The following excerpt is from the November issue of The Morgan Report. Many in the precious metals community have been leery of holding paper silver. Interestingly the people I interviewed began to ask similar questions and began their own holding company. Part of the interview from the November issue follows...

Morgan: Did you foresee when you started that there were some issues with any of the certificate programs? Or maybe a holding facility that was on a non-segregated basis? In other words, was there any impetus to get you to move into the format that you have?

AFE: Precisely. We set up bullion accounts with some refiners and bullion banks. We started accumulating some metal positions. We wanted to try to get a definition of how that metal was being held. I'm talking about the years of 1995 and 1996. At that time, at least on the Internet, there wasn't a lot of information in the public domain about non-segregated versus segregated, unallocated versus allocated accounts.

So we started to ask some questions. "What does it really mean when the fine print says that you may use the precious metals on our account, you're the owner and you may trade with it and deal with it as you want? And yet, it is ours? Where is the risk? How is that physical bullion actually being held? Is it refinery inventory or what is it, actually?"

In this process we started to come up with answers that we were NOT looking for. In fact many times the very specific questions we were asking simply weren't being answered at all. By around 1997, it was becoming clearer within the public domain that there were these physical short positions that existed on the balance sheets of some of these larger bullion banks. At that time we had really managed to prove to ourselves that we'd taken the right direction in doing something that was independent and separate all together from the larger industry service providers.

Morgan: What is your perspective on someone wishing to participate in buying physical and storing with your company?

AFE: We are providing a facility for international clients. I must say at this point, David, that we are very, very thorough in the due diligence of our clients. However, we're not providing information about our clients. We have a very strict internal policy in terms of the kind of information we require, the true identification of our clients, their source and origin of funds, and so on. So we do have a high internal policy in terms of maintaining these records.

Morgan: So if anybody from basically around the world wants to open an account, they're free to do so as far as you're concerned?

AFE: Providing they supply us with the information that is required to satisfy us in terms of whom we're really dealing with. So, you'd be familiar with the normal financial institutional requirements in terms of understanding that the actual account party is -- who is opening that account. Typically we are looking for forms of ID that would be issued by a government, such as a passport, or a license issued by a government, and so on.

Morgan: I understand. So I would just advise any of the readers of The Morgan Report to do their own due diligence. We've got readers in 72 countries around the globe. Roughly 50 percent are in the United States and approximately 38 percent are in Canada. And then it's sprinkled around the world.

In several jurisdictions, there's a value added tax problem, you might call it, through most of Europe. And it varies as high as, I think, 17½ percent on silver in the United Kingdom. I believe it's 7 or 8 percent in some of the Eastern European countries. How does that affect a client of yours?

AFE: Because the bullion is held within a custodial arrangement within a bonded facility, at this point there is no VAT paid on the transaction. We do charge front fees, of course, which include insurance and the bailment process. However, VAT doesn't apply until such time as someone wants to take physical possession or physical delivery. Then there will be a VAT applied. Typically if that release into safe custody of a client happens within Switzerland, I think it's about a 7½ percent VAT. But, if not, if it's being shipped, it's shipped less VAT into the jurisdiction where that person is going to take delivery. The client will also pay local VAT within that jurisdiction as it applies to their local area.

Morgan: Can you give me an example of a typical client?

AFE: This facility was originally set up to provide a means for the higher net worth, more sophisticated individual, along with clients of a forward-thinking mindset. It was very important to have liquidity within our system. So on a typical day, we can have quite a large client want to liquidate back into cash, or cash into metal. We have the facility to do that.

That was a very important consideration. Because where we came from, we were actually providing physical bullion and shipping it to people. Again, we were starting to sense a real need for something that provided a greater liquidity and less hassle in terms of a large quantity of bullion. So, I guess it's very much like a trading or a brokerage account in the sense that while you may have allocated bars on account, the client may decide to liquidate several of those allocated bars on a given day. And we have the facility and the liquidity within our system to do that within a 24-hour period. Of course, there are transaction fees that apply.

The advantage is, while you've got an allocated account, liquidity is there. This is a very important consideration for many people.

Morgan: There is a problem throughout the world in actually getting physical silver and gold at this time. One of the few places that you seem to be able to get industrial-sized bars is of course through the COMEX. The retail market for rounds or silver eagles or anything else is extremely difficult. The same conditions apply to gold as well. Are you going to have any problems getting industrial-grade bars for your clients?

AFE: We don't see that in the foreseeable future. Part of this reflects back to the history of the company. We have relationships now that are over a decade old. These are well established relationships. Also, this is within central Europe, which has been a warehouse, a producer, and a refiner of physical bullion for hundreds of years. I'm referring to Switzerland.

We've seen Switzerland survive several market disruptions. The collapse of the London gold pool in 1968 would be one example where the international bullion markets shut down, yet Switzerland kept their doors open for trade and continued to trade internationally, buy and sell. Switzerland is a refiner for a lot of African production. It's certainly a refiner of industrial bullion into good delivery bars for parts of Eastern Europe, Uzbekistan, Kazakhstan -- large producers particularly of silver as a byproduct to base metals.

So we see that there is still a strong supply from that part of the world. Compare this to North America, where, although the domestic market is potentially quite large and the investor market can grow very quickly, the production side of it is quite small. So therefore, we don't have that same domestic liquidity within North America in terms of refining of mine production that we would see in parts of Europe and Switzerland. Parts of Asia and probably even Australia are large producers. It's important to note that these markets, while having a large production capacity, may have much smaller demand markets.

To answer your question specifically, we don't see supply disruptions coming from industrial production into good delivery bars of either gold or silver. We are doing substantial business at this time.

Morgan: It seems as if this may be one of the best places under the current conditions of the marketplace to obtain physical silver and gold then place it in a secure jurisdiction outside perhaps the jurisdiction you're currently domiciled in. So I see a lot of positives here.

It is an honor to be,