UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-K

(Mark One)

xANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For
the fiscal year ended December 31, 2010

or

oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-34589

ETFS PALLADIUM TRUST(Exact name of registrant as
specified in its charter)

|                                          |                    
|----------------------------------------- | -------------------
|New
 York                                 | 26-4733157         
|(State or other jurisdiction of           | (I.R.S. Employer   
|incorporation or organization)            | Identification No.)
|                                          |                    
|c/o ETF Securities USA LLC                |                    
|48
 Wall Street, 11th Floor               |                    
|New
 York, NY                             | 10005              
|(Address of principal executive
 offices) | (Zip Code)         

Registrants
telephone number, including area code:
(212) 918-4954

Securities
registered pursuant to Section 12(b) of the Act:

|                               |                     |           |  |                                           | 
|------------------------------ | ------------------- | --------- |  | ----------------------------------------- | 
|                               | Title of each class |           |  | Name of each exchange
on which registered | 
|                               |                     |           |  |                                           | 
|ETFS Physical Palladium Shares |                     | NYSE Arca | 

Securities
registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o     No x

Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o     No x

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days.

Yes x     No o

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

Yes x     No o

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.

| |                           |                             | 
| | ------------------------- | --------------------------- | 
| | Large accelerated filer o | Accelerated filer o         | 
|
| | Non-accelerated filer x   | Smaller reporting company o | 

Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Act).

Yes o     No x

Aggregate market value of
the registrants shares outstanding based upon the closing price of a share on
June 30, 2010 as reported by the NYSE Arca, Inc. on that date: $349,101,437.

Number of the registrants shares outstanding as of
March 8,
2011: 11,550,000

DOCUMENTS INCORPORATED BY REFERENCE: None.

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FORWARD LOOKING STATEMENTS

This Annual Report on Form
10-K contains various forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended, and within the Private
Securities Litigation Reform Act of 1995, as amended. Forward-looking
statements usually include the verbs, anticipates, believes, estimates,
expects, intends, plans, projects, understands and other verbs
suggesting uncertainty. We remind readers that forward-looking statements are
merely predictions and therefore inherently subject to uncertainties and other
factors and involve known and unknown risks that could cause the actual
results, performance, levels of activity, or our achievements, or industry
results, to be materially different from any future results, performance,
levels of activity, or our achievements expressed or implied by such
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date hereof.
The Trust undertakes no obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

Additional significant
uncertainties and other factors affecting forward-looking statements are
presented in the Risk Factors section herein.



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TABLE
OF CONTENTS

|                                                                                                                      |  |   
|--------------------------------------------------------------------------------------------------------------------- |  | --
|PART I                                                                                                                |  |   
|Item 1. Business                                                                                                      |  | 1 
|Trust Objective                                                                                                       |  | 1 
|Secondary Market Trading                                                                                              |  | 2 
|Valuation of Palladium and Computation of Net Asset
 Value                                                            |  | 2 
|Trust Expenses                                                                                                        |  | 2 
|Deposit of Palladium; Issuance of Shares                                                                              |  | 3 
|Withdrawal of Palladium; Redemption of Shares                                                                         |  | 4 
|Creation and Redemption Transaction Fee                                                                               |  | 4 
|The Sponsor                                                                                                           |  | 4 
|The Trustee                                                                                                           |  | 5 
|The Custodian                                                                                                         |  | 5 
|Description of the Shares                                                                                             |  | 6 
|Custody
    of the Trusts Palladium                                                                                  |  | 7 
|United States Federal Income Tax Consequences                                                                         |  | 8 
|ERISA and Related Considerations                                                                                      |  | 10
|Item 1A. Risk Factors                                                                                                 |  | 11
|Item 1B. Unresolved Staff Comments                                                                                    |  | 17
|Item 2. Properties                                                                                                    |  | 17
|Item 3. Legal Proceedings                                                                                             |  | 17
|Item 4. (Removed and Reserved)                                                                                        |  | 17
|                                                                                                                      |  |   
|PART II                                                                                                               |  |   
|Item 5. Market for Registrants Common Equity, Related
 Stockholder Matters and Issuer Purchases of Equity Securities |  | 18
|Item 6. Selected Financial Data                                                                                       |  | 19
|Item 7. Managements Discussion and Analysis of
 Financial Condition and Results of Operations                        |  | 19
|Item 7A. Quantitative and Qualitative Disclosures about
 Market Risk                                                  |  | 22
|Item 8. Financial Statements and Supplementary Data - (Unaudited)                                                     |  | 22
|Item 9. Changes in and Disagreements with Accountants
 on Accounting and Financial Disclosure                         |  | 23
|Item 9A. Controls and Procedures                                                                                      |  | 23
|Item 9B. Other Information                                                                                            |  | 23
|                                                                                                                      |  |   
|PART III                                                                                                              |  |   
|Item 10. Directors, Executive Officers and Corporate
 Governance                                                      |  | 24
|Item 11. Executive Compensation                                                                                       |  | 24
|Item 12. Security Ownership of Certain Beneficial
 Owners and Management and Related Stockholder Matters              |  | 24
|Item 13. Certain Relationships and Related
 Transactions, and Director Independence                                   |  | 24
|Item 14. Principal Accounting Fees and Services                                                                       |  | 24
|                                                                                                                      |  |   
|PART IV                                                                                                               |  |   
|Item 15. Exhibits, Financial Statement Schedules                                                                      |  | 24



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Item 1.
Business

The purpose of the ETFS
Palladium Trust (the Trust), is to own palladium 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 are anticipated to consist solely of palladium bullion.

The Trust was formed on
December 30, 2009 when an initial deposit of palladium was made in exchange for
the issuance of two Baskets (a Basket consists of 50,000 Shares).

The sponsor of the Trust
is ETF Securities USA LLC (the Sponsor). The trustee of the Trust is The Bank
of New York Mellon (the Trustee) and the custodian is JP Morgan Chase Bank
N.A., London branch (the Custodian).

The Trusts Shares at
redeemable value grew from $3,930,000 at December 30, 2009 to $884,637,847 at
December 31, 2010, the Trusts fiscal year end. Outstanding Shares in the
Trust grew from 100,000 Shares at December 30, 2009 to 11,250,000 Shares
at December 31, 2010.

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 palladium.
The palladium 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 and will not
hold or trade in commodities futures contracts regulated by the Commodity
Exchange Act (the CEA), as administered by the Commodity Futures Trading
Commission (the CFTC). The Trust is not a commodity pool for purposes of the
CEA 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.

Trust
Objective

The investment objective
of the Trust is for the Shares to reflect the performance of the price of
palladium 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 palladium. An investment in physical
palladium 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 palladium 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 palladium bullion. The Shares offer an investment that:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Is Easily Accessible. The Shares trade
 on the NYSE Arca and provide institutional and retail investors with indirect
 access to the palladium 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 PM 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 palladium bullion and storing and insuring palladium bullion in a
 traditional allocated palladium bullion 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
 plate or ingot or 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 palladium temporarily being held in an unallocated palladium

1

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | account with the
 Custodian, the physical bullion of the Trust is not subject to counterparty
 or credit risks. See Risk FactorsPalladium held in the Trusts unallocated
 palladium account and any Authorized Participants unallocated palladium
 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.

Secondary
Market Trading

While the Trusts
investment objective is for the Shares to reflect the performance of palladium
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, which is 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 and the Commodity Exchange, Inc., a subsidiary of New
York Mercantile Exchange, Inc. (COMEX), and the London and Zurich
palladium bullion markets. While the Shares trade on the NYSE Arca until 4:00
PM New York time, liquidity in the global palladium 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 Palladium and Computation of Net Asset Value

On each business day, as promptly as practicable
    after 4:00 p.m., New York time, on such day (the Evaluation Time),
    the Trustee will evaluates the palladium held by the Trust and determines
    the NAV of the Trust.

At the Evaluation Time,
the Trustee will value the Trusts palladium on the basis of that days London
PM Fix (the afternoon session of the twice daily fix of the price of an ounce
of palladium which starts at 2:00 PM London, England time and is performed in
London by the four London Platinum and Palladium Market LPPM members of the
London palladium fix) or, if no London PM Fix is made on such day or has not
been announced by the Evaluation Time, the next most recent London palladium
price fix (AM or PM) 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 London PM Fix or such
other publicly available price as the Sponsor may deem fairly represents the
commercial value of the Trusts palladium is not an appropriate basis for
evaluation of the Trusts palladium, 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 London PM
Fix or such other publicly available price is not appropriate as a basis for
evaluation of the Trusts palladium or for any determination as to the
alternative basis for such evaluation provided that such determination is made
in good faith.

Once the value of the
palladium 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 that are computed by reference to the value of the Trust
    or its assets), and other liabilities of the Trust from the total value of
    the palladium and all other assets of the Trust (other than any amounts credited
    to the Trusts reserve account, if established). The resulting figure
    is the adjusted net asset value (the 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 that 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 is 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

2

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the Custody Agreements
(defined below), 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.

The Sponsors Fee
accrues daily at an annualized rate equal to 0.60% of the ANAV of the Trust
    and will be payable monthly in arrears. The Sponsors Fee is paid by
    delivery of palladium 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 palladium 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 palladium 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
palladium. Accordingly, the amount of palladium to be sold will vary from time
to time depending on the level of the Trusts expenses and the market price of
palladium. The Custodian is authorized to purchase from the Trust, at the
request of the Trustee, palladium needed to cover Trust expenses not assumed by
the Sponsor at the price used by the Trustee to determine the value of the
palladium held by the Trust on the date of the sale.

The Sponsor earned
$2,350,928 for acting as the Sponsor during the period ended December 31, 2010.

Deposit
of Palladium; 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 who have entered into written agreements
with the Sponsor and the Trustee (each an Authorized Participant can
deposit palladium 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 palladium 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 palladium bullion
deposited with the Custodian or for the Custodian by the Zurich Sub-Custodian
must be of at least a minimum fineness (or purity) of 999.5 parts per 1,000
(99.95%) and otherwise conform to the rules, regulations practices and customs
of the LPPM, including the specifications for a London Good Delivery plate or
ingot.

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 palladium in the United Kingdom, Zurich
or another jurisdiction  occur on business days when (1) banks in the
United Kingdom, Zurich or such other jurisdiction and (2) the London or Zurich
palladium markets are regularly open for business. If such banks or the London
or Zurich palladium 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 palladium 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, either loco London or loco Zurich, with the
required palladium deposit amount by the third business day in London or Zurich
following the purchase order date. Upon receipt of the palladium deposit
amount, the Custodian, after receiving appropriate instructions from the
Authorized Participant and the Trustee, will transfer on the third business day
following the purchase order date the palladium deposit amount from the
Authorized Participant Unallocated Account to the unallocated palladium 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 DTC to credit the number of Baskets
ordered to the Authorized Participants

3

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DTC account. Acting on
standing instructions given by the Trustee, the Custodian will transfer the
palladium deposit amount from the Trust Unallocated Account to the allocated
palladium 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 palladium plates or ingots from
its inventory or the inventory of the Zurich Sub-Custodian 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 Palladium; 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.

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 third 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, either
loco London or loco Zurich, representing the amount of the Palladium held by
the Trust evidenced by the Shares being redeemed. Fractions of a fine ounce of
palladium 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. The Sponsors office is located at Ordinance House,
31 Pier Road, St. Helier, Jersey JE48PW, Channel Islands. Under the Delaware
Limited Liability Company Act and the governing documents of the Sponsor, the
sole member of the Sponsor, ETF Securities Limited, 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.

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

4

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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 and any new or additional Zurich Sub-Custodian that the Custodian
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 Banking 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
maintain capital, surplus and undivided profits of $150 million.

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 palladium as needed to pay the Sponsors
Fee in palladium (palladium transfers are expected to occur approximately
monthly in the ordinary course), (2) valuing the Trusts palladium 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 palladium 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
palladium. 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. 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 or the Zurich Sub-Custodian for the purpose of
examining the Trusts palladium and certain related records maintained by the
Custodian. In addition, other than with respect to the Zurich Sub-Custodian,
the Trustee has no right to visit the premises of any subcustodian for the
purposes of examining the Trusts palladium or any records maintained by the
subcustodian, and no subcustodian is obligated to cooperate in any review the
Trustee may wish to conduct of the facilities, procedures, records or
creditworthiness of such subcustodian. 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, the Zurich
Sub-Custodian or any other subcustodian 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
palladium or Shares for their own account, as agent for their customers and for
accounts over which they exercise investment discretion.

The
Custodian

JPMorgan Chase Bank, N.A.
(JPMorgan) serves as the Custodian of the Trusts palladium. JPMorgan is a
national banking association organized under the laws of the United States of
America. JPMorgan is subject to supervision

5

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by the Federal Reserve
Bank of New York and the Federal Deposit Insurance Corporation. JPMorgans
custodian office is located at 125 London Wall, London, EC2Y 5A5, United
Kingdom. In addition to supervision and examination by the US federal banking
authorities, JPMorgans London custodian operations are subject to supervision
by the Financial Services Authority, an independent non-governmental which
exercises statutory regulatory power under the United Kingdom Financial
Services and Markets Act 2000 and which regulates the major participating
members of the LBMA in the United Kingdom.

The Custodians Role

The Custodian is responsible for safekeeping for the Trust palladium
deposited with it by Authorized Participants in connection with the creation of
Baskets. The Custodian is also responsible for selecting the Zurich
Sub-Custodian and its other direct subcustodians, if any. The Custodian
facilitates the transfer of palladium in and out of the Trust through the
unallocated palladium accounts it will maintain for each Authorized Participant
and the unallocated and allocated palladium accounts it will maintain for the
Trust. The Custodian holds at its London, England vault premises that portion
of the Trusts allocated palladium to be held in London. The Zurich
Sub-Custodian holds at its Zurich, Switzerland vault premises that portion of
the Trusts allocated palladium to be held in Zurich on behalf of the
Custodian. The Custodian is responsible for allocating specific plates or
ingots of physical palladium to the Trusts allocated palladium account. The
Custodian will provide the Trustee with regular reports detailing the palladium
transfers in and out of the Trusts unallocated and allocated palladium
accounts and identifying the palladium plates or ingots held in the Trusts
allocated palladium 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 palladium or Shares for their own account, as
agent for their customers and for accounts over which they exercise investment
discretion.

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 you 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.

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.

6

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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 Palladium

Custody of the physical palladium deposited with and held by the Trust
is provided by the Custodian at its London, England vaults and by the Zurich
Sub-Custodian selected by the Custodian in its Zurich vaults and by other
subcustodians on a temporary basis only in unallocated form. The Custodian is a
market maker, clearer and approved weigher under the rules of the LPPM.

The Custodian is the custodian of the physical palladium credited to
Trust Allocated Account in accordance with the Custody Agreements. The
Custodian segregates the physical palladium 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, and requires the Zurich
Sub-Custodian to also segregate the physical palladium of the Trust from the
other palladium held by it for other customers of the Custodian and the Zurich
Sub-Custodians other customers. The Custodian requires the Zurich
Sub-Custodian to identify in its books and records the Trust as having the
rights to the physical palladium credited to its Trust Allocated Account.

The Custodian, as instructed by the Trustee, is authorized to accept, on
behalf of the Trust, deposits of palladium in unallocated form. Acting on
standing instructions specified in the Custody Agreements, the Custodian will
or will require the Zurich Sub-Custodian to allocate palladium deposited in
unallocated form with the Trust by selecting plates or ingots of physical
palladium for deposit to the Trust Allocated Account. All physical palladium
allocated to the Trust must conform to the rules, regulations, practices and
customs of the LPPM.

The process of withdrawing palladium from the Trust for a redemption of
a Basket will follow the same general procedure as for depositing palladium
with the Trust for a creation of a Basket, only in reverse. Each transfer of
palladium 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 palladium 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 palladium held in
the Trust Unallocated Account as of the close of each business day. See
Creation and Redemption of Shares.

7

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United
States Federal Income Tax Consequences

The following discussion
of the material US federal income tax consequences that 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),
 is based on the
United States Internal Revenue Code of 1986, as amended (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 US 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.

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) is generally 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.

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
will be treated, for US federal income tax purposes, as if they directly owned
a pro rata share of the underlying assets held in the Trust. Shareholders are
also treated as if they directly received their respective pro rata shares of
the Trusts income, if any, and as if they directly incurred their respective
pro rata shares 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 in 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, the delivery of palladium to the Trust in
exchange for the underlying palladium represented by the Shares is not be a
taxable event to the Shareholder, and the Shareholders tax basis and holding
period for the Shareholders pro rata share of the palladium held in the Trust
are the same as its tax basis and holding period for the palladium 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 as to the determination of the tax basis and holding period for the
underlying palladium related to such Shares.

8

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When the Trust sells
palladium, 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 and (2) the
Shareholders tax basis for its pro rata share of the palladium that was sold,
which 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 palladium
sold by the Trust generally will be determined by multiplying the Shareholders
total basis for its share of all of the palladium held in the Trust immediately
prior to the sale, by a fraction the numerator of which is the amount of
palladium sold, and the denominator of which is the total amount of the
palladium held in the Trust immediately prior to the sale. After any such sale,
a Shareholders tax basis for its pro rata share of the palladium remaining in
the Trust will be equal to its tax basis for its share of the total amount of
the palladium held in the Trust immediately prior to the sale, less the portion
of such basis allocable to its share of the palladium that was sold.

Upon a Shareholders sale
of some or all of its Shares, the Shareholder will be treated as having sold
the portion of its pro rata share of the palladium held in the Trust at the
time of the sale that is attributable to the Shares sold. Accordingly, the
Shareholder generally will recognize 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 portion of its pro rata
share of the palladium held in the Trust at the time of sale that is
attributable to 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 palladium
represented by the Shares redeemed generally will not be a taxable event to the
Shareholder. The Shareholders tax basis for the palladium received in the
redemption generally will be the same as the Shareholders tax basis for the
portion of its pro rata share of the palladium held in the Trust immediately
prior to the redemption that is attributable to the Shares redeemed. The
Shareholders holding period with respect to the palladium received should
include the period during which the Shareholder held the Shares redeemed. A
subsequent sale of the palladium received by the Shareholder will be a taxable
event.

After any sale or
redemption of less than all of a Shareholders Shares, the Shareholders tax
basis for its pro rata share of the palladium held in the Trust immediately
after such sale or redemption generally will be equal to its tax basis for its
share of the total amount of the palladium held in the Trust immediately prior
to the sale or redemption, less the portion of such basis which is taken into
account in determining the amount of gain or loss recognized by the Shareholder
upon such sale or, in the case of a redemption, which is treated as the basis
of the palladium received by the Shareholder in the redemption.

In addition, recent legislation effective
after December 31, 2012, if applicable to a Shareholder, would impose a new 3.8% Medicare contribution tax on net investment income.
Shareholders should consult their tax advisor regarding this tax.

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.

Maximum 28% Long-Term Capital Gains
Tax Rate for US Shareholders Who Are Individuals

Under current law, gains
recognized by individuals from the sale of collectibles, including palladium
bullion, held for more than one year are taxed at a maximum federal income tax
rate of 28%, rather than the 15% rate applicable to most other long-term
capital gains. For these purposes, gain recognized by an individual upon the
sale of an interest in a trust that holds collectibles is treated as gain
recognized on the sale of collectibles, to the extent that the gain is
attributable to unrealized appreciation in value of the collectibles held by
the trust. Therefore, any gain recognized by an individual US Shareholder
attributable to a sale of Shares held for more than one year, or attributable
to the Trusts sale of any palladium bullion 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 taxpayer other than an individual US taxpayer are
generally the same as those at which ordinary income is taxed.

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 underlying assets of the Trust.
Similarly, any brokerage fee incurred by a Shareholder in selling Shares
reduces the amount realized by the Shareholder with respect to the sale.

Shareholders are required
to recognize gain or loss upon a sale of palladium 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

9

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deduct their respective
pro rata shares 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. Individuals may deduct certain miscellaneous itemized
deductions only to the extent they exceed 2% of adjusted gross income. In
addition, such deductions may be subject to further limitations under
applicable provisions of the Code, and may not be deductible at all for
alternative minimum tax purposes.

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 palladium 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.

United States Information Reporting
and Backup Withholding for US and Non-US Shareholders

The Trustee or the
appropriate broker files 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 information reporting and backup withholding tax requirements.

The amount of any backup
withholding is 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 gain (if any) upon the sale of palladium.
A Non-US Shareholder generally is not subject to US federal income tax with
respect to gain recognized upon the sale or other disposition of Shares, or
upon the sale of palladium 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.

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 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

10

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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-held offered securities” as defined in the Department of
Labor “Plan Asset Regulations,” §2510.3-101(b)(2). Accordingly,
pursuant to the Plan Asset Regulations, Shares purchased by a Plan, and not an
interest in the underlying assets held in the Trust, should be treated as “plan
assets” of the Plan, for purposes of applying the “fiduciary responsibility”
and “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) is treated as a taxable distribution
from the account to the owner of the IRA, or to the participant for whom the
plan account is maintained, of an amount equal to the cost to the account of
acquiring the collectible. The IRS has issued private letter rulings to the
effect that a purchase of shares in a trust holding precious metals by an IRA,
or by a participant-directed account under a Code section 401(a) plan, will not
be treated as resulting in a taxable distribution to the IRA owner or plan
participant under Code section 408(m). However, if any of the Shares so
purchased are distributed from the IRA or plan account to the IRA owner or plan
participant, or if any palladium received by such IRA or plan account upon the
redemption of any of the Shares purchased by it, the Shares or palladium 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.

Item 1A.
Risk Factors

You should consider
carefully the risks described below before making an investment decision. You
should also refer to the other information included in this report, including
the Trusts financial statements and the related notes.

The value of the Shares relates
directly to the value of the palladium held by the Trust and fluctuations in
the price of palladium could materially adversely affect an investment in the
Shares.

The Shares are designed
to mirror as closely as possible the performance of the price of palladium
bullion, and the value of the Shares relates directly to the value of the
palladium held by the Trust, less the Trusts liabilities (including estimated
accrued but unpaid expenses). The price of palladium has fluctuated widely over
the past several years. Several factors may affect the price of palladium,
including:

| |   |                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Global palladium supply
 and demand, which is influenced by such factors as forward selling by
 palladium producers, purchases made by palladium producers to unwind
 palladium hedge positions, central bank purchases and sales, and production
 and cost levels in major palladium-producing countries such as Russia and
 South Africa;
| |  | Investors expectations
 with respect to the rate of inflation;                                                                                                                                                                                                                                                                            
| |  | Currency exchange
 rates;                                                                                                                                                                                                                                                                                                                  
| |  | Interest rates;                                                                                                                                                                                                                                                                                                                            
| |  | Investment and trading
 activities of hedge funds and commodity funds; and                                                                                                                                                                                                                                                                 
| |  | Global or regional
 political, economic or financial events and situations.                                                                                                                                                                                                                                                                

In addition, investors
should be aware that there is no assurance that palladium will maintain its
long-term value in terms of purchasing power in the future. In the event that
the price of palladium declines, the Sponsor expects the value of an investment
in the Shares to decline proportionately.

The Shares may trade at a price
which is at, above or below the NAV per Share and any discount or premium in
the trading price relative to the NAV per Share may widen as a result of
non-concurrent trading hours between the NYSE Arca and London, Zurich and
COMEX.

The Shares may trade at,
above or below the NAV per Share. The NAV per Share fluctuates with changes in
the market value of the Trusts assets. The trading price of the Shares
fluctuates in accordance with changes in the NAV per Share as well as market
supply and demand. 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 and the major palladium markets. While the Shares trade
on the NYSE Arca until 4:00 PM New York time, liquidity in the market

11

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for palladium is reduced
after the close of the major world palladium markets, including London, Zurich
and the COMEX. As a result, during this time, trading spreads, and the
resulting premium or discount on the Shares, may widen.

A possible “short squeeze”
due to a sudden increase in demand of Shares that largely exceeds supply may
lead to price volatility in the Shares.

Investors may purchase Shares to hedge existing
    palladium exposure or to speculate on the price of palladium. Speculation
    on the price of palladium may involve long and short exposures. To the extent
    aggregate short exposure exceeds the number of Shares available for purchase
    (for example, in the event that large redemption requests by Authorized Participants
    dramatically affect Share liquidity), investors with short exposure may have
    to pay a premium to repurchase Shares for delivery to Share lenders. Those
    repurchases may in turn, dramatically increase the price of the Shares until
    additional Shares are created through the creation process. This is often
    referred to as a “short squeeze.” A short squeeze could lead
    to volatile price movements in Shares that are not directly correlated to
    the price of palladium.

Purchasing activity in the palladium market
      associated with Basket creations or selling activity following Basket redemptions
      may affect the price of palladium and Share trading prices. These price
      changes may adversely affect an investment in the Shares.

Purchasing activity associated with acquiring the
    palladium required for deposit into the Trust in connection with the creation
    of Baskets may increase the market price of palladium, which will result
    in higher prices for the Shares. Increases in the market price of palladium
    may also occur as a result of the purchasing activity of other market participants.
    Other market participants may attempt to benefit from an increase in the
    market price of palladium that may result from increased purchasing activity
    of palladium connected with the issuance of Baskets. Consequently, the market
    price of palladium may decline immediately after Baskets are created. If
    the price of palladium declines, the trading price of the Shares will also
    decline.

Selling activity associated with sales of palladium
    withdrawn from the Trust in connection with the redemption of Baskets may
    decrease the market price of palladium, which will result in lower prices
    for the Shares. Decreases in the market price of palladium may also occur
    as a result of the selling activity of other market participants. If the
    price of palladium declines, the trading price of the Shares will also decline.

From the effectiveness of the Trust’s initial
    public offering of its Shares on January 6, 2010 through March 8, 2011, the
    Trust engaged in Basket creations totaling approximately $804 million. Of
    this amount, approximately $173 million in Basket creations occurred over
    the eight trading days of the period from January 8, 2010 (the date the Shares
    began trading on the Exchange) to January 20, 2010. London PM Fix palladium
    per ounce prices were $422 on January 6, 2010 and $781 on March 8, 2011 and,
    during this period, reached a high of $858 on February 21, 2011 and a low
    of $395 on February 5, 2010. The Sponsor is unable to ascertain whether the
    palladium price movements during this period were attributable to the Trust’s
    Basket creation and redemption process or independent metal market forces
    or both. Nevertheless, the Trust and the Sponsor cannot assure you that future
    Basket creations or redemptions will have no effect on the palladium metal
    prices and, consequently, Share trading prices.

Since there is no limit on the amount of palladium
      that the Trust may acquire, the Trust, as it grows, may have an impact
      on the supply and demand of palladium that ultimately may affect the price
      of the Shares in a manner unrelated to other factors affecting the global
      market for palladium.

The Trust Agreement places no limit on the amount
    of palladium the Trust may hold. Moreover, the Trust may issue an unlimited
    number of Shares, subject to registration requirements, and thereby acquire
    an unlimited amount of palladium. The global market for palladium is characterized
    by supply and demand constraints that are generally not present in the markets
    for other precious metals such as gold and silver. From 1999 to 2009/10,
    world palladium supply averaged 8.12 million ounces. In 2009/10, supply measured
    8.43 million ounces. If the amount of palladium acquired by the Trust is
    large enough in relation to global palladium supply and demand, further in-kind
    creations and redemptions of Shares could have an impact on the supply and
    demand of palladium unrelated to other factors affecting the global market
    for palladium. Such an impact could affect the price for palladium that would
    directly affect the price at which Shares are traded on the Exchange or the
    price of future Baskets created or redeemed by the Trust.

As of March 8, 2011, the Trust held approximately
    1,147,086 ounces of palladium that it acquired since it was formed on December
    30, 2009, representing approximately 14.1% of the 1999-2009/10114 average
    annual world palladium supply or approximately 13.6% of 2009/10 world palladium
    supply. Although the March 8, 2011 London PM Fix of $781 represents an increase
    from the London PM Fix of $422 when the Trust’s initial Share offering
    became effective on January 6, 2010, the Sponsor is unable to conclude that
    a long-term metal market price impact is being caused by the Trust’s
    holdings. Nevertheless, the Trust and the Sponsor cannot provide you any
    assurance that increased metal holdings by the Trust in the future will have
    no such long-term metal price impact thereby affecting Share trading prices.

The Shares and their value could
decrease if unanticipated operational or trading problems arise.

There may be
unanticipated problems or issues with respect to the mechanics of the Trusts
operations and the trading of the Shares that could have a material adverse
effect on an investment in the Shares. In addition, although the Trust is not
actively managed by traditional methods, to the extent that unanticipated operational
or trading problems or issues arise, the Sponsors past experience and
qualifications may not be suitable for solving these problems or issues.

If the process of creation and
redemption of Baskets encounters any unanticipated difficulties, the possibility
for arbitrage transactions intended to keep the price of the Shares closely
linked to the price of palladium may not exist and, as a result, the price of
the Shares may fall.

If the processes of
creation and redemption of Shares (which depend on timely transfers of
palladium to and by the Custodian) encounter any unanticipated difficulties,
potential market participants who would otherwise be willing to purchase or
redeem Baskets to take advantage of any arbitrage opportunity arising from
discrepancies between the price of the Shares and the price of the underlying
palladium may not take the risk that, as a result of those difficulties, they
may not be able to realize the profit they expect. If this is the case, the
liquidity of Shares may decline and the price of the Shares may fluctuate
independently of the price of palladium and may fall.

The liquidity of the Shares may be
affected by the withdrawal from participation of one or more Authorized
Participants.

In the event that one or
more Authorized Participants having substantial interests in Shares or
otherwise responsible for a significant portion of the Shares daily trading
volume on the Exchange withdraw from participation, the liquidity of the Shares
will likely decrease which could adversely affect the market price of the
Shares and result in your incurring a loss on your investment.

Shareholders do not have the
protections associated with ownership of shares in an investment company
registered under the Investment Company Act of 1940 or the protections afforded
by the Commodity Exchange Act (CEA).

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. Consequently, Shareholders do
not have the regulatory protections provided to investors in investment
companies. The Trust does and will not hold or trade in commodity futures
contracts regulated by the CEA, as administered by the CFTC. Furthermore, the
Trust is not a commodity pool for purposes of the CEA, and neither the Sponsor
nor the Trustee is subject to regulation by the CFTC as a commodity pool
operator or a commodity trading advisor in connection with the Shares.
Consequently, Shareholders do not have the regulatory protections provided to
investors in CEA-regulated instruments or commodity pools.

The Trust may be required to
terminate and liquidate at a time that is disadvantageous to Shareholders.

If the Trust is required
to terminate and liquidate, such termination and liquidation could occur at a time
which is disadvantageous to Shareholders, such as when palladium prices are
lower than the palladium prices at the time when Shareholders purchased their
Shares. In such a case, when the Trusts palladium is sold as part of the
Trusts liquidation, the resulting proceeds distributed to Shareholders will be
less than if palladium prices were higher at the time of sale.

The lack of an active trading market
for the Shares may result in losses on investment at the time of disposition of
the Shares.

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Although Shares are
listed for trading on the NYSE Arca, it cannot be assumed that an active
trading market for the Shares will develop or be maintained. If an investor
needs to sell Shares at a time when no active market for Shares exists, such
lack of an active market will most likely adversely affect the price the
investor receives for the Shares (assuming the investor is able to sell them).

Shareholders do not have the rights
enjoyed by investors in certain other vehicles.

As interests in an
investment trust, the Shares have none of the statutory rights normally
associated with the ownership of shares of a corporation (including, for
example, the right to bring oppression or derivative actions). In addition,
the Shares have limited voting and distribution rights (for example,
Shareholders do not have the right to elect directors and do not receive
dividends).

An investment in the Shares may be
adversely affected by competition from other methods of investing in palladium.

The Trust competes with
other financial vehicles, including traditional debt and equity securities
issued by companies in the palladium industry and other securities backed by or
linked to palladium, direct investments in palladium and investment vehicles
similar to the Trust. Market and financial conditions, and other conditions
beyond the Sponsors control, may make it more attractive to invest in other
financial vehicles or to invest in palladium directly, which could limit the
market for the Shares and reduce the liquidity of the Shares.

The price of palladium may be
affected by the sale of ETVs tracking palladium markets.

To the extent existing
exchange traded vehicles (ETVs) tracking palladium markets represent a
significant proportion of demand for physical palladium bullion; large redemptions
of the securities of these ETVs could negatively affect physical palladium
bullion prices and the price and NAV of the Shares.

Crises may motivate large-scale
sales of palladium which could decrease the price of palladium and adversely
affect an investment in the Shares.

The possibility of
large-scale distress sales of palladium in times of crisis may have a
short-term negative impact on the price of palladium and adversely affect an
investment in the Shares. For example, the 2008 financial credit crisis
resulted in significantly depressed prices of palladium largely due to forced
sales and deleveraging from institutional investors such as hedge funds and
pension funds. Crises in the future may impair palladiums price performance
which would, in turn, adversely affect an investment in the Shares.

Several factors may have the effect
of causing a decline in the prices of palladium and a corresponding decline in
the price of Shares. Among them:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A significant increase
 in palladium hedging activity by palladium producers. Should there be an
 increase in the level of hedge activity of palladium producing companies, it
 could cause a decline in world palladium prices, adversely affecting the
 price of the Shares.                                                                                                                                                                                                                                             
| |  | A significant change in
 the attitude of speculators, investors and central banks towards palladium.
 Should the speculative community take a negative view towards palladium or
 central banking authorities determine to sell national palladium reserves,
 either event could cause a decline in world palladium prices, negatively
 impacting the price of the Shares.                                                                                                                                                 
| |  | A widening of interest
 rate differentials between the cost of money and the cost of palladium could
 negatively affect the price of palladium which, in turn, could negatively
 affect the price of the Shares.                                                                                                                                                                                                                                                                                                           
| |  | A combination of rising
 money interest rates and a continuation of the current low cost of borrowing
 palladium could improve the economics of selling palladium forward. This
 could result in an increase in hedging by palladium mining companies and
 short selling by speculative interests, which would negatively affect the
 price of palladium. Under such circumstances, the price of the Shares would
 be similarly affected.                                                                                  
| |  | Autocatalysts, automobile components
         that use palladium, accounted for approximately 57% of the global demand
         in palladium in 2008. The global automotive industry is currently experiencing
         declining demand and, in certain cases, solvency concerns. Reduced automotive
         industry sales may result in a decline in autocatalyst demand. A continued
         decline in the global automotive industry may impact the price of palladium
         and affect the price of the Shares.

The Trusts palladium may be subject
to loss, damage, theft or restriction on access.

There is a risk that part
or all of the Trusts palladium could be lost, damaged or stolen. Access to the
Trusts palladium could also be restricted by natural events (such as an
earthquake) or human actions (such as a terrorist attack). Any of these events
may adversely affect the operations of the Trust and, consequently, an
investment in the Shares.

The Trusts lack of insurance
protection and the Shareholders limited rights of legal recourse against the
Trust, the Trustee, the Sponsor, the Custodian, any Zurich Sub-Custodian and
any other sub-custodian exposes the Trust and its Shareholders to the risk of
loss of the Trusts palladium for which no person is liable.

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The Trust does not insure
its palladium. The Custodian maintains insurance with regard to its business on
such terms and conditions as it considers appropriate in connection with its
custodial obligations and is responsible for all costs, fees and expenses
arising from the insurance policy or policies. The Trust is not a beneficiary of
any such insurance and does not have the ability to dictate the existence,
nature or amount of coverage. Therefore, Shareholders cannot be assured that
the Custodian maintains adequate insurance or any insurance with respect to the
palladium held by the Custodian on behalf of the Trust. In addition, the
Custodian and the Trustee do not require the Zurich Sub-Custodian or any other
direct or indirect sub-custodians to be insured or bonded with respect to their
custodial activities or in respect of the palladium held by them on behalf of
the Trust. Further, Shareholders recourse against the Trust, the Trustee and
the Sponsor, under New York law, the Custodian, the Zurich Sub-Custodian and
any other sub-custodian, under English law, and any sub-custodians under the
law governing their custody operations is limited. Consequently, a loss may be
suffered with respect to the Trusts palladium which is not covered by
insurance and for which no person is liable in damages.

The Custodians limited liability
under the Custody Agreements and English law may impair the ability of the
Trust to recover losses concerning its palladium and any recovery may be
limited, even in the event of fraud, to the market value of the palladium at
the time the fraud is discovered.

The liability of the
Custodian is limited under the Custody Agreements. Under the Custody Agreements
between the Trustee and the Custodian which establish the Trust Unallocated
Account and the Trust Allocated Account, the Custodian is only liable for
losses that are the direct result of its own negligence, fraud or willful
default in the performance of its duties. Any such liability is further
limited, in the case of the Allocated Account Agreement, to the market value of
the palladium held in the Trust Allocated Account at the time such negligence,
fraud or willful default is discovered by the Custodian and, in the case of the
Unallocated Account Agreement, to the amount of palladium credited to the Trust
Unallocated Account at the time such negligence, fraud or willful default is
discovered by the Custodian. Under each Authorized Participant Unallocated
Bullion Account Agreement (between the Custodian or other palladium bullion
clearing bank and an Authorized Participant establishing an Authorized
Participant Unallocated Account), the Custodian is not contractually or
otherwise liable for any losses suffered by any Authorized Participant or
Shareholder that are not the direct result of its own gross negligence, fraud
or willful default in the performance of its duties under such agreement, and
in no event will its liability exceed the market value of the balance in the
Authorized Participant Unallocated Account at the time such gross negligence,
fraud or willful default is discovered by the Custodian. In addition, the
Custodian will not be liable for any delay in performance or any
non-performance of any of its obligations under the Allocated Account
Agreement, the Unallocated Account Agreement or the Authorized Participant
Unallocated Bullion Account Agreement by reason of any cause beyond its
reasonable control, including acts of God, war or terrorism. As a result, the
recourse of the Trustee or the investor, under English law, is limited.
Furthermore, under English common law, the Custodian, the Zurich Sub-Custodian
or any subcustodian will not be liable for any delay in the performance or any
non-performance of its custodial obligations by reason of any cause beyond its
reasonable control.

The obligations of the Custodian,
the Zurich Sub-Custodian and any other subcustodians are governed by English
law, which may frustrate the Trust in attempting to receive legal redress
against the Custodian, the Zurich Sub-Custodian or any subcustodian concerning
its palladium.

The obligations of the
Custodian under the Custody Agreements are, and the Authorized Participant
Unallocated Bullion Account Agreements may be, governed by English law. The
Custodian has entered into arrangements with the Zurich Sub-Custodian and may
enter into arrangements with any other subcustodians for all or a significant
portion of the Trusts palladium, which arrangements may also be governed by
English law. The Trust is a New York common law trust. Any United States, New
York or other court situated in the United States may have difficulty interpreting
English law (which, insofar as it relates to custody arrangements, is largely
derived from court rulings rather than statute), LPPM rules or the customs and
practices in the London custody market. It may be difficult or impossible for
the Trust to sue the Zurich Sub-Custodian or any other subcustodian in a United
States, New York or other court situated in the United States. In addition, it
may be difficult, time consuming and/or expensive for the Trust to enforce in a
foreign court a judgment rendered by a United States, New York or other court
situated in the United States.

Although the relationship between
the Custodian and the Zurich Sub-Custodian concerning the Trusts allocated
palladium is expressly governed by English law, a court hearing any legal
dispute concerning that arrangement may disregard that choice of law and apply
Swiss law, in which case the ability of the Trust to seek legal redress against
the Zurich Sub-Custodian may be frustrated.

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The obligations of the
Zurich Sub-Custodian under its arrangement with the Custodian with respect to
the Trusts allocated palladium is expressly governed by English law.
Nevertheless, a court in the United States, England or Switzerland may
determine that English law should not apply and, instead, apply Swiss law to
that arrangement. Not only might it be difficult or impossible for a United
States or English court to apply Swiss law to the Zurich Sub-Custodians
arrangement, but application of Swiss law may, among other things, alter the
relative rights and obligations of the Custodian and the Zurich Sub-Custodian
to an extent that a loss to the Trusts palladium may not have adequate or any
legal redress. Further, the ability of the Trust to seek legal redress against
the Zurich Sub-Custodian may be frustrated by application of Swiss law.

The Trust may not have adequate
sources of recovery if its palladium is lost, damaged, stolen or destroyed.

If the Trusts palladium
is lost, damaged, stolen or destroyed under circumstances rendering a party
liable to the Trust, the responsible party may not have the financial resources
sufficient to satisfy the Trusts claim. For example, as to a particular event
of loss, the only source of recovery for the Trust might be limited to the
Custodian, the Zurich Sub-Custodian or any other subcustodians or, to the
extent identifiable, other responsible third parties (e.g., a thief or
terrorist), any of which may not have the financial resources (including
liability insurance coverage) to satisfy a valid claim of the Trust.

Shareholders and Authorized
Participants lack the right under the Custody Agreements to assert claims
directly against the Custodian, the Zurich Sub-Custodian and any subcustodian.

Neither the Shareholders
nor any Authorized Participant have a right under the Custody Agreements to
assert a claim of the Trustee against the Custodian, the Zurich Sub-Custodian
or any subcustodian. Claims under the Custody Agreements may only be asserted
by the Trustee on behalf of the Trust.

The Custodian is reliant on the Zurich
Sub-Custodian for the safekeeping of all or a substantial portion of the
Trusts palladium. Furthermore, the Custodian has limited obligations to
oversee or monitor the Zurich Sub-Custodian. As a result, failure by any Zurich
Sub-Custodian to exercise due care in the safekeeping of the Trusts palladium
could result in a loss to the Trust.

Palladium generally
trades on a loco London or loco Zurich basis whereby the physical palladium is
held in vaults located in London or Zurich or is transferred into accounts
established in London or Zurich. The Custodian does not have a vault in Zurich
and is reliant on the Zurich Sub-Custodian for the safekeeping of all or a
substantial portion of the Trusts allocated palladium. Other than obligations
to (1) use reasonable care in appointing the Zurich Sub-Custodian, (2) require
any Zurich Sub-Custodian to segregate the palladium held by it for the Trust
from any other palladium held by it for the Custodian and any other customers
of the Custodian by making appropriate entries in its books and records and (3)
ensure that the Zurich Sub-Custodian provide confirmation to the Trustee that
it has undertaken to segregate the palladium held by it for the Trust, the
Custodian is not liable for the acts or omissions of the Zurich Sub-Custodian.
Other than as described above, the Custodian does not undertake to monitor the
performance by the Zurich Sub-Custodian of its custody functions. The Trustees
obligation to monitor the performance of the Custodian is limited to receiving
and reviewing the reports of the Custodian. The Trustee does not monitor the
performance of the Zurich Sub-Custodian or any other subcustodian. In addition,
the ability of the Trustee and the Sponsor to monitor the performance of the
Custodian may be limited because under the Custody Agreements, the Trustee and
the Sponsor have only limited rights to visit the premises of the Custodian or
the Zurich Sub-Custodian for the purpose of examining the Trusts palladium and
certain related records maintained by the Custodian or Zurich Sub-Custodian.

As a result of the above,
any failure by any Zurich Sub-Custodian to exercise due care in the safekeeping
of the Trusts palladium may not be detectable or controllable by the Custodian
or the Trustee and could result in a loss to the Trust.

The Custodian relies on its Zurich
Sub-Custodian to hold the palladium allocated to the Trust Allocated Account
and used to settle redemptions. As a result, settlement of palladium in
connection with redemptions loco London may require more than three days.

The Custodian is reliant
on its Zurich Sub-Custodian to hold the palladium allocated to the Trust
Allocated Account in order to effect redemption of Shares. As a result, in the
case for redemption orders electing palladium deliveries to be received loco
London, it may take longer than three business days for palladium to be
credited to the Authorized Participant Unallocated Account, which may result in
a delay of settlement of the redemption order that is settled loco London.

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Because neither the Trustee nor the
Custodian oversees or monitors the activities of subcustodians who may hold the
Trusts palladium, failure by the subcustodians to exercise due care in the
safekeeping of the Trusts palladium could result in a loss to the Trust.

Under the Allocated
Account Agreement, the Custodian may appoint from time to time one or more
subcustodians to hold the Trusts palladium on a temporary basis pending
delivery to the Custodian. The subcustodians which the Custodian currently uses
are the Bank of England, Brinks Global Services Inc., Via Mat International
and LPPM clearing members that provide bullion vaulting and clearing services
to third parties. The Custodian has selected the Zurich Sub-Custodian, and the
Zurich Sub-Custodian maintains custody of all of the Trusts allocated
palladium for the Custodian. The Custodian is required under the Allocated
Account Agreement to use reasonable care in appointing the Zurich Sub-Custodian
and any other subcustodians, making the Custodian liable only for negligence or
bad faith in the selection of such subcustodians, and has an obligation to use
commercially reasonable efforts to obtain delivery of the Trusts palladium
from any subcustodians appointed by the Custodian. Otherwise, the Custodian is
not liable for the acts or omissions of its subcustodians. These subcustodians
may in turn appoint further subcustodians, but the Custodian is not responsible
for the appointment of these further subcustodians. The Custodian does not
undertake to monitor the performance by subcustodians of their custody
functions or their selection of further subcustodians. The Trustee does not
monitor the performance of the Custodian other than to review the reports
provided by the Custodian pursuant to the Custody Agreements and does not
undertake to monitor the performance of any subcustodian. Furthermore, except
for the Zurich Sub-Custodian, the Trustee may have no right to visit the
premises of any subcustodian for the purposes of examining the Trusts
palladium or any records maintained by the subcustodian, and no subcustodian
will be obligated to cooperate in any review the Trustee may wish to conduct of
the facilities, procedures, records or creditworthiness of such subcustodian.
In addition, the ability of the Trustee to monitor the performance of the
Custodian may be limited because under the Allocated Account Agreement and the
Unallocated Account Agreement the Trustee has only limited rights to visit the
premises of the Custodian and the Zurich Sub-Custodian for the purpose of
examining the Trusts palladium and certain related records maintained by the
Custodian and the Zurich Sub-Custodian.

The obligations of any subcustodian
of the Trusts palladium are not determined by contractual arrangements but by
LPPM rules and London bullion market customs and practices, which may prevent
the Trusts recovery of damages for losses on its palladium custodied with
subcustodians.

Except for the
Custodians arrangement with the Zurich Sub-Custodian, there are expected to be
no written contractual arrangements between subcustodians that hold the Trusts
palladium and the Trustee or the Custodian because traditionally such
arrangements are based on the LPPMs rules and on the customs and practices of
the London bullion market. In the event of a legal dispute with respect to or
arising from such arrangements, it may be difficult to define such customs and
practices. The LPPMs rules may be subject to change outside the control of the
Trust. Under English law, neither the Trustee nor the Custodian would have a
supportable breach of contract claim against a subcustodian for losses relating
to the safekeeping of palladium. If the Trusts palladium is lost or damaged
while in the custody of a subcustodian, the Trust may not be able to recover
damages from the Custodian or the subcustodian. Whether a subcustodian will be
liable for the failure of subcustodians appointed by it to exercise due care in
the safekeeping of the Trusts palladium will depend on the facts and
circumstances of the particular situation. Shareholders cannot be assured that
the Trustee will be able to recover damages from subcustodians whether
appointed by the Custodian or by another subcustodian for any losses relating
to the safekeeping of palladium by such subcustodian.

Palladium bullion allocated to the
Trust in connection with the creation of a Basket may not meet the London Good
Delivery Standards and, if a Basket is issued against such palladium, the Trust
may suffer a loss.

Neither the Trustee nor
the Custodian independently confirms the fineness of the palladium allocated to
the Trust in connection with the creation of a Basket. The palladium bullion
allocated to the Trust by the Custodian may be different from the reported
fineness or weight required by the LPPMs standards for palladium plates or
ingots delivered in settlement of a palladium trade (London Good Delivery
Standards), the standards required by the Trust. If the Trustee nevertheless
issues a Basket against such palladium, and if the Custodian fails to satisfy
its obligation to credit the Trust the amount of any deficiency, the Trust may
suffer a loss.

Palladium held in the Trusts
unallocated palladium account and any Authorized Participants unallocated
palladium account is not segregated from the Custodians assets. If the
Custodian becomes insolvent, its assets may not be adequate to satisfy a claim
by the Trust or any Authorized Participant. In addition, in the event of the
Custodians insolvency, there may be a delay and costs incurred in identifying
the bullion held in the Trusts allocated palladium account.

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Palladium which is part
of a deposit for a purchase order or part of a redemption distribution is held
for a time in the Trust Unallocated Account and, previously or subsequently in,
the Authorized Participant Unallocated Account of the purchasing or redeeming
Authorized Participant. During those times, the Trust and the Authorized
Participant, as the case may be, have no proprietary rights to any specific
plates or ingots of palladium held by the Custodian and are each an unsecured
creditor of the Custodian with respect to the amount of palladium held in such
unallocated accounts. In addition, if the Custodian fails to allocate the
Trusts palladium in a timely manner, in the proper amounts or otherwise in
accordance with the terms of the Unallocated Account Agreement, or if a
subcustodian fails to so segregate palladium held by it on behalf of the Trust,
unallocated palladium will not be segregated from the Custodians assets, and
the Trust will be an unsecured creditor of the Custodian with respect to the
amount so held in the event of the insolvency of the Custodian. In the event
the Custodian becomes insolvent, the Custodians assets might not be adequate
to satisfy a claim by the Trust or the Authorized Participant for the amount of
palladium held in their respective unallocated palladium accounts.

In the case of the
insolvency of the Custodian, a liquidator may seek to freeze access to the
palladium held in all of the accounts held by the Custodian, including the
Trust Allocated Account. Although the Trust would be able to claim ownership of
properly allocated palladium, the Trust could incur expenses in connection with
asserting such claims, and the assertion of such a claim by the liquidator
could delay creations and redemptions of Baskets.

In issuing Baskets, the Trustee
relies on certain information received from the Custodian which is subject to
confirmation after the Trustee has relied on the information. If such
information turns out to be incorrect, Baskets may be issued in exchange for an
amount of palladium which is more or less than the amount of palladium which is
required to be deposited with the Trust.

The Custodians
definitive records are prepared after the close of its business day. However,
when issuing Baskets, the Trustee relies on information reporting the amount of
palladium credited to the Trusts accounts which it receives from the Custodian
during the business day and which is subject to correction during the preparation
of the Custodians definitive records after the close of business. If the
information relied upon by the Trustee is incorrect, the amount of palladium
actually received by the Trust may be more or less than the amount required to
be deposited for the issuance of Baskets.

The sale of the Trusts palladium to
pay expenses not assumed by the Sponsor at a time of low palladium prices could
adversely affect the value of the Shares.

The Trustee sells
palladium held by the Trust to pay Trust expenses not assumed by the Sponsor on
an as-needed basis irrespective of then-current palladium prices. The Trust is
not actively managed and no attempt will be made to buy or sell palladium to
protect against or to take advantage of fluctuations in the price of palladium.
Consequently, the Trusts palladium may be sold at a time when the palladium
price is low, resulting in a negative effect on the value of the Shares.

The value of the Shares will be
adversely affected if the Trust is required to indemnify the Sponsor or the
Trustee under the Trust Agreement.

Under the Trust
Agreement, each of the Sponsor and the Trustee has a right to be indemnified
from the Trust for any liability or expense it incurs without gross negligence,
bad faith or willful misconduct on its part. That means the Sponsor or the
Trustee may require the assets of the Trust to be sold in order to cover losses
or liability suffered by it. Any sale of that kind would reduce the NAV of the
Trust and the value of the Shares.

Item 1B.
Unresolved Staff Comments

None.

Item 2.
Properties

Not applicable.

Item 3.
Legal Proceedings

None.

Item 4.
(Removed and Reserved)

17

---



Item 5. Market
for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.

Note: The Trust was audited
for seed purposes on December 30, 2009 and had no operations for the remainder
of 2009. Therefore no full audit was required and the Trust did not submit a
10K for the year ended December 31, 2009. In the 10K for the year ended
December 31, 2010, the Statement of Financial Condition will be presented for
the period ended December 31, 2010 and the Statement of Operations will be
presented for the period December 30, 2009 through December 31, 2010.

The
Trusts Shares have been listed on the NYSE Arca under the symbol PALL since
its initial public offering on January 8, 2010. The following tables set out
the range of high and low closing prices for the Shares as reported for NYSE
Arca transactions for each of the quarters during the fiscal period commencing
January 8, 2010 and ending December 31, 2010 (the Reporting Period):

|                                                     |  |      |       |     |   |       | 
|---------------------------------------------------- |  | ---- | ----- | --- | - | ----- | 
|Fiscal
 Year Ended December 31, 2010:
 Quarter Ended |  | High |       | Low |  
|                                                     |  |      |       |     |  
|March 31, 2010 (commencing
 December 30, 2009)       |  | $    | 47.86 |     | $ | 40.09 | 
|June 30, 2010                                        |  | $    | 56.59 |     | $ | 41.86 | 
|September 30, 2010                                   |  | $    | 56.71 |     | $ | 43.08 | 
|December 31, 2010                                    |  | $    | 79.86 |     | $ | 55.90 | 

The number of Shares of record of the Trust as of March 8, 2011
was approximately 11,550,000.

Monthly Share Price

The
following table sets forth, for each of the most recent six months, the high
and low closing prices of the Shares, as reported for NYSE Arca transactions.

|               |  |      |       |     |   |       | 
|-------------- |  | ---- | ----- | --- | - | ----- | 
|Month          |  | High |       | Low |  
|               |  |      |       |     |  
|September 2010 |  | $    | 56.71 |     | $ | 51.75 | 
|October 2010   |  | $    | 64.48 |     | $ | 55.90 | 
|November 2010  |  | $    | 71.07 |     | $ | 63.78 | 
|December 2010  |  | $    | 79.86 |     | $ | 72.41 | 
|January 2011   |  | $    | 81.34 |     | $ | 74.62 | 
|February 2011  |  | $    | 84.54 |     | $ | 77.00 | 

Issuer Purchase of Equity Securities

The
Trust issues and redeems Shares only with Authorized Participants in exchange
for palladium, only in aggregations of 50,000 or integral multiples thereof. A
list of current Authorized Participants is available from the Sponsor or the
Trustee. Although the Trust does not purchase Shares directly from its
shareholders in connection with the redemption of Baskets, the Trust redeemed
as follows during the Reporting Period:

|                     |  |                                  |           |  |                                         |        | 
|-------------------- |  | -------------------------------- | --------- |  | --------------------------------------- | ------ | 
|Period               |  | Total Number of
 Shares Redeemed |           |  | Average Ounces
 of palladium Per
 Share |       
|                     |  |                                  |           |  |                                        
|                     |  |                                  |           |  |                                         |        | 
|01/08/10 to 01/31/10 |  |                                  |          |  |                                         |       | 
|02/01/10 to 02/28/10 |  |                                  |          |  |                                         |       | 
|03/01/10 to 03/31/10 |  |                                  |          |  |                                         |       | 
|04/01/10 to 04/30/10 |  |                                  |          |  |                                         |       | 
|05/01/10 to 05/31/10 |  |                                  | 150,000   |  |                                         | 0.0998 | 
|06/01/10 to 06/30/10 |  |                                  | 300,000   |  |                                         | 0.0997 | 
|07/01/10 to 07/31/10 |  |                                  | 300,000   |  |                                         | 0.0997 | 
|08/01/10 to 08/31/10 |  |                                  |          |  |                                         |       | 
|09/01/10 to 09/30/10 |  |                                  | 550,000   |  |                                         | 0.0996 | 
|10/01/10 to 10/31/10 |  |                                  |          |  |                                         |       | 
|11/01/10 to 11/30/10 |  |                                  |          |  |                                         |       | 
|12/01/10 to 12/31/10 |  |                                  | 500,000   |  |                                         | 0.0994 | 
|                     |  |                                  |           |  |                                         |        | 
|Total                |  |                                  | 1,800,000 |  |                                         | 0.0996 | 
|                     |  |                                  |           |  |                                         |        | 

18

---



Item 6. Selected Financial Data.

The
following selected financial data for the Reporting Period should be read in
conjunction with the Trusts financial statements and related notes and
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

|                                           |  |                    |             | 
|------------------------------------------ |  | ------------------ | ----------- | 
|                                           |  | December 31, 2010* |            
|                                           |  |                    |             | 
|Total assets                               |  | $                  | 620,790,556 | 
|Total gain on palladium                    |  | $                  | 15,014,873  | 
|Net gain from operations                   |  | $                  | 12,663,945  | 
|Weighted average number of
 Shares         |  |                    | 7,032,877   | 
|Net gain per Share                         |  | $                  | 1.80        | 
|Net cash provided by
 operating activities |  | $                  |            | 
|                                           |  |                    |             | 
|                                           |  |                    |             | 

|  |                                                             
|- | ------------------------------------------------------------
|* | For the period from
 December 30, 2009 to December 31, 2010.

Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations.

This information should be read in conjunction with the
financial statements and notes to the financial statements included with this
report. The discussion and analysis that follows may contain statements that
relate to future events or future performance. In some cases, such
forward-looking statements can be identified by terminology such as may,
should, expect, plan, anticipate, believe, estimate, predict,
potential or the negative of these terms or other comparable terminology.
Neither the Sponsor, nor any other person assumes responsibility for the
accuracy or completeness of forward-looking statements. Neither the Trust nor
the Sponsor is under a duty to update any of the forward-looking statements to
conform such statements to actual results or to a change in the Sponsors
expectations or predictions.

Introduction.

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

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

The Trust issues and redeems Shares only in exchange
    for palladium, only in aggregations of 50,000 or integral multiples thereof
    (each, a “Basket”), and only in transactions with registered
    broker-dealers that have previously entered into an agreement with the Trust
    governing the terms and conditions of such issuance (such dealers, the “Authorized
    Participants”). A list of current Authorized Participants is available
    from the Sponsor or the Trustee.

Shares of the Trust trade on the NYSE Arca under
    the symbol “PALL.”

19

---



Investing in the Shares does not insulate the investor
    from certain risks, including price volatility. The following table illustrates
    the movement in the price of the Shares and NAV
    of the Shares against the corresponding palladium price (per 1/10 of an oz.
of palladium) since inception:

Closing Shares price v. 1/10th palladium price
from fund inception to December 31, 2010

(LINE GRAPH)

The
divergence of the price of the Shares and the NAV of the Shares from the
palladium price over time reflects the cumulative effect of the Trust expenses
that arise if an investment had been held since inception.

Critical Accounting Estimates

The
financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements relies on estimates and assumption
that impact the Trusts financial position and results of operations. These
estimates and assumptions affect the Trusts application of accounting
policies. Below we describe the valuation of palladium bullion, a critical
accounting policy that we believe is important to the understanding of our
results of operations and financial position. In addition, please refer to Note
2 to the Financial Statements for further discussion of our accounting
policies.

Valuation of Palladium

Palladium
is held by the Custodian on behalf of the Trust and is valued, for financial
statement purposes, at the lower of cost or market. The cost of palladium is
determined according to the average cost method and the market value is based
on the London PM Fix used to determine the NAV of the
Trust. Realized gains and losses on transfers of palladium to pay the Sponsors
Fee, or palladium distributed for the redemption of Shares, are calculated on a
trade date basis using average cost.

Once the value of the palladium has been determined the
NAV is computed by the Trustee by deducting all accrued fees and other liabilities, including the renumeration due to the
Sponsor (the “Sponsor’s Fee”), from the fair value of the palladium and all other assets held by the
Trust.

20

---



The table below summarizes
the impact of unrealized gains on the Trusts palladium at December 31, 2010.

|                                            |  |                   |             | 
|------------------------------------------- |  | ----------------- | ----------- | 
|                                            |  | December 31, 2010 |            
|                                            |  |                   |            
|Investment in palladium 
 average cost     |  | $                 | 597,199,695 | 
|Unrealized gain on
 investment in palladium |  | $                 | 264,284,781 | 
|                                            |  |                   |             | 
|Investment in palladium 
 market value     |  | $                 | 861,484,476 | 

Liquidity

The
Trust is not aware of any trends, demands, conditions, events or uncertainties
that are reasonably likely to result in material changes to its liquidity
needs. In exchange for the Sponsors Fee, the Sponsor has agreed to assume most
of the expenses incurred by the Trust. As a result, the only expense of the
Trust during the period covered by this report was the Sponsors Fee. The
Trusts only source of liquidity is its transfers and sales of palladium.

The Trustee will, at the direction of the Sponsor
    or in its own discretion, sell the Trust’s palladium as necessary to
    pay the Trust’s expenses not otherwise assumed by the Sponsor. The
    Trustee will not sell palladium to pay the Sponsor’s Fee but will pay
    the Sponsor’s Fee through in-kind transfers of palladium to the Sponsor.
At December 31, 2010, the Trust did not have any cash balances.

Review of Financial Results

Financial Highlights

|                                           |  |                    |            | 
|------------------------------------------ |  | ------------------ | ---------- | 
|                                           |  | December 31, 2010* |           
|                                           |  |                    |           
|Total gain on palladium                    |  | $                  | 15,014,873 | 
|Net gain from operations                   |  | $                  | 12,663,945 | 
|Net cash provided by
 operating activities |  | $                  |           | 

|                                                          
|----------------------------------------------------------
|                                                          
|*Period
 from December 30, 2009 through December 31, 2010.

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

Period ended December 31, 2010

The
Trust was formed as a legal entity on December 30, 2009 with an initial deposit
of palladium. The NAV at December 30, 2009 was $3,930,000.

The
Trusts Shares commenced trading on the NYSE Arca under the symbol PALL
on January 8, 2010. The Trust began accruing expenses and calculating NAV from
this date. The Trusts NAV increased from $3,930,000 at December 30, 2009
to $4,260,000 at the start of business on January 8, 2010 due to the increase
in the price per ounce of palladium from $393 to $426.
The Trusts NAV grew from $4,260,000 at the start of business on January
8, 2010 to $884,637,847 at December 31, 2010, a 20,666.15% increase for the period.
The Trusts NAV per Share increased 84.58% from $42.60 at January 8, 2010
to $78.63 at December 31, 2010. The increase in the Trusts NAV resulted
primarily from an increase in the price per ounce of palladium which rose 85.68%
from $426 at the start of business on January 8, 2010 to $791 on December
31, 2010 and an increase in outstanding Shares, which rose from 100,000 at January
8, 2010 to 11,250,000 Shares at December 31, 2010, a consequence of 12,950,000
Shares (259 Baskets) being created and 1,800,000 Shares (36 Baskets) being redeemed
during the period.

The
Trusts NAV per Share rose slightly less than the price per ounce of palladium
on a percentage basis due to the Sponsors Fee, which was $2,350,928 for
the period, or 0.60% of the Trusts assets on an annualized basis.

The
NAV per Share of $79.23 on December 30, 2010 was the highest during the period
compared with a low of $39.48 on February 5, 2010.

Net
gain for the period ended December 31, 2010 was $12,663,945 resulting from a
net gain of $190,840 on the transfer of palladium to pay the Sponsors Fee and
a net gain of $14,824,033 on palladium distributed for the

21

---



redemption of Baskets, which was offset by the Sponsors Fee of $2,350,928. Other than the
Sponsors Fee, the Trust had no expenses during the period ended December 31, 2010.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

The
Trust  Agreement does not authorize the Trustee to borrow for payment of the
Trusts ordinary expenses. The Trust does not engage in transactions in foreign
currencies which could expose the Trust or holders of Shares to any foreign
currency related market risk. The Trust invests in no derivative financial
instruments and has no foreign operations or long-term debt instruments.

Item 8. Financial Statements and Supplementary Data - (Unaudited).

Period Ended December 31, 2010

|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|-------------------------------------------------------------------- |  | ------------------ | --------- | ------------------------------------- | - | ------------- | - | ------------ | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                                     |  |                    |           | For the
 Period
 Ended
 December
 31* |  
|                                                                     |  |                    |           |                                      
|                                                                     |  | Three months ended |           |                                      
|                                                                     |  | March 31*          |           | June 30                               |   | September
 30 |   | December
 31 |            |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Revenues                                                             |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Value of palladium
     transferred to pay expenses                  |  | $                  | 135,477   |                                       | $ | 473,037       |   | $            | 550,980    |   | $ | 749,181    |   | $ | 1,908,675  |  
|Cost of palladium
     transferred to pay expenses                   |  |                    | (138,319  | )                                     |   | (435,720      | ) |              | (544,830   | ) |   | (598,966   | ) |   | (1,717,835 | )
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|(Loss) / gain
     on palladium transferred to pay expenses          |  |                    | (2,842    | )                                     |   | 37,317        |   |              | 6,150      |   |   | 150,215    |   |   | 190,840    |  
|Gain on palladium
     distributed for the redemption of Shares      |  |                    |          |                                       |   | 1,144,602     |   |              | 3,534,206  |   |   | 10,145,225 |   |   | 14,824,033 |  
|Unrealized (loss)
     / gain on investment in palladium             |  |                    |          |                                       |   | (14,802,112   | ) |              | 14,802,112 |   |   |           |   |   |           |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Total (loss)
     / gain on transfers and distributions of palladium |  | $                  | (2,842    | )                                     | $ | (13,620,193   | ) | $            | 18,342,468 |   | $ | 10,295,440 |   | $ | 15,014,873 |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Expenses                                                             |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Sponsors Fee                                                        |  | $                  | 257,463   |                                       | $ | 533,291       |   | $            | 564,314    |   | $ | 995,860    |   | $ | 2,350,928  |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Total expenses                                                       |  | $                  | 257,463   |                                       | $ | 533,291       |   | $            | 564,314    |   | $ | 995,860    |   | $ | 2,350,928  |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Net (loss) / gain from operations                                    |  | $                  | (260,305  | )                                     | $ | (14,153,484   | ) | $            | 17,778,154 |   | $ | 9,299,580  |   | $ | 12,633,945 |  
|                                                                     |  |                    |           |                                       |   |               |   |              |            |   |   |            |   |   |            |  
|Net (loss) / gain per Shares                                         |  | $                  | (0.07     | )                                     | $ | (1.96         | ) | $            | 2.35       |   | $ | 0.99       |   | $ | 1.80       |  
|Weighted average number of Shares                                    |  |                    | 3,875,556 |                                       |   | 7,266,923     |   |              | 7,567,935  |   |   | 9,397,283  |   |   | 7,032,877  |  

|                                     
|-------------------------------------
|                                     
|*Period
 commenced December 30, 2009.

22

---



Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure.

Deloitte
& Touche LLP was appointed independent accountants to the Trust from the
Date of Inception. There have been no disagreements with accountants during the
period ended December 31, 2010.

Item 9A. Controls and Procedures.

The
authorized officers of the Sponsor performing functions equivalent to those
that a principal executive officer and principal financial officer of the Trust
would perform if the Trust had any officers, and with the participation of the
Trustee, have evaluated the effectiveness of the Trusts disclosure controls
and procedures, and have concluded that the disclosure controls and procedures
of the Trust were effective as of December 31, 2010.

There
have been changes in the Trusts or Sponsors internal control over
financial reporting that occurred during the Trusts recently completed
fiscal quarter ended December 31, 2010 that have materially affected, or are
reasonably likely to materially affect, the Trusts or Sponsors internal
control over financial reporting. These changes have occurred as a result of
the Sponsors review of
the control processes. The changes include strengthening the review procedures
over the financial statements and the creation of an audit committee to act in
respect of the Trust on behalf of the Sponsors audit committee.

This
Annual Report does not include a report of managements assessment regarding
internal control over financial reporting or an attestation report of the
Trusts registered public accounting firm due to a transition period
established by rules of the SEC for newly public companies.

Item 9B. Other Information.

Not applicable.

23

---



PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Not applicable.

Item 11. Executive Compensation.

The Trust has no directors or executive officers.
    The only ordinary expense paid by the Trust is the Sponsors Fee.

Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners

The Sponsor has no knowledge of any person being the beneficial owner of more than
5% of the outstanding Shares of the Trust.

Security Ownership of Management

The Trustee does not beneficially own any of the Trust Shares.

Change in Control

Neither the Sponsor nor the Trustee knows of any arrangements which may subsequently
result in a change in control of the Trust.

Item 13. Certain Relationships
and Related Transactions, and Director Independence.

The Trust has no directors or executive officers.

Item 14. Principal Accounting Fees and Services.

Fees for services performed by Deloitte & Touche LLP for the period ended
December 31, 2010 were as follows:

|                   |  |                   |        | 
|------------------ |  | ----------------- | ------ | 
|                   |  | December 31, 2010 |       
|Audit fees         |  | $                 | 90,000 | 
|Audit-related fees |  |                   |       | 
|                   |  |                   |        | 
|                   |  | $                 | 90,000 | 

Pre-Approved Policies and ProceduresAs referenced in Item 10
above, the Trust has no board of directors, and as a result, has no
pre-approval policies or procedures with respect to fees paid to Deloitte &
Touche LLP. Such determinations are made by the Sponsor.None of the hours
expended by Deloitte & Touche LLP to audit the Trusts financial statements
for the fiscal period ended December 31, 2010 were attributable to work
performed by persons other than the principal accountants full-time, permanent
employees.

Item 15. Exhibits, Financial
Statement Schedules

1. Financial StatementsSee Index to Financial
Statements on Page F-1 for a list of the financial statements being filed herein.

24

---



2. Financial Statement SchedulesSchedules have been omitted
since they are either not required, not applicable, or the information has
otherwise been included.

3. Exhibits

|             |  |                                                                                                                                                                    
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 No. |  | Description                                                                                                                                                        
|             |  |                                                                                                                                                                    
|4.1          |  | Depositary
          Trust Agreement, incorporated by reference to Exhibit 4.1 filed with
          Registration Statement No. 333-158380 on December 31, 2009     
|             |  |                                                                                                                                                                    
|4.2          |  | Form of Authorized
          Participant Agreement                                                                                                                 
|             |  |                                                                                                                                                                    
|4.3          |  | Global Certificate,
          incorporated by reference to Exhibit 4.3 filed with Registration Statement
          No. 333-158380 on December 31, 2009             
|             |  |                                                                                                                                                                    
|10.1         |  | Allocated Account
          Agreement, incorporated by reference to Exhibit 10.1 filed with Registration
          Statement No. 333-158380 on December 31, 2009   
|             |  |                                                                                                                                                                    
|10.2         |  | Unallocated Account
          Agreement, incorporated by reference to Exhibit 10.2 filed with Registration
          Statement No. 333-158380 on December 31, 2009 
|             |  |                                                                                                                                                                    
|10.3         |  | Depository Agreement,
          incorporated by reference to Exhibit 10.3 filed with Registration Statement
          No. 333-158380 on December 31, 2009          
|             |  |                                                                                                                                                                    
|10.4         |  | Marketing Agent
          Agreement, incorporated by reference to Exhibit 10.4 filed with Registration
          Statement No. 333-158380 on December 31, 2009     
|             |  |                                                                                                                                                                    
|31.1         |  | Chief Executive
          Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002                                               
|             |  |                                                                                                                                                                    
|31.2         |  | Chief Financial
          Officer’s Certificate, pursuant to Section 302 of the Sarbanes-Oxley
          Act of 2002                                               
|             |  |                                                                                                                                                                    
|32.1         |  | Chief Executive
          Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
          adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|             |  |                                                                                                                                                                    
|32.2         |  | Chief Financial
          Officer’s Certificate, pursuant to 18 U.S.C. Section 1350, as
          adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

25

---



ETFS PALLADIUM TRUST
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2010 INDEX

|                                                                                                           |  |     
|---------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                           |  | Page
|                                                                                                           |  |     
|                                                                                                           |  |     
|Report
 of Independent Registered Public Accounting Firm                                                   |  | F-2 
|                                                                                                           |  |     
|Statement
 of Financial Condition at December 31, 2010                                                     |  | F-3 
|                                                                                                           |  |     
|Statement
 of Operations for the period December 30, 2009 through December 31, 2010                        |  | F-4 
|                                                                                                           |  |     
|Statement
 of Cash Flows for the period December 30, 2009 through December 31, 2010                        |  | F-5 
|                                                                                                           |  |     
|Statement
 of Changes in Shareholders Deficit for the period December 30, 2009 through
 December 31, 2010 |  | F-6 
|                                                                                                           |  |     
|Notes
 to the Financial Statements                                                                         |  | F-7 
|                                                                                                           |  |     

F-1

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Sponsor, Trustee and
the Shareholders of the ETFS Palladium Trust:

We
have audited the accompanying statement of financial condition of ETFS
Palladium Trust (the Trust) as of December 31, 2010, and the related
statements of operations, changes in shareholders deficit, and cash flows
for the period December 30, 2009 to December 31, 2010. These financial statements
are the responsibility of the Trusts management. Our responsibility is
to express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Trust is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trusts internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In
our opinion, such financial statements present fairly, in all material respects,
the financial position of ETFS Palladium Trust at December 31, 2010, and the
results of its operations and its cash flows for the period  December 30, 2009 to December 31,
2010, in conformity with accounting principles generally accepted in the United
States of America.

DELOITTE & TOUCHE LLP

New York, New York 
March 28, 2011

F-2

---



ETFS PALLADIUM TRUST

Statement
of Financial Condition

At December 31, 2010

|                                                              |  |                    |              |  
|------------------------------------------------------------- |  | ------------------ | ------------ | -
|                                                              |  | December 31,
 2010 |             
|                                                              |  |                    |             
|ASSETS                                                        |  |                    |              |  
|Investment in palladium
 (1)                                  |  | $                  | 597,199,695  |  
|Palladium receivable                                          |  |                    | 23,590,861   |  
|                                                              |  |                    |              |  
|Total assets                                                  |  | $                  | 620,790,556  |  
|                                                              |  |                    |              |  
|                                                              |  |                    |              |  
|LIABILITIES                                                   |  |                    |              |  
|Accounts payable to
 Sponsor                                  |  | $                  | 437,490      |  
|                                                              |  |                    |              |  
|Total liabilities                                             |  | $                  | 437,490      |  
|                                                              |  |                    |              |  
|                                                              |  |                    |              |  
|Redeemable Shares:                                            |  |                    |              |  
|Shares at redemption value
 to investors (2)                  |  |                    | 884,637,847  |  
|                                                              |  |                    |              |  
|Shareholders deficit                                         |  | $                  | (264,284,781 | )
|                                                              |  |                    |              |  
|Total liabilities,
 redeemable Shares & shareholders deficit |  | $                  | 620,790,556  |  
|                                                              |  |                    |              |  

|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | The market value of
 investment in palladium at December 31, 2010 is $861,484,476.                                                     
|(2) | Authorized Share capital
 is unlimited and no par value per Share. Shares issued and outstanding at
 December 31, 2010 were 11,250,000.

See Notes to the Financial Statements.

F-3

---



ETFS PALLADIUM TRUST

Statement of Operations

For the period December 30, 2009* through December 31, 2010

|                                                            |  |                                                          |            |  
|----------------------------------------------------------- |  | -------------------------------------------------------- | ---------- | -
|                                                            |  | Period 
 December 30, 2009*
 through 
 December 31, 2010 |           
|                                                            |  |                                                          |           
|REVENUES                                                    |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|Value of palladium transferred to pay
 expenses             |  | $                                                        | 1,908,675  |  
|Cost of palladium transferred to pay
 expenses              |  |                                                          | (1,717,835 | )
|                                                            |  |                                                          |            |  
|Gain on palladium transferred to pay
 expenses              |  |                                                          | 190,840    |  
|                                                            |  |                                                          |            |  
|Gain on palladium distributed for the
 redemption of Shares |  |                                                          | 14,824,033 |  
|Unrealized gain
    on investment in palladium              |  |                                                          |           |  
|                                                            |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|Total gain on palladium                                     |  | $                                                        | 15,014,873 |  
|                                                            |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|EXPENSES                                                    |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|Sponsors Fee                                               |  |                                                          | 2,350,928  |  
|                                                            |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|Total expenses                                              |  |                                                          | 2,350,928  |  
|                                                            |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|Net gain from operations                                    |  | $                                                        | 12,663,945 |  
|                                                            |  |                                                          |            |  
|                                                            |  |                                                          |            |  
|Net gain per Share                                          |  | $                                                        | 1.80       |  
|                                                            |  |                                                          |            |  
|Weighted average number of Shares                           |  |                                                          | 7,032,877  |  

|                   
|-------------------
|                   
|* Date of Inception



See Notes to the Financial Statements.

F-4

---



ETFS PALLADIUM TRUST

Statement of Cash Flows

For the period December 30, 2009* through December 31, 2010

---

|                                                                                  |  |                                                         |             | 
|--------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ----------- | 
|                                                                                  |  | Period 
 December 30, 2009*
 through
 December 31, 2010 |            
|                                                                                  |  |                                                         |            
|INCREASE
 / (DECREASE) IN CASH FROM OPERATIONS:                                   |  |                                                         |            
|                                                                                  |  |                                                         |             | 
|Cash proceeds received
 from transfer of palladium                                |  | $                                                       |            | 
|                                                                                  |  |                                                         |             | 
|Cash expenses paid                                                                |  |                                                         |            | 
|                                                                                  |  |                                                         |             | 
|Increase in cash resulting
 from operations                                       |  |                                                         |            | 
|                                                                                  |  |                                                         |             | 
|Cash and cash equivalents
 at beginning of period                                 |  |                                                         |            | 
|                                                                                  |  |                                                         |             | 
|Cash and cash equivalents
 at end of period                                       |  | $                                                       |            | 
|                                                                                  |  |                                                         |             | 
|SUPPLEMENTAL
 DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:                        |  |                                                         |             | 
|                                                                                  |  |                                                         |             | 
|Value of
 palladium received for creation of Shares - net of palladium receivable |  | $                                                       | 686,119,618 | 
|                                                                                  |  |                                                         |             | 
|Value of
 palladium distributed for redemption of Shares - at average cost        |  | $                                                       | 87,202,088  | 
|                                                                                  |  |                                                         |             | 

|                                                                                           |  |                                                          |              |  
|------------------------------------------------------------------------------------------ |  | -------------------------------------------------------- | ------------ | -
|                                                                                           |  | Period 
 December 30, 2009*
 through 
 December 31, 2010 |             
|                                                                                           |  |                                                          |             
|RECONCILIATION
 OF NET GAIN/(LOSS) TO NET CASH PROVIDED
 BY OPERATING ACTIVITIES:          |  |                                                          |              |  
|                                                                                           |  |                                                          |              |  
|Net gain from operations                                                                   |  | $                                                        | 12,663,945   |  
|Adjustments to reconcile
 net loss to net cash provided by (used in) operating activities: |  |                                                          |              |  
|Increase in palladium assets                                                               |  |                                                          | (597,199,695 | )
|Increase in palladium receivable                                                           |  |                                                          | (23,590,861  | )
|Increase in unrealized gain on palladium receivable                                        |  |                                                          |             |  
|Decrease in palladium payable                                                              |  |                                                          |             |  
|Increase in accounts payable to Sponsor                                                    |  |                                                          | 437,490      |  
|Increase/(decrease) in redeemable Shares:                                                  |  |                                                          |              |  
|Creations                                                                                  |  |                                                          | 709,715,700  |  
|Redemptions                                                                                |  |                                                          | (102,026,579 | )
|                                                                                           |  |                                                          |              |  
|Net cash provided by
 operating activities                                                 |  | $                                                        |             |  
|                                                                                           |  |                                                          |              |  
|Supplemental
 disclosure of non-cash item:                                                 |  |                                                          |              |  
|Value of palladium transferred to pay expenses                                             |  | $                                                        | 1,908,675    |  

See Notes to the Unaudited Condensed
Financial Statements.

|                    
|--------------------
|                    
|* Date
 of Inception

F-5

---



ETFS PALLADIUM TRUST

Statement
of Changes in Shareholders Deficit

For the
period December 30, 2009* through December 31, 2010

|                                                     |  |                                                          |              |  
|---------------------------------------------------- |  | -------------------------------------------------------- | ------------ | -
|                                                     |  | Period 
 December 30, 2009*
 through 
 December 31, 2010 |             
|                                                     |  |                                                          |             
|                                                    
|Shareholders deficit -
 opening balance             |  | $                                                        |             |  
|Net gain for the period                              |  |                                                          | 12,663,945   |  
|Adjustment of redeemable
 Shares to redemption value |  |                                                          | (276,948,726 | )
|                                                     |  |                                                          |              |  
|Shareholders deficit 
 closing balance             |  | $                                                        | (264,284,781 | )

|                   
|-------------------
|                   
|* Date of Inception

F-6

---



ETFS PALLADIUM TRUST

Notes to the Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.   | Organization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The ETFS Palladium Trust (the Trust)
     is an investment trust formed on December 30, 2009, under New York law pursuant
     to a depositary trust agreement (the Trust Agreement) executed
     by ETF Securities USA LLC (the
 Sponsor) and the Bank of New York Mellon (the Trustee)
 at the time of the Trusts organization. The Trust holds palladium bullion
 and issues ETFS Physical Palladium Shares (the Shares)  (in minimum
 blocks of 50,000 Shares, referred to as Baskets) in exchange for
 deposits of palladium and distributes palladium in connection with redemption
 of Baskets. Shares represent units of fractional undivided beneficial interest
 in and ownership of the Trust which are issued by the Trust. The Sponsor is
 a Delaware limited liability company that is a wholly-owned subsidiary of ETF
 Securities Limited, a Jersey, Channel Islands based company. The Trust
 is governed by the Trust Agreement.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The investment objective of the Trust is for the
     Shares to reflect the performance of the price of palladium, less the Trusts
     expenses and liabilities. The Trust is designed to provide an individual
     owner of beneficial interests in the Shares (a Shareholder)
     an opportunity to participate in the palladium market through an investment
     in securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.   | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The preparation of financial statements in accordance with accounting
 principles generally accepted in the United States of America requires those
 responsible for preparing financial statements to make estimates and
 assumptions that affect the reported amounts and disclosures. Actual results
 could differ from those estimates. The following is a summary of significant
 accounting policies followed by the Trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.1. | Valuation
 of Palladium                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | Palladium is held by JP Morgan Chase Bank, N.A. (the Custodian), on
 behalf of the Trust, at the Zurich, Switzerland vaulting premises of UBS A.G.
 (the Zurich Sub-Custodian) and is valued, for financial statement purposes,
 at the lower of cost or market. The cost of palladium is determined according
 to the average cost method and the market value is based on the London PM Fix
 used to determine the net asset value (NAV) of the Trust. Realized gains
 and losses on transfers of palladium to pay the Sponsors Fee, or palladium
 distributed for the redemption of Shares s, are calculated on a trade date
 basis using average cost. The price for an ounce of palladium is set by four
 market making members of the LPPM at approximately 3:00 PM London Time.                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | Once the value of palladium has been determined, the NAV is computed
 by the Trustee by deducting all accrued fees and other liabilities of the
 Trust, including the remuneration due to the Sponsor (the Sponsors Fee),
 from the fair value of the palladium and all other assets held by the Trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The table below summarizes the unrealized gains or losses on the
 Trusts palladium holdings as of December 31, 2010:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                           |  |                    |             | 
|------------------------------------------ |  | ------------------ | ----------- | 
|                                           |  | December 31,
 2010 |            
|                                           |  |                    |            
|                                           |  |                    |             | 
|Investment in palladium - average cost     |  | $                  | 597,199,695 | 
|Unrealized gain on investment in palladium |  |                    | 264,284,781 | 
|                                           |  |                    |             | 
|                                           |  |                    |             | 
|Investment in palladium - market value     |  | $                  | 861,484,476 | 
|                                           |  |                    |             | 

F-7

---



ETFS PALLADIUM TRUST

Notes to the Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.   | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2.1. | Valuation
 of Palladium (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | The Trust recognizes the diminution in value of the investment in
 palladium which arises from market declines on an interim basis. Increases in
 the value of the investment in palladium through market price recoveries in
 later interim periods of the same fiscal year are recognized in the later
 interim period. Increases in value recognized on an interim basis may not
 exceed the previously recognized diminution in value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | The per Share amount of palladium exchanged for
     a purchase or redemption is calculated daily by the Trustee, using the London
     PM Fix to calculate the palladium amount in respect of any liabilities for
     which covering palladium sales have not yet been made, and represents the
 per Share amount of palladium held by the Trust, after giving effect to its
 liabilities, to cover expenses and liabilities and any losses that may have
 occurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2.2  | Palladium
 Receivable or Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | Palladium receivable or payable represents the quantity of palladium
 covered by contractually binding orders for the creation or redemption of
 Shares respectively, where the palladium has not yet been transferred to or
 from the Trusts account. Generally, ownership of the palladium is
 transferred within three days of trade date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | At December 31, 2010 there was $23,590,861 of palladium receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2.3. | Creations
 and Redemptions of Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | The Trust expects to create and redeem Shares from time to time, but
 only in one or more Baskets (a Basket equals a block of 50,000 Shares).
 The Trust issues Shares in Baskets to Authorized Participants on an ongoing
 basis. Individual investors cannot purchase or redeem Shares in direct
 transactions with the Trust. An Authorized Participant is a person who (1) is
 a registered broker-dealer or other securities market participant such as a
 bank or other financial institution which is not required to register as a
 broker-dealer to engage in securities transactions, (2) is a participant in
 The Depository Trust Company, (3) has entered into an Authorized Participant
 Agreement with the Trustee and the Sponsor, and (4) has established an
 Authorized Participant Unallocated Account with the Trusts Custodian or
 other palladium bullion clearing bank. An Authorized Participant Agreement is
 an agreement entered into by each Authorized Participant, the Sponsor and the
 Trustee which provides the procedures for the creation and redemption of
 Baskets and for the delivery of the palladium and any cash required for such
 creations and redemptions. An Authorized Participant Unallocated Account is
 an unallocated palladium account, either loco London or loco Zurich, established
 with the Custodian or a palladium bullion clearing bank by an Authorized
 Participant.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | 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
 palladium 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | Authorized Participants may, on any business day, place an order with
 the Trustee to create or redeem one or more Baskets. The typical settlement
 period for Shares is three business days. In the event of a trade date at
 period end, where a settlement is pending, a respective account receivable
 and/or payable will be recorded. When palladium is exchanged in settlement of
 redemption, it is considered a sale of palladium for financial statement
 purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | The Shares of the Trust are classified as Redeemable Capital Shares
 for financial statement purposes, since they are subject to redemption at the
 option of Authorized Participants. Outstanding Shares are reflected at
 redemption value, which represents the maximum obligation (based on NAV per
 Share), with the difference from historical cost recorded as an offsetting
 amount to retained earnings. Changes in the Shares for the period from
 December 30, 2009 (the Date of Inception) through December 31, 2010 are as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-8

---



ETFS PALLADIUM TRUST

Notes to the Financial Statements

|     |                                                 
|---- | ------------------------------------------------
|2.   | Significant Accounting Policies (continued)     
|     |                                                 
|2.3. | Creations
 and Redemptions of Shares (continued)

|                                          |  |                                                                  |              |  
|----------------------------------------- |  | ---------------------------------------------------------------- | ------------ | -
|                                          |  | For the period 
 December 30, 2009*
 through 
 December 31, 2010 |             
|                                          |  |                                                                  |              |  
|Number of
 Redeemable Shares:             |  |                                                                  |              |  
|Opening balance                           |  |                                                                  |             |  
|Creations                                 |  |                                                                  | 13,050,000   |  
|Redemptions                               |  |                                                                  | (1,800,000   | )
|                                          |  |                                                                  |              |  
|Closing balance                           |  |                                                                  | 11,250,000   |  
|                                          |  |                                                                  |              |  
|                                          |  |                                                                  |              |  
|                                          |  |                                                                  |              |  
|                                          |  |                                                                  |              |  
|                                          |  | For the period 
 December 30, 2009*
 through 
 December 31, 2010 |             
|                                          |  |                                                                  |              |  
|                                          |  |                                                                  |              |  
|Redeemable
 Shares:                       |  |                                                                  |              |  
|Opening balance                           |  | $                                                                |             |  
|Creations                                 |  |                                                                  | 709,715,700  |  
|Redemptions                               |  |                                                                  | (102,026,579 | )
|Adjustment to redemption
 value           |  |                                                                  | 276,948,726  |  
|                                          |  |                                                                  |              |  
|Closing balance                           |  | $                                                                | 884,637,847  |  
|                                          |  |                                                                  |              |  
|                                          |  |                                                                  |              |  
|Redemption
 value per Share at period end |  | $                                                                | 78.63        |  

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | * Date
 of Inception.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2.4. | Revenue Recognition Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | The primary expense of the Trust is the Sponsors Fee, which is paid
 by the Trust through in-kind transfers of palladium to the Sponsor. With
 respect to expenses not otherwise assumed by the Sponsor, the Trustee will,
 at the direction of the Sponsor or in its own discretion, sell the Trusts
 palladium as necessary to pay these expenses. When selling palladium to pay
 expenses, the Trustee will endeavor to sell the smallest amounts of palladium
 needed to pay these expenses in order to minimize the Trusts holdings of
 assets other than palladium. Only if the sale transaction is made at the
 London PM Fix used by the Trustee to value the Trusts palladium. Unless
 otherwise directed by the Sponsor, when selling palladium the Trustee will
 endeavor to sell at the price established by the London PM Fix. The Trustee
 will place orders with dealers (which may include the Custodian) through
 which the Trustee expects to receive the most favorable price and execution
 of orders. The Custodian may be the purchaser of such palladium.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     | A gain or loss is recognized based on the difference between the
 selling price and the average cost of the palladium sold. Neither the Trustee
 nor the Sponsor is liable for depreciation or loss incurred by reason of any
 sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-9

---



ETFS PALLADIUM TRUST

Notes to the Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.   | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.5. | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The Trust is classified as a grantor trust for
     U.S. federal income tax purposes. As a result, the Trust itself will not
     be subject to U.S. federal income tax. Instead, the Trusts income
     and expenses will flow
 through to the Shareholders, and the Trustee will report the Trusts
 proceeds, income, deductions, gains, and losses to the Internal Revenue
 Service on that basis. The Trust has adopted Financial Accounting Standards
 Board (FASB) Accounting Standards Codification (ASC)
 740-10, Income Taxes (formerly FASB Interpretation Number 48, Accounting for
 Uncertainty in Income Taxes). FASB ASC 740-10 prescribes a recognition threshold
 and a measurement attribute for the financial statement recognition and measurement
 of a tax position taken or expected to be taken in a tax return. FASB ASC 740-10
 also provides guidance on the related derecognition, classification, interest
 and penalties, accounting for interim periods, disclosure and transition of
 uncertain tax positions. The Sponsor has evaluated the effects of FASB ASC
 740-10 and has determined that it does not have a significant effect on the
 financial position or results of operations of the Trust.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.6. | Investment in Palladium                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | The following represents the changes in ounces of palladium and the
 respective values for the period from the Date of Inception through December
 31, 2010:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                                                              |  |                                                                         |             |  
|----------------------------------------------------------------------------- |  | ----------------------------------------------------------------------- | ----------- | -
|                                                                              |  | For the period 
 from 
 December 30, 2009*
 through 
 December 31, 2010 |            
|                                                                              |  |                                                                         |            
|Ounces of Palladium:                                                          |  |                                                                         |             |  
|Opening
 balance                                                              |  |                                                                         |            |  
|Creations (excluding palladium
 receivable at December 31,2010 - 29,824.1)    |  |                                                                         | 1,272,055.2 |  
|Redemptions                                                                   |  |                                                                         | (179,276.9  | )
|Transfers of
 palladium                                                       |  |                                                                         | (3,670.2    | )
|                                                                              |  |                                                                         |             |  
|Closing
 balance                                                              |  |                                                                         | 1,089,108.1 |  
|                                                                              |  |                                                                         |             |  
|                                                                              |  |                                                                         |             |  
|Investment in Palladium (lower of cost or market):                            |  |                                                                         |             |  
|Opening
 balance                                                              |  | $                                                                       |            |  
|Creations (excluding palladium
 receivable at December 31,2010 - $23,590,861) |  |                                                                         | 686,119,618 |  
|Redemptions                                                                   |  |                                                                         | (87,202,088 | )
|Transfers of
 palladium                                                       |  |                                                                         | (1,717,835  | )
|                                                                              |  |                                                                         |             |  
|                                                                              |  |                                                                         |             |  
|Closing
 balance                                                              |  | $                                                                       | 597,199,695 |  
|                                                                              |  |                                                                         |             |  

|                   
|-------------------
|                   
|* Date of Inception

F-10

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ETFS PALLADIUM TRUST

Notes to the Financial Statements

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.   | Significant Accounting Policies (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2.7. | Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The Trust will transfer palladium to the Sponsor to pay the Sponsors
 Fee that will accrue daily at an annualized rate equal to 0.60% of the
 adjusted daily NAV of the Trust, paid monthly in arrears.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The Sponsor has agreed to assume administrative and marketing
 expenses incurred by the Trust, including the Trustees monthly fee and out
 of pocket expenses, the Custodians fee and the reimbursement of the
 Custodians expenses, exchange listing fees, United States Securities and
 Exchange Commission (the SEC) registration fees, printing and mailing
 costs, audit fees and certain legal expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|2.8. | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | In accordance with the provisions set forth in FASB ASC 855-10, Subsequent
 Events, the Trusts management has evaluated the possibility of
 subsequent events existing in the Trusts financial statements through the
 issuance date. Management has determined that there are no material events
 that would require adjustment to or disclosure in the Trusts financial
 statements through this date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.   | Related Parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The Sponsor and the Trustee are considered to be related parties to
 the Trust. The Trustees fee is paid by the Sponsor and is not a separate
 expense of the Trust. The Trustee and the Custodian and their affiliates may
 from time to time act as Authorized Participants or purchase or sell
 palladium or Shares for their own account, as agent for their customers and
 for accounts over which they exercise investment discretion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | For the period December 30, 2009 through December 31, 2010, the
 Sponsors Fee was $2,350,928.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | At December 31, 2010 $437,490 was payable to the Sponsor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.   | Concentration of Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The Trusts sole business activity is the investment in palladium,
 and substantially all the Trusts assets are holdings of palladium which
 creates a concentration risk associated with fluctuations in the price of
 palladium. Several factors could affect the price of palladium, including:
 (i) global palladium supply and demand, which is influenced by factors
 such as forward selling by palladium producers, purchases made by palladium
 producers to unwind palladium hedge positions, central bank purchases and
 sales, and production and cost levels in major palladium-producing countries;
 (ii) investors expectations with respect to the rate of inflation;
 (iii) currency exchange rates; (iv) interest rates;
 (v) investment and trading activities of hedge funds and commodity
 funds; and (vi) global or regional political, economic or financial
 events and situations. In addition, there is no assurance that palladium will
 maintain its long-term value in terms of purchasing power in the future. In
 the event that the price of palladium declines, the Sponsor expects the value
 of an investment in the Shares to decline proportionately. Each of these
 events could have a material effect on the Trusts financial position and
 results of operations.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|5.   | Indemnification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | Under the Trusts organizational documents, each of the Trustee (and
 its directors, employees and agents) and the Sponsor (and its members,
 managers, directors, officers, employees, and affiliates) is indemnified by
 the Trust against any liability, cost or expense it incurs without gross
 negligence, bad faith or willful misconduct on its part and without reckless
 disregard on its part of its obligations and duties under the Trusts
 organizational documents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The Trusts maximum exposure under these arrangements is unknown as
 this would involve future claims that may be made against the Trust that have
 not yet occurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-11

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned in the capacities* indicated thereunto duly authorized.

|                      |                                                                
|--------------------- | ---------------------------------------------------------------
|                      | ETF
 SECURITIES USA LLC                                        
|                      | Sponsor of
 the ETFS Palladium Trust                           
|                      | (Registrant)                                                   
|                      |                                                                
|                      | /s/ Graham
 Tuckwell                                           
|                      |                                                                
|                      | Graham
 Tuckwell                                               
|                      | President
 and Chief Executive Officer                         
|                      | (Principal
 Executive Officer)                                 
|                      |                                                                
|Date: March 28,
 2011 |                                                                
|                      |                                                                
|                      | /s/ Thomas
 Quigley                                            
|                      |                                                                
|                      | Thomas
 Quigley                                                
|                      | Chief
 Financial Officer and Treasurer                         
|                      | (Principal
 Financial Officer and Principal Accounting Officer)
|                      |                                                                
|Date: March 28,
 2011 |                                                                

* The
Registrant is a trust and the persons are signing in their capacities as officers
of ETF Securities USA LLC, the Sponsor of the Registrant.

---