PRODUCT KEY FACTS ETFS Physical Silver ETF 23 November 2012 This is an exchange traded fund. This statement provides you with key information about this product. This statement is a part of the offering documents and must be read in conjunction with the Prospectus. You should not invest in this product based on this statement alone. Quick facts Stock code: 03117 Trading lot size: 10 units Fund Manager: ETF Securities (HK) Limited Trustee and Registrar: HSBC Institutional Trust Services (Asia) Limited Custodian: HSBC Bank USA, N.A. Estimated total expense ratio: Estimated to be 0.5% per annum of the Net Asset Value (inclusive of management fees*, but excluding extraordinary expenses (if any)) Benchmark: The London Silver Fixing quoted in US dollars by the London Silver Market Fixing Limited and published by the LBMA (the London Fix ). Base currency: US Dollars (US$) Trading currency: HK Dollars (HK$) Financial year end of this fund: 31 December Dividend policy: No distributions will be made. Exchange Listing: SEHK Main Board ETF Website: http://www.etfsecurities.com/investor/hk/en-gb * The management fees payable to the Manager are also inclusive of the trustee fees, custodian fees and all other ordinary expenses of the Fund. What is this product? The ETFS Physical Silver ETF, or the Fund, is a unit trust established under Hong Kong law. The ETFS Physical Silver ETF is an exchange traded fund managed by the Manager and listed on The Stock Exchange of Hong Kong Limited (the SEHK ), on which the Units of the Fund are traded like listed stocks. Objective and Investment Strategy Objective The ETFS Physical Silver ETF s investment objective is to provide investment results, before fees and expenses, that closely correspond to the performance of the London Fix for silver. 1
Investment Strategy In order to achieve the investment objective, the ETFS Physical Silver ETF intends to primarily acquire and hold physical silver Bullion, being silver in the form of uniquely identifiable bars of minimum fineness of 99.9% silver from an approved refiner on the LBMA Good Delivery List of acceptable refiners for silver. Subject to its investment and borrowing restrictions, the Fund may also hold interests in other silver ETFs acceptable to the Manager. Such silver ETFs investment objective shall be to reflect the performance of the price of silver Bullion and initially, they will include those ETFs managed by the ETF Securities group in the US and listed on the New York Stock Exchange. Interests in silver ETFs will not usually comprise more than 10% of the Fund s Net Asset Value at any time. Such silver ETFs will all be physically backed by silver Bullion and will not include short or leveraged ETFs. Except as stated above, the Fund will not invest in any other types of investments including, but not limited to derivative futures contracts, options, swaps, warrants and other financial derivative instruments, local currency and foreign currency exchange contracts, structured products or instruments and other Securities. The Fund will not lend its Bullion nor engage in any kind of stock lending activities or repurchase transactions. The Benchmark The Fund s benchmark is the London Fix. The London Fix for silver is a price quoted in US dollars by the London Silver Market Fixing Limited shortly after noon (UK time) and published by the LBMA on its website http://www.lbma.org.uk. It is widely used internationally as the benchmark for daily silver prices. What are the key risks? Investment involves risks. Please refer to the Risk Factors section in the Prospectus for details. Investment risk The ETFS Physical Silver ETF is an investment fund. There is no guarantee of the repayment of principal. Therefore your investment in the Fund may suffer losses. Physical Silver/Concentration Risk Prices of physical silver are highly volatile and may fluctuate widely and may be affected by numerous events or factors related to its production and sale and other financial market factors. As the Fund is concentrated in physical silver, it is more susceptible to the effects of such price volatility than more diversified funds. Custody and Insurance Related Risk Only amounts of Bullion that represent Creation Applications and Redemption Applications, amounts not sufficient for a Good Delivery bar (which may weigh between 750 and 1,100 Ounces), and amounts that have been deallocated to pay for the Fund s management fees or extraordinary expenses (if any) will be held in unallocated form. The amount of Bullion held overnight (London time) in unallocated form will not typically exceed 1,100 Ounces, being the maximum size of a Good Delivery bar. As the Custodian is required to allocate Bullion on a continuous basis once it reaches a whole bar, the rest of the Fund s Bullion will be held in fully allocated form as uniquely identifiable Good Delivery bars physically segregated from other metal held by the Custodian (or Sub-Custodian). Access to the Bullion could be restricted by natural events, such as flooding, or human actions, such as terrorist attack. 2
The Fund has no proprietary rights to any specific Bullion held on an unallocated basis for the Fund and, on the Custodian s insolvency, the Fund would rank as an unsecured creditor in relation to such unallocated Bullion. If the Custodian (or Sub-Custodian) fails to allocate or segregate the Fund s Bullion properly or in a timely manner and were to become insolvent, the Fund could suffer a significant loss. Neither the Manager nor the Trustee will maintain insurance for the Fund s Bullion. The Custodian shall make such insurance arrangements in connection with its custodial obligations with respect to Bullion as it thinks fit but has no obligation to insure against loss, theft or damage. There is a risk that some or all of the Bullion could be lost, stolen or damaged and the Fund would not be able to satisfy its obligations in respect of the Units. Bullion may temporarily be held, on a fully allocated basis, by one or more Sub-Custodians appointed by the Custodian until it is transported to the Custodian s London vault, which will be done as soon as reasonably practicable. The Custodian is generally not liable for the acts or omissions of its Sub-Custodians unless it selected them fraudulently, negligently or in bad faith, or failed to satisfy itself on an ongoing basis that they remained suitably qualified and competent. If the Fund s silver is lost or damaged while in the custody of a Sub-Custodian, the Fund may not be able to recover damages from the Custodian or Sub-Custodian. Industrial Demand Risk A relatively high proportion of overall demand for silver is made up of industrial usages. This may cause its price to fluctuate differently to other precious metals, such as gold, for which a larger proportion of overall demand is for investment purposes. Volatility of Silver Risk Silver is seen as an attractive metal by some investors seeking to use it as a hedge against inflation or foreign exchange risks, however a large proportion of demand for silver is also for industrial usage. Silver is therefore exposed to movements in both the investment markets and industrial markets. The price of Units in the ETFS Physical Silver ETF may be more volatile than those of funds investing in other precious metals, such as gold or platinum. Fixing Processes for Silver Risk While the fixing is a fully established benchmark and is widely accepted as the basis for pricing spot transactions and a variety of other transactions, neither the Manager nor the Trustee has any control or supervision over the fixing or the price so fixed. Also, none of the LBMA, The London Silver Market Fixing Limited nor the fixing process for London Fix for silver is subject to the oversight or supervision of any financial regulator. Passive Investment Management As the Fund is not actively managed, the Manager has a lack of discretion to adapt to market changes. The Manager will not attempt to select other commodities or precious metals to take defensive positions in declining markets. As a result, falls in the London Fix for silver will result in falls in the value of the Fund. Limited Operating History and Management Experience Risk Whilst the global ETF Securities group has extensive experience in establishing and operating many kinds of exchange traded funds, particularly in relation to commodities and currencies, the Manager is a new management company in Hong Kong, which has been established in order to offer the Fund to Hong Kong investors. 3
Currency Risk As the Fund s base currency and the London Fix for silver is in US dollars, the value of Units in the Fund that are traded on the SEHK in Hong Kong dollars will be affected by changes in the exchange rate between these two currencies. Units created and redeemed directly by the Fund through the Participating Dealers should not be subject to this risk, however. Tracking Error Risk At any time, there is no assurance that the price at which Units of the Fund trade on the SEHK will exactly reflect the price of the silver represented by those Units. Factors such as the fees and expenses of the Fund, rounding of Bullion prices, the valuation of any interests in silver ETFs held by the Fund, and changes to regulatory policies may affect the Manager s ability to achieve close correlation with the London Fix. Unless any extraordinary expenses (if any) are incurred by the Fund, the estimated tracking error, of which the main component is the management fee (paid monthly by the Fund transferring an amount of Bullion to the Manager), is 0.5% per annum of the Fund s Net Asset Value. If the actual tracking error were to be significantly higher than anticipated, for example, because of extreme market fluctuations or extraordinary expenses, the Fund s performance may be adversely affected. Risk of Absence of Active Market Although the Units are to be listed on the SEHK and the Manager aims to ensure that there will always be at least one market maker for the Fund, there can be no assurance that an active trading market in respect of the Units will always exist. If a Unitholder needs to sell its Units at a time when there is no active market for them, the price it will receive for its Units, if it is able to sell them, is likely to be lower than the price it would have received if an active market were to exist. Trading risk Generally, retail investors can only buy or sell Units on the SEHK through an intermediary or stockbroker. Investors pay certain charges (e.g. trading fees and brokerage fees) to buy and sell Units on the SEHK. The trading price of the Units on the SEHK is driven by market factors such as demand and supply of the Units and may be at a premium or discount to the Net Asset Value of the Units. Investors may therefore pay more than the Net Asset Value per Unit when buying a Unit on the SEHK, and may receive less than the Net Asset Value per Unit when selling a Unit on the SEHK. Termination risk The Manager or the Trustee may terminate the Fund early in various circumstances. If any of such circumstances were to happen, termination could occur at a time which was disadvantageous to Unitholders and when Bullion prices were lower than when Unitholders purchased their Units. In such a case, the resulting proceeds for distribution to Unitholders may be less than an investor paid for its Units and the investor would sustain a loss. 4
Is there any guarantee? The ETFS Physical Silver ETF does not provide any guarantees. You may not get back the amount of money you invest. What are the fees and charges? Please refer to Schedule 1 of the Prospectus for details of other fees and expenses applicable to the creation or redemption, or dealing in the Units of the ETFS Physical Silver ETF. Charges incurred when trading the ETFS Physical Silver ETF on SEHK Fee What you pay Brokerage fee At each broker s discretion Transaction Ievy 0.003% of the trading price of the Units 1 Trading fee 0.005% of the trading price of the Units 2 Stamp duty Nil 1. Transaction levy of 0.003 per cent (0.003%) of the price of the Units, payable by the buyer and the seller. 2. Trading fee of 0.005 per cent (0.005%) of the price of the Units, payable by the buyer and the seller. Ongoing fees payable by the fund The following expenses will be paid out of the ETFS Physical Silver ETF. They affect you because they reduce the Net Asset Value which may affect the trading price. Management fee Extraordinary expenses Annual rate (as a % of the fund s NAV) 0.5%* per annum (inclusive of all ordinary trustee fees, custodian fees and other ordinary expenses of the Fund). Please refer to Schedule 1 of the Prospectus for details of the extraordinary expenses (if any) which may be payable by the ETFS Physical Silver ETF. * The Manager may also, on giving not less than one (1) month s notice to Unitholders, increase the rate of management fee payable in respect of any class of Units of the Fund up to a maximum of 1%. Additional Information You can find the following information of the ETFS Physical Silver ETF on the Manager s website http://www.etfsecurities.com/investor/hk/en-gb: The last published prospectus and its product key facts statement; Latest annual and semi-annual financial reports of the ETFS Physical Silver ETF in English; Public announcements and notices made by the ETFS Physical Silver ETF, including information in relation to the London Fix, notices of the suspension of calculation of Net Asset Value, changes in fees and charges, the suspension and resumption of trading of Units, and notices relating to material alterations or additions to the offering documents or the constitutive documents of the ETFS Physical Silver ETF; 5
List of Participating Dealers and Market Makers; Holdings of the ETFS Physical Silver ETF (updated on a daily basis); The near real-time Net Asset Value per Unit (calculated by a third party data vendor, using (i) for Bullion: spot prices quoted by Precious Metal market makers from around the world throughout the day rather than the London Fix and (ii) for interests in other silver ETFs held by the Fund: the realtime net asset value per unit, calculated by reference to the spot prices for Bullion described in (i)); The daily closing Net Asset Value of the ETFS Physical Silver ETF and per Unit (based on the London Fix and the published net asset value per unit of any interests in other silver ETFs). Important If you are in doubt, you should seek professional advice. The SFC takes no responsibility for the contents of this statement and makes no representation as to its accuracy or completeness. 6