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Section: Daily Dispatches

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First silver ETF filed;
Barclays trust would be based on gold ETF model

By John Spence
CBSMarketWatch
Monday, June 20, 2005

http://www.marketwatch.com/news/story.asp?guid=%7B5E1370AE-59DC-4FBF-
9A56-75B69A7907BD%7D&siteid=mkwt

BOSTON -- Barclays Global Investors filed an initial prospectus for
the first exchange-traded fund to reflect the price of silver
bullion.

If approved by the Securities and Exchange Commission, the ETF's
shares would trade on the American Stock Exchange under the
symbol "SLV."

Each share of the ETF would be equivalent to 10 ounces of silver,
according to the filing made late Friday by Barclays.

The ETF is structured as a trust and not an investment company
registered under the Investment Company Act of 1940.

The silver held by the ETF would be valued on the basis of that
day's announced London Fix, the price per ounce set by three market-
making members of the London Bullion Market Association at
approximately noon, London time, each day.

On Friday, the London Fix for silver was $7.37 an ounce.

Bank of New York is named as the trustee for the silver ETF and the
London branch of J.P. Morgan Chase Bank is the custodian, according
to the Barclays filing.

The sponsor's fee is 0.5% of the adjusted net asset value of the
trust, according to the filing. The trust may sell of some of its
silver to cover expenses, meaning the amount of silver per share may
vary over time.

The silver ETF appears structured similarly to two existing gold
ETFs -- StreetTracks Gold Trust (GLD) and iShares Comex Gold Trust
(IAU). Shares of the gold ETFs represent ownership in fractions of
ounces of gold bullion held in a vault.

In recent weeks, market observers have said anticipation of the
first silver ETF filing may have been pushing price of the metal
higher.

"Gold has been strong the past few weeks, but quite often silver has
been leading the charge," said Ross Norman, a director at
TheBullionDesk.com in London. "The tail has been wagging the dog,
and the rationale is that there is some buying ahead of the silver
ETF."

"Silver is such a small, tight, relatively illiquid market that a
successful innovation in the way for individuals and mutual funds to
own silver, without the hassles of storage costs and steep premiums
to spot, could have a pronounced effect on the silver price," wrote
Todd Stein and Steven McIntyre of the Texas Hedge Report in recent
commentary.

The introduction of StreetTracks Gold Trust, the first gold ETF, in
November was one of the most successful mutual-fund launches of
2004, as the ETF gathered about $550 million in its first day of
trading.

It now has roughly $2.5 billion assets, compared with $175 million
for the iShares Comex Gold Trust, which began trading in January.

Like the gold funds, the silver ETF launch could tap pent-up demand
from institutional investors that cannot hold silver directly.

"The real question is if there will be ongoing demand after the
launch," said Norman at TheBullionDesk.com. "The gold ETFs saw
phenomenal demand initially that petered out later."

Similar to investing in gold ETFs, silver is classified as
a "collectible" by the IRS -- if held for more than one year, gains
are taxed at a 28% rate, compared with the 15% rate applicable to
most other long-term capital gains.

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