DESCRIPTION OF THE SHARES AND THE TRUST AGREEMENT
The Trust was formed on April 21, 2006 when an initial
deposit of silver was made in exchange for the issuance of three Baskets. The purpose of the Trust is to own silver transferred to the Trust in exchange for Shares issued by the Trust. The Trust is governed by the Trust Agreement among the Sponsor,
the Trustee, the registered holders and beneficial owners of Shares and all persons that deposit silver for the purpose of creating Shares. The Trust Agreement sets out the rights of depositors of silver and registered holders of Shares and the
rights and obligations of the Sponsor and the Trustee. New York law governs the Trust Agreement, the Trust and the Shares. The following is a summary of material provisions of the Trust Agreement. It is qualified by reference to the entire Trust
Agreement, which is filed as an exhibit to the registration statement of which the prospectus is a part.
Each Share represents a fractional undivided beneficial
interest in the net assets of the Trust. The assets of the Trust consist primarily of silver held by the Custodian on behalf of the Trust. However, the Trust is expected to make sales of silver to pay the Sponsor’s Fee and to cover expenses
and liabilities not assumed by the Sponsor. Such sales result in the Trust holding cash for brief periods of time. In addition, there may be other situations where the Trust may hold cash. For example, a claim may arise against the Custodian, an
Authorized Participant, or any other third party, which is settled in cash. In those situations where the Trust unexpectedly receives cash or any other assets, the Trust Agreement provides that no deposits of silver will be accepted (
i.e
., there will be no issuance of new Shares) until after the record date for the distribution of such cash or other property has passed. The Trust issues Shares only in Baskets of 50,000 or integral multiples
thereof. Baskets of Shares may be redeemed by the Trust in exchange for the amount of silver represented by the aggregate number of Shares redeemed. The Trust is not a registered investment company under the Investment Company Act of 1940 and is not
required to register under such act.
Deposit of Silver;
Issuance of Baskets
The Trust creates and redeems Shares
on a continuous basis but only in Baskets of 50,000 Shares. Upon the deposit of the corresponding amount of silver with the Custodian, and the payment of the Trustee’s applicable fee and of any expenses, taxes or charges (such as stamp taxes
or stock transfer taxes or fees), the Trustee will deliver the appropriate number of Baskets to the DTC account of the depositing Authorized Participant. Only Authorized Participants can deposit silver and receive Baskets of Shares in exchange. As
of the date of this prospectus, Barclays Capital Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA), LLC, Goldman Sachs & Co., Goldman Sachs Execution & Clearing L.P., J.P. Morgan
Securities LLC, Knight Clearing Services LLC, Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. LLC, Newedge Group USA, RBC Capital Markets, LLC, Scotia Capital (USA) Inc., UBS Securities
LLC, Virtu Financial BD LLC and Virtu Financial Capital Markets LLC are the only Authorized Participants. The Sponsor and the Trustee maintain a current list of Authorized Participants. Silver deposited with the Custodian must meet the
London Good Delivery Standards.
Before making a
deposit, the Authorized Participant must deliver to the Trustee a written purchase order indicating the number of Baskets it intends to acquire and the location or locations where it expects to make the corresponding deposit of silver with the
Custodian. The Trustee will acknowledge the purchase order unless it or the Sponsor decides to refuse the deposit as described below under “Requirements for Trustee Actions.” The date the Trustee receives that order determines the Basket
Silver Amount the Authorized Participant needs to deposit. However, orders received by the Trustee after 3:59 p.m. (New York time) on a business day are treated as received on the next following business day. The Trustee has entered into an
agreement with the Custodian which contains arrangements so that silver can be delivered to the Custodian in England, New York or at other locations that may be authorized in the future.
If the Trustee accepts the purchase order, it transmits to
the Authorized Participant, via facsimile or electronic mail message, no later than 5:00 p.m. (New York time) on the date such purchase order is received, or deemed received, a copy of the purchase order endorsed “Accepted” by the
Trustee and indicating the Basket Silver Amount that the Authorized Participant must deliver to the Custodian in exchange for each Basket. Prior to the Trustee’s acceptance as specified above, a purchase order only represents the Authorized
Participant’s unilateral offer to deposit silver in exchange for Baskets of Shares and has no binding effect upon the Trust, the Trustee, the Custodian or any other party.
The Basket Silver Amount necessary for the creation of a
Basket changes from day to day. At the time of creation of the Trust, the initial Basket Silver Amount was 500,000 ounces of silver. On each day that NYSE Arca is open for regular trading, the Trustee adjusts the quantity of silver
constituting the Basket Silver Amount as appropriate to reflect sales of
silver, any loss of silver that may occur, and accrued expenses. The
computation is made by the Trustee as promptly as practicable after 4:00 p.m. (New York time). The Basket Silver Amount so determined is communicated via facsimile or electronic mail message to all Authorized Participants, and made available on the
Sponsor’s website for the Shares. NYSE Arca also publishes the Basket Silver Amount determined by the Trustee as indicated above.
Because the Sponsor has assumed what are expected to be most
of the Trust’s expenses, and the Sponsor’s Fee accrues daily at the same rate (
i.e
., 1 / 365th of the net asset value of the Trust multiplied by 0.50%), in the absence of any extraordinary expenses
or liabilities, the amount of silver by which the Basket Silver Amount decreases each day is predictable. The Trustee intends to make available on each business day, through the same channels used to disseminate the actual Basket Silver Amount
determined by the Trustee as indicated above, an indicative Basket Silver Amount for the next business day. Authorized Participants may use that indicative Basket Silver Amount as guidance regarding the amount of silver that they may expect to have
to deposit with the Custodian in respect of purchase orders placed by them on such next business day and accepted by the Trustee. The agreement entered into with each Authorized Participant provides, however, that once a purchase order has been
accepted by the Trustee, the Authorized Participant will be required to deposit with the Custodian the Basket Silver Amount determined by the Trustee on the effective date of the purchase order.
No Shares are issued unless and until the Custodian has
informed the Trustee that it has allocated to the Trust’s account (except that any amounts of less than 1100 ounces may be held in the Trust account on an unallocated basis) the corresponding amount of silver. In accordance with the procedures
that the Custodian has agreed to follow in connection with the creation of Shares, silver received by the Custodian no later than 11:30 a.m. (London time) is required to be allocated to the Trust’s account no later than 9:00 a.m. (New York
time) on the next day that the Custodian is open for business at the place of delivery. All taxes incurred in connection with the delivery of silver to the Custodian in exchange for Baskets of Shares (including any applicable value added tax) will
be the sole responsibility of the Authorized Participant making such delivery.
Redemption of Baskets; Withdrawal of Silver
Authorized Participants, acting on authority of the registered
holder of Shares, may surrender Baskets of Shares in exchange for the corresponding Basket Silver Amount announced by the Trustee. Upon the surrender of such Shares and the payment of the Trustee’s applicable fee and of any expenses, taxes or
charges (such as stamp taxes or stock transfer taxes or fees), the Trustee will deliver to the order of the redeeming Authorized Participant the amount of silver corresponding to the redeemed Baskets. Shares can only be surrendered for redemption in
Baskets of 50,000 Shares each.
Before surrendering
Baskets of Shares for redemption, an Authorized Participant must deliver to the Trustee a written request indicating the number of Baskets it intends to redeem and the location where it would like to take delivery of the silver represented by such
Baskets. The date the Trustee receives that order determines the Basket Silver Amount to be received in exchange. However, orders received by the Trustee after 3:59 p.m. (New York time) on a business day are treated as received on the next following
business day.
The Custodian may make the silver
available for collection at its office or at the office of a sub-custodian if the silver is being held by a sub-custodian. Silver is delivered at the locations designated by the Trustee, in consultation with the Custodian. All taxes incurred in
connection with the delivery of silver to an Authorized Participant in exchange for Baskets of Shares (including any applicable value added tax) will be the sole responsibility of the Authorized Participant taking such delivery.
Unless otherwise agreed to by the Custodian, silver is
delivered to the redeeming Authorized Participants in the form of physical bars only (except that any amount of less than 1100 ounces may be transferred to an unallocated account of or as ordered by, the redeeming Authorized Participant).
Redemptions may be suspended only (i) during any period in
which regular trading on NYSE Arca is suspended or restricted or the exchange is closed (other than scheduled holiday or weekend closings), or (ii) during an emergency as a result of which delivery, disposal or evaluation of silver is not reasonably
practicable.
Certificates Evidencing the Shares
The Shares are evidenced by certificates executed and
delivered by the Trustee on behalf of the Trust. DTC has accepted the Shares for settlement through its book-entry settlement system. So long as the Shares are eligible for DTC settlement, there will be only one global certificate evidencing shares
that will be registered in the name of a nominee of DTC. Investors will be able to own Shares only in the form of book- entry security entitlements with DTC or direct or indirect participants in DTC. No investor will be entitled to receive a
separate certificate evidencing Shares. Because Shares can only be held in the form of book- entries through DTC and its participants, investors must rely on DTC, a DTC participant and any other financial intermediary through which they hold Shares
to receive the benefits and exercise the rights described in this section. Investors should consult with their broker or financial institution to find out about the procedures and requirements for securities held in DTC book-entry form.
Cash and Other Distributions
If the Sponsor and Trustee determine that there is more cash
being held in the Trust than is needed to pay the Trust’s expenses for the next month, the Trustee will distribute the extra cash to DTC.
If the Trust receives any property other than silver or cash,
the Trustee will distribute that property to DTC by any means it thinks is lawful, equitable and feasible. If it cannot make the distribution in that way, the Trustee will sell the property and distribute the net proceeds, in the same way as it does
with cash.
Registered holders of Shares are entitled to
receive these distributions in proportion to the number of Shares owned. Before making a distribution, the Trustee may deduct any applicable withholding taxes and any fees and expenses of the Trust that have not been paid. The Trustee distributes
only whole U.S. dollars and cents and is not required to round fractional cents to the nearest whole cent. The Trustee is not responsible if it decides that it is unlawful or impractical to make a distribution available to registered holders.
Voting Rights
Shares do not have any voting rights. However, registered
holders of at least 25% of the Shares have the right to require the Trustee to cure any material breach by it of the Trust Agreement, and registered holders of at least 75% of the Shares have the right to require the Trustee to terminate the Trust
Agreement as described below.
Fees and Expenses of the
Trustee
Each deposit of silver for the creation of
Baskets of Shares and each surrender of Baskets of Shares for the purpose of withdrawing Trust property (including if the Trust Agreement terminates) must be accompanied by a payment to the Trustee of a fee of $500 (or such other fee as the Trustee,
with the prior written consent of the Sponsor, may from time to time announce).
The Trustee is entitled to reimburse itself from the assets
of the Trust for all expenses and disbursements incurred by it for extraordinary services it may provide to the Trust or in connection with any discretionary action the Trustee may take to protect the Trust or the interests of the holders.
Trust Expenses and Silver Sales
In addition to the fee payable to the Sponsor (See “The
Sponsor—The Sponsor’s Fee”), the following expenses are paid out of the assets of the Trust:
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any expenses or liabilities
of the Trust that are not assumed by the Sponsor;
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any taxes and other
governmental charges that may fall on the Trust or its property;
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expenses and costs of any
action taken by the Trustee or the Sponsor to protect the Trust and the rights and interests of holders of Shares; and
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any indemnification of the
Sponsor as described below.
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Individual certificates are not issued for the Shares.
Instead, a global certificate is signed by the Trustee on behalf of the Trust, registered in the name of Cede & Co., as nominee for DTC, and deposited with the Trustee on behalf of DTC. The global certificate represents all of the Shares
outstanding at any time.
Upon the settlement date of
any creation, transfer or redemption of Shares, DTC will credit or debit, on its book-entry registration and transfer system, the number of Shares so created, transferred or redeemed to the accounts of the appropriate DTC Participants. The Trustee
and the DTC Participants will designate the accounts to be credited and charged in the case of creation or redemption of Shares.
Beneficial ownership of the Shares is limited to DTC
Participants, Indirect Participants and persons holding interests through DTC Participants and Indirect Participants. Owners of beneficial interests in the Shares will be shown on, and the transfer of ownership is effected only through, records
maintained by DTC, with respect to DTC Participants, the records of DTC Participants, with respect to Indirect Participants, and the records of Indirect Participants with respect to beneficial owners that are not DTC Participants or Indirect
Participants. Beneficial owners are expected to receive from or through a DTC Participant a written confirmation relating to their purchase of the Shares.
Investors may transfer Shares through DTC by instructing the
DTC Participant or Indirect Participant through which they hold their Shares to transfer the Shares. Transfers will be made in accordance with standard securities industry practice.
DTC may decide to discontinue providing its service for the
Shares by giving notice to the Trustee and the Sponsor. Under these circumstances, the Trustee and the Sponsor will either find a replacement for DTC to perform its functions at a comparable cost or, if a replacement is unavailable, deliver separate
certificates for Shares to the DTC Participants having Shares credited to their accounts.
The rights of the Shareholders generally must be exercised by
DTC Participants acting on their behalf in accordance with the rules and procedures of DTC.
The Trust Agreement provides that, as long as the Shares are
represented by a global certificate registered in the name of DTC or its nominee, the Trustee will be entitled to treat DTC as the holder of the Shares.
THE SPONSOR
The Sponsor of the Trust is iShares
®
Delaware Trust Sponsor LLC, a Delaware limited liability company and an indirect subsidiary of BlackRock, Inc. The Sponsor’s principal office is located at 400 Howard Street, San
Francisco, CA 94105.
The Sponsor’s Role
The Sponsor has agreed to assume the following administrative
and marketing expenses incurred by the Trust: the Trustee’s Fee, the Custodian’s Fee, NYSE Arca listing fees, SEC registration fees, printing and mailing costs, audit fees and expenses and up to $100,000 per annum in legal fees and
expenses.
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 if the Trustee ceases to meet certain objective requirements (including the requirement that it have capital, surplus and undivided
profits of at least $150 million) or 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. 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.
Principals and Key Personnel of the Sponsor
Patrick Dunne is the President, Chief Executive Officer and
Director and Jack Gee is the Chief Financial Officer of the Sponsor.
The Sponsor is managed by a Board of Directors that meets
periodically to discuss among other things, matters related to the Trust. The Board of Directors is composed of Philip Jensen, Peter F. Landini, Kimun Lee, Patrick Dunne and Manish Mehta.
The Sponsor’s Fee
The Sponsor’s Fee accrues daily and is paid monthly in
arrears at an annualized rate equal to 0.50% of the net asset value of 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, serves as the Trustee. The Bank of New York Mellon has a trust office at 2 Hanson Place, 9th Floor, Brooklyn, New York 11217. The Bank of New York Mellon 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 The Bank of New York Mellon by calling the following number: (212) 815-6250. A copy of the Trust Agreement is available for inspection at The Bank of New York Mellon’s trust office
identified above. The Bank of New York Mellon had at least $150 million in capital and retained earnings as of December 31, 2012.
The Trustee’s Role
The Trustee is responsible for the day-to-day administration
of the Trust. This includes (i) processing orders for the creation and redemption of Baskets; (ii) coordinating with the Custodian the receipt and delivery of silver transferred to, or by, the Trust in connection with each issuance and redemption of
Baskets; (iii) calculating the net asset value of the Trust on each business day; and (iv) selling the Trust’s silver as needed to cover the Trust’s expenses. In addition, the Trustee will prepare the financial statements of the
Trust.
The Trustee’s Fees are paid by the
Sponsor.
The Trustee and any of its affiliates may from
time to time purchase or sell 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., a national banking association,
acting through its London branch, serves as the Custodian of the Trust’s silver.
The Custodian’s Role
The Custodian is responsible for safekeeping the silver
deposited with it in connection with the creation of Baskets. The Custodian is appointed by the Trustee and is responsible to the Trustee only. Because the holders of Shares are not parties to the Custodian Agreement, their claims against the
Custodian may be limited. The Custodian has no obligation to accept any additional delivery on behalf of the Trust if, after giving effect to such delivery, the total amount of the Trust’s silver held by the Custodian exceeds 500,000,000 troy
ounces. If this limit is exceeded, the Sponsor anticipates that the Trustee, with the consent of the Sponsor, would retain an additional custodian. While the Sponsor will seek any agreement with an additional custodian to be at least as protective
of the interests of the Trust as the current agreement with the Custodian is, the actual terms and conditions of such agreement will only be negotiated at the time such additional custodian becomes necessary. The identity of such additional
custodian, as well as market conditions prevailing at the time, may, among other factors, result in the need to hire an additional custodian under terms and conditions significantly different from those in the agreement with JPMorgan Chase Bank N.A,
London branch. For example, the duration of the agreement with the additional custodian, its fees, the maximum amount of silver that the additional custodian will hold on behalf of the Trust, the scope of the additional custodian’s liability
(including with respect to silver held by subcustodians) and the additional custodian’s standard of care may not be exactly the same as in the agreement with JPMorgan Chase Bank N.A, London branch.
The Custodian is responsible for conducting certain limited
inspections of the silver delivered by an Authorized Participant and exercising a level of care similar to that used for its own account. However, the Custodian is not responsible for conducting any chemical or other tests designed to verify that
such silver meets the purity requirements referred to in the Trust Agreement.
The Custodian’s’ Fees are paid by the
Sponsor.
The Custodian has agreed to purchase from the
Trust, at the request of the Trustee, silver needed to cover Trust expenses at a price equal to the price used by the Trustee to determine the value of the silver held by the Trust on the date of the sale.
The Custodian and any of its subsidiaries and affiliates may
from time to time purchase or sell Shares for their own account, as agent for their customers and for accounts over which they exercise investment discretion.
Custody of the Trust’s Silver
The following is a description of the material provisions of
the Custodian Agreement between the Trustee and JPMorgan Chase Bank N.A., London branch, as the Custodian, under which the Custodian will hold the silver that belongs to the Trust. For additional information, see the Custodian Agreement filed as an
exhibit to the registration statement of which this prospectus is a part. The Custodian’s registered office is 125 London Wall, London, EC2Y 5AJ, England. English law governs the Custodian Agreement.
The Custodian will receive and hold silver that is deposited
for the account of the Trust. The Custodian will release silver from the Trust’s account when instructed in writing by the Trustee, and not otherwise.
The Custodian may keep the Trust’s silver at locations
in England, New York, or with the consent of the Trustee and the Sponsor, in other places. The Custodian may, at its own expense and risk, use subcustodians to discharge its obligations to the Trust under the Custodian Agreement. The Custodian has
agreed that it will only retain subcustodians if they agree to grant to the Trustee and the independent registered public accounting firm of the Trust access to records and inspection rights similar to those granted by JPMorgan Chase Bank N.A.,
London branch, in its agreement with the Trustee. The Custodian will remain responsible to the Trustee for any silver held by any subcustodian appointed by the Custodian to the same extent as if such silver were held by the Custodian itself.
When instructed by the Trustee, the Custodian will make
silver from the Trust’s account available for collection at its office or at the office of a subcustodian where the silver is being held or will deliver up to 1100 ounces of silver on an unallocated basis to any account maintained with it or,
if the Custodian considers it lawful and practical, to an account maintained with any other custodial institution. As a result, in connection with redemptions of shares, silver may be received on an unallocated basis in an account maintained
anywhere (if the Custodian considers it lawful and practical to do so), or silver may be collected at any of the physical locations where the Custodian is holding the Trust’s silver in England or New York to the extent the silver is available
in any particular location.
The Custodian has agreed to
use reasonable care in the performance of its duties to the Trust, and will only be responsible for any loss or damage suffered by the Trust as a direct result of the Custodian’s negligence, fraud or willful default in the performance of its
duties. The Custodian’s liability to the Trust, if any, will be limited to the value of any silver lost, or the amount of any balance held on an unallocated basis, at the time of the Custodian’s negligence, fraud or willful
default.
None of the Custodian, or its directors,
employees, agents or affiliates will incur any liability to the Trust if, by reason of any law or regulation, or of an act of God, terrorism or other circumstance beyond the Custodian’s control, the Custodian is prevented or forbidden from, or
delayed in, performing its obligations under the Custodian Agreement. The Custodian has agreed to indemnify the Trustee for any loss or liability directly resulting from a breach of the Custodian’s representations and warranties in the
Custodian Agreement, a failure of the Custodian to act in accordance with the Trustee’s instructions or any physical loss, destruction or damage to the silver held for the Trust’s account, except for losses due to nuclear accidents,
terrorism, riots, acts of God, insurrections, strikes and similar causes beyond the control of the Custodian for which the Custodian will not be responsible to the Trust. The Custodian will be responsible for the Trust’s silver held at
subcustodians to the same extent as if that silver were in the Custodian’s own vault.
A Shareholder that is not (i) a U.S. Shareholder as defined
above or (ii) a partnership for United States federal income tax purposes is considered a “Non-U.S. Shareholder” for purposes of this discussion.
Taxation of the Trust
The Sponsor and the Trustee will treat the Trust as a
“grantor trust” for United States federal income tax purposes. In the opinion of Clifford Chance US LLP, special United States federal income tax counsel to the Sponsor, the Trust will be classified as a “grantor trust” for
United States federal income tax purposes. As a result, the Trust itself will not be subject to United States federal income tax. Instead, the Trust’s income and expenses will “flow through” to the Shareholders, and the Trustee
will report the Trust’s income, gains, losses and deductions to the IRS on that basis. The opinion of Clifford Chance US LLP represents only its best legal judgment and is not binding on the IRS or any court. Accordingly, there can be no
assurance that the IRS will agree with the conclusions of counsel’s opinion and it is possible that the IRS or another tax authority could assert a position contrary to one or all of those conclusions and that a court could sustain that
contrary position. Neither the Sponsor nor the Trustee will request a ruling from the IRS with respect to the classification of the Trust for United States federal income tax purposes. If the IRS were to assert successfully that the Trust is not
classified as a “grantor trust,” the Trust would be classified as a partnership for United States federal income tax purposes, which may affect timing and other tax consequences to the Shareholders.
The following discussion assumes that the Trust will be
classified as a “grantor trust” for United States federal income tax purposes.
Taxation of U.S. Shareholders
Shareholders will be treated, for United States federal income
tax purposes, as if they directly owned a pro rata share of the underlying assets held in the Trust. Shareholders also will be 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 will be equal to its cost of acquiring the Shares. In the case of a Shareholder that acquires its Shares as part of a creation of a Basket, the delivery of silver to the Trust in exchange for the underlying silver represented by the Shares
will 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 silver held in the Trust will be the same as its tax basis and holding period for the silver
delivered in exchange therefor. For purposes of this discussion, and unless stated otherwise, 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 own tax advisers as to the determination of the tax basis and holding period for the underlying silver related to such Shares.
When the Trust sells silver, for example to pay expenses, a
Shareholder will recognize gain or loss in an amount equal to the difference between (a) the Shareholder’s pro rata share of the amount realized by the Trust upon the sale and (b) the Shareholder’s tax basis for its pro rata share of the
silver that was sold. A Shareholder’s tax basis for its share of any silver sold by the Trust generally will be determined by multiplying the Shareholder’s total basis for its share of all of the silver held in the Trust immediately
prior to the sale, by a fraction the numerator of which is the amount of silver sold, and the denominator of which is the total amount of the silver held in the Trust immediately prior to the sale. After any such sale, a Shareholder’s tax
basis for its pro rata share of the silver remaining in the Trust will be equal to its tax basis for its share of the total amount of the silver held in the Trust immediately prior to the sale, less the portion of such basis allocable to its share
of the silver that was sold.
Upon a Shareholder’s
sale of some or all of its Shares, the Shareholder will be treated as having sold the portion of its pro rata share of the silver 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 (a) the amount realized pursuant to the sale of the Shares, and (b) the Shareholder’s tax basis for the portion of its pro rata share of the silver
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 silver represented by the Shares redeemed generally will not be a taxable event to the Shareholder. The Shareholder’s tax basis for the silver received in
the redemption generally will be the same as the Shareholder’s tax
basis for the portion of its pro rata share of the silver 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 silver received should include
the period during which the Shareholder held the Shares redeemed. A subsequent sale of the silver received by the Shareholder will be a taxable event.
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 silver 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 silver
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, is
treated as the basis of the silver received by the Shareholder in the redemption.
Maximum 28% Long-Term Capital Gains Tax Rate for U.S.
Shareholders Who Are Individuals
Under current law,
gains recognized by individuals from the sale of “collectibles,” including silver, held for more than one year are taxed at a maximum rate of 28%, rather than the current maximum 20% 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 U.S. Shareholder attributable to a sale of Shares held for more than one year, or attributable to the Trust’s sale of any silver which the Shareholder
is treated (through its ownership of Shares) as having held for more than one year, generally will be taxed at a maximum rate of 28%. The tax rates for capital gains recognized upon the sale of assets held by an individual U.S. Shareholder for one
year or less or by a taxpayer other than an individual United States taxpayer are generally the same as those at which ordinary income is taxed.
3.8% Tax on Net Investment Income
The Health Care Reform and Education Reconciliation Act of
2010 (Pub. Law 111-152) requires certain U.S. Shareholders who are individuals to pay a 3.8% tax on the lesser of the excess of their modified adjusted gross income over a threshold amount ($250,000 for married persons filing jointly and $200,000
for single taxpayers) or their “net investment income,” which generally includes capital gains from the disposition of property, for taxable years beginning after December 31, 2012. This tax is in addition to any capital gains taxes due
on such investment income. A similar tax will apply to estates and trusts. U.S. Shareholders should consult their own tax adviser regarding the effect, if any, this law may have on their investment in the Shares.
Brokerage Fees and Trust Expenses
Any brokerage or other transaction fee incurred by a
Shareholder in purchasing Shares will be 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 will reduce the amount realized by the
Shareholder with respect to the sale.
Shareholders will
be required to recognize the full amount of gain or loss upon a sale of silver by the Trust (as discussed above), even though some or all of the proceeds of such sale are used by the Trustee to pay Trust expenses. Shareholders may deduct their
respective pro rata 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 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 limitations under applicable
provisions of the Code.
Investment by U.S. Tax-Exempt
Shareholders
Certain U.S. Shareholders (“U.S.
Tax-Exempt Shareholders”) are subject to United States federal income tax only on their “unrelated business taxable income” (“UBTI”). Unless they incur debt in order to purchase Shares, it is expected that U.S.
Tax-Exempt Shareholders should not realize UBTI in respect of income or gains from the Shares. U.S. Tax-Exempt Shareholders should consult their own independent tax advisers regarding the United States federal income tax consequences of holding
Shares in light of their particular circumstances.
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 advisers concerning (i) the likelihood that an investment in Shares, although they are a “security” within the meaning of
the Investment Company Act of 1940, may be considered an investment in the underlying silver for purposes of Code section 851(b), and (ii) the extent to which an investment in Shares might nevertheless be consistent with preservation of their
qualification under Code section 851.
Investment by
Certain Retirement Plans
Section 408(m) of the Code
provides that the purchase of a “collectible” as an investment for an IRA, or for a participant-directed account maintained under any plan that is tax-qualified under section 401(a) of the Code, 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 Trust has received a private letter ruling from the IRS which
provides that the purchase of Shares by an IRA or a participant-directed account maintained under a plan that is tax-qualified under section 401(a) of the Code, will not constitute the acquisition of a collectible or be treated as resulting in a
taxable distribution to the IRA owner or plan participant under Code section 408(m). However, in the event any redemption of Shares results in the distribution of silver bullion to an IRA or a participant-directed account maintained under a plan
that is tax-qualified under Section 401(a) of the Code, such distribution would constitute the acquisition of a collectible to the extent provided under section 408(m) of the Code. See “ERISA and Related Considerations.”
Taxation of Non-U.S. Shareholders
A Non-U.S. Shareholder generally will not be subject to United
States federal income tax with respect to gain recognized upon the sale or other disposition of Shares, or upon the sale of silver by the Trust, unless (1) the Non-U.S. 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-U.S. Shareholder of a trade or business in the United
States and certain other conditions are met.
United
States Information Reporting and Backup Withholding
The
Trustee will file certain information returns with the IRS, and provide certain tax-related information to Shareholders, in connection with the Trust. Each Shareholder will be provided with information regarding its allocable portion of the
Trust’s annual income (if any) and expenses. A U.S. Shareholder may be subject to United States backup withholding tax in certain circumstances unless it provides its taxpayer identification number and complies with certain certification
procedures. Non-U.S. Shareholders may have to comply with certification procedures to establish that they are not a United States person in order to avoid the information reporting and backup withholding tax requirements.
The amount of any backup withholding will be allowed as a
credit against a Shareholder’s United States federal income tax liability and may entitle such a Shareholder to a refund, provided that the required information is furnished to the IRS in a timely manner.
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 adviser as to the tax consequences, under the laws of such jurisdiction (or any other jurisdiction other than 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
(“ERISA”) and/or section 4975 of the Code impose certain requirements on employee benefit plans and certain other plans and arrangements, including individual retirement
GLOSSARY
In this prospectus, each of the following terms has the
meaning set forth below:
“Authorized
Participant” – A person who, at the time of submitting to the Trustee an order to create or redeem one or more Baskets (i) is a registered broker-dealer, (ii) is a DTC Participant or an Indirect Participant, and (iii) has in effect a
valid Authorized Participant Agreement.
“Authorized Participant Agreement” — An
agreement entered into by an Authorized Participant, the Sponsor and the Trustee that provides the procedures for the creation and redemption of Baskets.
“Basket” — A block of 50,000 Shares or such
number of Shares as the Trustee, in consultation with the Sponsor, may from time to time determine.
“Basket Silver Amount” — The amount
of silver (measured in ounces), determined on each Business Day by the Trustee, which Authorized Participants must transfer to the Trust in exchange for a Basket, or will receive in exchange for each Basket surrendered for redemption.
“Business Day” — Any day other than: (i) a
Saturday or a Sunday, or (ii) a day on which NYSE Arca is closed for regular trading.
“CFTC” — Commodity Futures Trading
Commission, an independent agency with the mandate to regulate commodity futures and option markets in the United States, or any successor governmental agency in the United States.
“Code” — The United States Internal Revenue
Code of 1986, as amended.
“COMEX” —
The exchange market on silver futures contracts operated by Commodity Exchange, Inc., a subsidiary of New York Mercantile Exchange, Inc.
“Commodity Exchange Act” — The United
States Commodity Exchange Act of 1936, as amended.
“Custodian” — JPMorgan Chase Bank N.A., a
national banking association acting through its London branch.
“Custodian Agreement” — The agreement,
governed by English law, between the Trustee and the Custodian regarding the custody of the Trust’s silver.
“DTC” — The Depository Trust Company, a
limited purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the United States Federal Reserve System, a “clearing corporation”
within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934.
“DTC Participant” — An entity that has an
account with DTC.
“ERISA” — The
Employee Retirement Income Security Act of 1974, as amended.
“Exchange Act” — The United States
Securities Exchange Act of 1934, as amended.
“FINRA” — Financial Industry Regulatory
Authority, Inc.
“FSA” — The Financial
Services Authority, an independent non-governmental body which exercises statutory regulatory power under the FSM Act.
“FSM Act” — The United Kingdom Financial
Services and Markets Act 2000.
“Indirect
Participant” — An entity that has access to the DTC clearing system by clearing securities through, or maintaining a custodial relationship with, a DTC Participant.
“IRA” — Individual retirement
account.
“IRS” — Internal Revenue
Service.
“LBMA” — The London Bullion
Market Association, a trade association that acts as the coordinator for activities conducted on behalf of its members and other participants in the London bullion market. “London Fix” means the price for an ounce of silver set by three
market making members of the LBMA at approximately 12:00 noon, London time, on each working day.
“London Fix” — The price per ounce
of silver set by three market making members of the LBMA at approximately 12:00 noon, London time, on each working day.
“London Good Delivery Bar” — A bar
of silver meeting the London Good Delivery Standards.
“London Good Delivery Standards” — The
specifications for weight, dimensions, fineness (or purity), identifying marks and appearance of silver bars as set forth in “The Good Delivery Rules for Gold and Silver Bars” published by the LBMA.
“NAV” — Net asset value per Share. See
“Business of the Trust — Valuation of Silver; Computation of Net Asset Value” for a description of how the net asset value of the Trust and the NAV are calculated.
“Non-U.S. Shareholder” — A shareholder
that is not a U.S. Shareholder.
“NYSE Arca”
— The NYSE Arca Marketplace operated by NYSE Arca Equities, Inc.
“OTC” — The global Over-the-Counter market
for the trading of silver which consists of transactions in spot, forwards, and options and other derivatives.
“Ounce” — A troy ounce, equal to 1.0971428
ounces avoirdupois, with a minimum fineness of 0.999. “Avoirdupois” is the system of weights used in the U.S. and Great Britain for goods other than precious metals, gems and drugs. In that system, a pound has 16 ounces and an ounce has
16 drams.
“Plan” — Any (a) employee
benefit plan (as defined in Section 3(3) of ERISA) that is subject to the fiduciary responsibility provisions of ERISA, as set forth in Title I thereof, (b) plan described in Section 4975(e)(1) of the Code that is subject to Section 4975 of the
Code, including individual retirement accounts and Keogh plans, (c) entity whose underlying assets include plan assets by reason of a plan’s investment in such entity.
“SEC” — The Securities and Exchange
Commission of the United States, or any successor governmental agency in the United States.
“Securities Act” — The United States
Securities Act of 1933, as amended.
“Shareholders” — Owners of beneficial
interests in the Shares.
“Shares” —
Units of fractional undivided beneficial interest in the net assets of the Trust which are issued by the Trust.
“Sponsor” — iShares
®
Delaware Trust Sponsor LLC, an indirect subsidiary of BlackRock, Inc.
“Trust” — The iShares
®
Silver Trust, a New York trust formed pursuant to the Trust Agreement.
“Trust Agreement” — The First Amended and
Restated Depositary Trust Agreement dated February 28, 2013 among the sponsor, The Bank of New York Mellon, the registered and beneficial owners from time to time of Shares and all persons that deposit silver for creation of Shares under
which the Trust has been formed.
“Trustee”
— The Bank of New York Mellon, a banking corporation organized under the laws of the State of New York with trust powers.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with
the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the Calculation of Registration
Fee table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
Provided, however
, That:
(A) Paragraphs (1)(i) and (1)(ii) of this section do not apply if the registration statement is on Form S-8
(§239.16b of this chapter), and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) that are incorporated by reference in the registration statement; and
(B) Paragraphs (1)(i), (1)(ii) and (1)(iii) of this section do not apply if the registration statement is on Form
S-3 (§239.13 of this chapter) or Form F-3 (§239.33 of this chapter) and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) (§230.424(b) of
this chapter) that is part of the registration statement.
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(C)
Provided, further, however,
that paragraphs (1)(i) and
(1)(ii) do not apply if the registration statement is for an offering of asset-backed securities on Form S-1 (§239.11 of this chapter) or Form S-3 (§239.13 of this chapter), and the information required to be included in a
post-effective amendment is provided pursuant to Item 1100(c) of Regulation AB (§229.1100(c)).
(2) That, for the
purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial
bona fide
offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include
any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be
furnished,
provided
, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) If the registrant is relying on Rule 430B (§230.430B of this chapter):
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be deemed
to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§230.424(b)(2), (b)(5), or (b)(7)
of this chapter) as part of a registration statement in reliance or Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing
the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of an included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of
the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability proposes of the issuer and any person that is at that date an underwriter such date shall be deemed to be a new effective
date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
Provided, however
, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchase with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such effective date; or
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(ii) If the registrant is subject to Rule 430C (§230.430C of this chapter),
each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this
chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to
such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the
initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the
offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii) Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the
undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other
communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(7) That, for purposes
of determining any liability under the Securities Act of 1933, each filing of the registrants annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee
benefit plans annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be deemed to be the initial
bona fide
offering thereof.
(8) That insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
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