-US Shareholders
The
Trust does not expect to generate taxable income except for gains (if any) upon the sale of silver. A Non-US Shareholder generally
is not subject to US federal income tax with respect to gains recognized upon the sale or other disposition of Shares, or upon
the sale of silver by the Trust, unless (1) the Non-US Shareholder is an individual and is present in the United States for
183 days or more during the taxable year of the sale or other disposition, and the gain is treated as being from United States
sources; or (2) the gain is effectively connected with the conduct by the Non-US Shareholder of a trade or business in the United
States.
19
Taxation
in Jurisdictions other than the United States
Prospective
purchasers of Shares that are based in or acting out of a jurisdiction other than the United States are advised to consult their
own tax advisers as to the tax consequences, under the laws of such jurisdiction (or any other jurisdiction not being the United
States to which they are subject), of their purchase, holding, sale and redemption of or any other dealing in Shares and, in particular,
as to whether any value added tax, other consumption tax or transfer tax is payable in relation to such purchase, holding, sale,
redemption or other dealing.
ERISA
and Related Considerations
The
Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or Code section 4975 impose certain requirements
on certain employee benefit plans and certain other plans and arrangements, including individual retirement accounts and annuities,
Keogh plans, and certain commingled investment vehicles or insurance company general or separate accounts in which such plans
or arrangements are invested (collectively, “Plans”), and on persons who are fiduciaries with respect to the investment
of “plan assets” of a Plan. Government plans and some church plans are not subject to the fiduciary responsibility
provisions of ERISA or the provisions of section 4975 of the Code, but may be subject to substantially similar rules under other
federal law, or under state or local law (“Other Law”).
In
contemplating an investment of a portion of Plan assets in Shares, the Plan fiduciary responsible for making such investment should
carefully consider, taking into account the facts and circumstances of the Plan and the “Risk Factors” discussed above
and whether such investment is consistent with its fiduciary responsibilities under ERISA or Other Law, including, but not limited
to: (1) whether the investment is permitted under the Plan’s governing documents, (2) whether the fiduciary has the authority
to make the investment, (3) whether the investment is consistent with the Plan’s funding objectives, (4) the tax effects
of the investment on the Plan, and (5) whether the investment is prudent considering the factors discussed in this report. In
addition, ERISA and Code section 4975 prohibit a broad range of transactions involving assets of a plan and persons who are “parties
in interest” under ERISA or “disqualified persons” under section 4975 of the Code. A violation of these rules
may result in the imposition of significant excise taxes and other liabilities. Plans subject to Other Law may be subject to similar
restrictions.
It
is anticipated that the Shares will constitute “publicly offered securities” as defined in the Department of Labor
“Plan Asset Regulations,” §2510.3-101 (b)(2) as modified by section 3(42) of ERISA. Accordingly, pursuant to
the Plan Asset Regulations, only Shares purchased by a Plan, and not an interest in the underlying assets held in the Trust, should
be treated as assets of the Plan, for purposes of applying the “fiduciary responsibility” rules of ERISA and the “prohibited
transaction” rules of ERISA and the Code. Fiduciaries of plans subject to Other Law should consult legal counsel to determine
whether there would be a similar result under the Other Law.
Investment
by Certain Retirement Plans
Code
section 408(m) provides that the acquisition of a “collectible” by an individual retirement account (“IRA”)
or a participant-directed account maintained under any plan that is tax-qualified under Code section 401(a) (“Tax Qualified
Account”) is treated as a taxable distribution from the account to the owner of the IRA, or to the participant for whom
the Tax Qualified Account is maintained, of an amount equal to the cost to the account of acquiring the collectible. The term
“collectible” is defined to include, with certain exceptions, “any metal or gem”. The IRS has issued several
private letter rulings to the effect that a purchase by an IRA, or by a participant-directed account under a Code section 401(a)
plan, of publicly-traded shares in a trust holding precious metals will not be treated as resulting in a taxable distribution
to the IRA owner or Tax Qualified Account participant under Code section 408(m). However the private letter rulings provide that,
if any of the Shares so purchased are distributed from the IRA or Tax Qualified Account to the IRA owner or Tax Qualified Account
participant, or if any precious metal is received by such IRA or Tax Qualified Account upon the redemption of any of the Shares
purchased by it, the Shares or precious metal so distributed will be subject to federal income tax in the year of distribution,
to the extent provided under the applicable provisions of Code sections 408(d), 408(m) or 402. Accordingly, potential IRA or Tax
Qualified Account investors are urged to consult with their own professional advisors concerning the treatment of an investment
in Shares under Code section 408(m).
20
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.