Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to exchange traded mutual fund from 10% limit on purchases of gold, custodial provisions to allow Royal Canadian Mint to act as Gold Custodian of the Trust, and certain mutual fund requirements and restrictions on transmission of purchase or redemption orders, calculation and payment of redemptions and date of record for payment of distributions -- National Instrument 81-102 Mutual Funds.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.3(e), 2.3(f), 3.3, 6.1(1), 6.2, 9.1, 9.4(2), 10.2, 10.3, 10.4(1), 12.1(1), 14.1, 19.1.

February 2, 2010

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ONTARIO

(the Jurisdiction)

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

SPROTT ASSET MANAGEMENT LP

(the Manager)

AND

IN THE MATTER OF

SPROTT PHYSICAL GOLD TRUST

(the Trust)

AND

IN THE MATTER OF

ROYAL CANADIAN MINT

(the Gold Custodian)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Manager, in its capacity as the manager of the Trust, for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for relief from the following provisions of National Instrument 81-102 Mutual Funds (NI 81-102):

(a) Subsections 2.3(e) and (f), to permit the Trust to invest up to 100% of its net assets, taken at market value at the time of purchase, in physical gold bullion (the Gold Bullion);

(b) Section 3.3, to permit the filing and listing fees of the applicable securities regulatory authorities and stock exchanges, the fees and expenses payable to the Registrar and Transfer Agent (as hereinafter defined) and the selling commissions of the underwriters involved in the initial public offering (the Offering) of transferable, redeemable units of the Trust (the Units) to be borne by the Trust;

(c) Subsection 6.1(1) and Section 6.2, to permit the Trust to appoint the Gold Custodian as a custodian of the Trust to hold the Trust's Gold Bullion in Canada;

(d) Sections 9.1 and 10.2, to permit purchases of the Units on the Toronto Stock Exchange (TSX) and the New York Stock Exchange Arca (NYSE Arca), and redemption requests to be submitted directly to the Registrar and Transfer Agent;

(e) Section 10.3, to permit the redemption price of the Units to which a redemption request pertains to be a price other than the Net Asset Value per Unit (as hereinafter defined) next determined after receipt by the Trust of the redemption request;

(f) Clause 10.4(1)(a), to permit payment of the redemption price for redeemed Units to be made later than three Business Days (as hereafter defined) after the date of calculating the Net Asset Value per Unit for the purpose of effecting such redemption;

(g) Subsection 12.1(1), to relieve the Trust from the requirement of completing and filing with the applicable securities regulatory authorities the reports required by that subsection; and

(h) Section 14.1, to permit the Trust to establish a record date for determining the right of unitholders of the Trust (the Unitholders) to receive distributions by the Trust in accordance with the rules and policies of the TSX and the NYSE Arca,

(collectively, the Exemption Sought).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application (the Principal Regulator); and

(b) the Manager has provided notice that subsection 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, Québec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Northwest Territories, Nunavut and Yukon.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined herein.

In this decision, the "total net assets" of the Trust means the net asset value of the Trust determined in accordance with Part 14 of National Instrument 81-106 Investment Fund Continuous Disclosure.

Representations

This decision is based on the following facts represented by the Manager and the Trust:

The Manager and the Trust

1. The Manager is a limited partnership formed and organized under the laws of the Province of Ontario and maintains its head office in Toronto, Ontario. The general partner of the Manager is Sprott Asset Management GP Inc. (the General Partner), which is a corporation incorporated under the laws of the Province of Ontario. The General Partner is a wholly-owned, direct subsidiary of Sprott Inc. Sprott Inc. is a corporation incorporated under the laws of the Province of Ontario and is a public company listed on the TSX. Sprott Inc. is the sole limited partner of the Manager and the sole shareholder of the General Partner.

2. The Manager is registered under the securities legislation in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland and Labrador as an adviser in the category of portfolio manager.

3. The Trust is a closed-end mutual fund trust established under the laws of the Province of Ontario pursuant to a trust agreement dated as of August 28, 2009, as amended and restated as of December 7, 2009 (the Trust Agreement), as the same may be further amended, restated or supplemented from time to time. Pursuant to the Trust Agreement, RBC Dexia Investor Services Trust (the Trustee) and the Manager are the trustee and the manager of the Trust, respectively.

4. Equity Transfer & Trust Company (the Registrar and Transfer Agent) will be the registrar and transfer agent of the Trust pursuant to a transfer agent, registrar and disbursing agent agreement to be entered into on or about the filing of the final prospectus of the Trust.

5. In connection with the Offering of the Units, a preliminary long form prospectus dated August 31, 2009 (the Preliminary Prospectus) was confidentially filed with the securities regulatory authorities in each province and territory of Canada (the Canadian Jurisdictions) and the Trust intends to become a reporting issuer, or the equivalent thereof, in such Canadian Jurisdictions following the filing of a final prospectus in respect of the Offering of the Units.

6. Concurrently with filing the Preliminary Prospectus, the Trust confidentially filed a registration statement on Form F-1 (the Registration Statement) under the U.S. Securities Act of 1933, as amended, with the United States Securities and Exchange Commission (the SEC) in connection with the Offering of the Units in the United States.

7. On December 9, 2009, the Trust filed via SEDAR the Preliminary Prospectus, as amended, with each of the Canadian Jurisdictions and concurrently filed via EDGAR the Registration Statement, as amended, with the SEC in respect of the Offering of the Units.

8. The Trust intends to list the Units on the TSX and the NYSE Arca. The Trust will not file a final prospectus until the TSX and the NYSE Arca have conditionally approved the listing of the Units.

9. The Trust is a "mutual fund in Ontario" as such term is defined in the Securities Act (Ontario) and is subject to the investment restrictions applicable to mutual funds which are prescribed by NI 81-102. The Manager has established an independent review committee for the Trust in accordance with the requirements under National Instrument 81-107 Independent Review Committee for Investment Funds.

10. The Trust is not required to register as an "investment company" as such term is defined in the U.S. Investment Company Act of 1940, as amended (the 1940 Act), since the Trust will invest all or substantially all of its assets in Gold Bullion. Gold Bullion does not fall within the definition of either a "security" or an "investment security" under the 1940 Act and, accordingly, the Trust is not required to be registered as an "investment company".

11. The Manager and the Trust are not in default of securities legislation in any province or territory of Canada.

The Trust's Investment Objective, Strategy, and Investment and Operating Restrictions

12. The Trust was created to invest and hold substantially all of its assets in Gold Bullion. The Trust seeks to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding Gold Bullion without the inconvenience that is typical of a direct investment in Gold Bullion. The Trust intends to achieve its objective by investing primarily in long-term holdings of unencumbered, fully allocated, Gold Bullion and will not speculate with regard to short-term changes in gold prices. The Trust does not anticipate making regular cash distributions to Unitholders.

13. Except with respect to cash held by the Trust to pay expenses and anticipated redemptions of Units, the Trust expects to own only London Good Delivery Gold Bullion. The Manager intends to invest and hold 97% of the total net assets of the Trust in Gold Bullion in London Good Delivery bar form. The Trust will not invest in gold certificates or other financial instruments that represent gold or that may be exchanged for gold.

14. As disclosed in the Preliminary Prospectus, as amended, the investment and operating restrictions of the Trust provide that, among other things, the Trust will invest in and hold a minimum of 90% of the total net assets of the Trust in Gold Bullion in London Good Delivery bar form and hold no more than 10% of the total net assets of the Trust, at the discretion of the Manager, in Gold Bullion (in London Good Delivery bar form or otherwise), gold coins, debt obligations of or guaranteed by the Government of Canada or a province thereof, or by the Government of the United States of America or a state thereof, short-term commercial paper obligations of a corporation or other person whose short-term commercial paper is rated R-1 (or its equivalent, or higher) by Dominion Bond Rating Service Limited or its successors or assigns or F1 (or its equivalent, or higher) by Fitch Ratings or its successors or assigns or A-1 (or its equivalent, or higher) by Standard & Poor's or its successors or assigns or P-1 (or its equivalent, or higher) by Moody's Investor Service or its successors or assigns, interest-bearing accounts and short-term certificates of deposit issued or guaranteed by a Canadian chartered bank or trust company, money market mutual funds, short-term government debt or short-term investment grade corporate debt, or other short-term debt obligations approved by the Manager from time to time (for the purpose of this paragraph, the term "short-term" means having a date of maturity or call for payment not more than 182 days from the date on which the investment is made), except during the 60-day period following the closing of the Offering or additional offerings or prior to the distribution of the assets of the Trust.

Net Asset Value of the Trust and Redemption of Units

15. The net asset value (the Net Asset Value) of the Trust and the Net Asset Value per Unit will be determined on a daily basis as of 4:00 p.m. (Toronto time) on each business day on which the NYSE Arca or the TSX are open for trading (a Business Day), by the Trust's valuation agent, which is the Trustee.

16. Pursuant to the Offering, Units will be offered at a price equal to USD $10.00 per Unit. The Trust may not issue additional Units of the same class following the completion of the Offering, except: (i) if the net proceeds per Unit to be received by the Trust are not less than 100% of the most recently calculated Net Asset Value per Unit immediately prior to, or upon, the determination of the pricing of such issuance; or (ii) by way of Unit distribution in connection with an income distribution.

17. Subject to the terms of the Trust Agreement, Units may be redeemed at the option of a Unitholder for Gold Bullion on a monthly basis. Unitholders whose Units are redeemed for Gold Bullion will be entitled to receive a redemption price equal to 100% of the Net Asset Value per Unit of the redeemed Units on the last day of the month on which the NYSE Arca is open for trading for the month in respect of which the redemption request is processed. Redemption requests for Gold Bullion must be for amounts that are at least equivalent to the value of one London Good Delivery bar or an integral multiple thereof, plus applicable expenses. A "London Good Delivery bar" weighs between 350 and 430 troy ounces (generally, most bars weigh between 390 and 410 troy ounces). Any fractional amount of redemption proceeds in excess of a London Good Delivery bar or an integral multiple thereof will be paid in cash at a rate equal to 100% of the Net Asset Value per Unit of such excess amount. The ability of a Unitholder to redeem Units for Gold Bullion may be limited by the sizes of London Good Delivery bars held by the Trust at the time of redemption. A Unitholder redeeming Units for Gold Bullion will be responsible for the expenses in connection with effecting the redemption and applicable delivery expenses, including the handling of the notice of redemption, the delivery of the Gold Bullion for Units that are being redeemed and the applicable gold storage in-and-out fees.

18. A redemption notice to redeem Units for Gold Bullion must be received by the Registrar and Transfer Agent no later than 4:00 p.m. (Toronto time) on the 15th day of the month in which the redemption notice for Gold Bullion will be processed or, if such day is not a Business Day, then on the immediately following day that is a Business Day. Any redemption notice for Gold Bullion received after such time will be processed in the next month.

19. Once a redemption notice for Gold Bullion is received by the Registrar and Transfer Agent, the Registrar and Transfer Agent, together with the Manager, will determine whether such redemption notice for Gold Bullion complies with the applicable requirements, is for an amount of Gold Bullion that is equal to at least one London Good Delivery bar in the Trust's inventory at the Gold Custodian plus applicable expenses, and contains delivery instructions that are acceptable to the armoured service transportation carrier. If the Registrar and Transfer Agent and the Manager determine that the redemption notice for Gold Bullion complies with all applicable requirements, the Registrar and Transfer Agent will provide a notice to such redeeming Unitholder's broker confirming that the redemption notice for Gold Bullion was received and determined to be complete.

20. Any redemption notice for Gold Bullion delivered to the Registrar and Transfer Agent regarding a Unitholder's intent to redeem Units that the Registrar and Transfer Agent or the Manager, in their sole discretion, determines to be incomplete, not in proper form, not duly executed or for an amount of Gold Bullion less than at least one London Good Delivery bar held by the Trust at the Gold Custodian, or in an amount that cannot be satisfied based on the bar sizes of Gold Bullion owned by the Trust, will for all purposes be void and of no effect, and the redemption privilege to which it relates will be considered for all purposes not to have been exercised thereby. If the Registrar and Transfer Agent and the Manager determine that the redemption notice for Gold Bullion does not comply with the applicable requirements, the Registrar and Transfer Agent will provide a notice explaining the deficiency to the Unitholder's broker.

21. If the redemption notice for Gold Bullion is determined to have complied with the applicable requirements, the Registrar and Transfer Agent and the Manager will determine on the last Business Day of the applicable month the amount of Gold Bullion and the amount of cash that will be delivered to the redeeming Unitholder. Also on the last Business Day of the applicable month, the redeeming Unitholder's broker will deliver the redeemed Units to CDS Clearing and Depository Services Inc. or The Depository Trust Company, as the case may be, for cancellation.

22. Based on instructions from the Manager, the Gold Custodian will release the requisite amount of Gold Bullion from its custody to the armoured transportation service carrier. As directed by the Manager, any cash to be received by a redeeming Unitholder in connection with a redemption of Units for Gold Bullion will be delivered or caused to be delivered by the Manager to the Unitholder's brokerage account within 10 Business Days after the month in which the redemption is processed.

23. A Unitholder redeeming Units for Gold Bullion will receive the Gold Bullion from the Gold Custodian. Gold Bullion received by a Unitholder as a result of a redemption of Units will be delivered by armoured transportation service carrier pursuant to delivery instructions provided by the Unitholder to the Manager. The armoured transportation service carrier will be engaged by, or on behalf of, the redeeming Unitholder. Such Gold Bullion can be delivered (i) to an account established by the Unitholder at an institution located in North America authorized to accept and hold London Good Delivery bars; (ii) in the United States, to any physical address (subject to approval by the armoured transportation service carrier); (iii) in Canada, to any business address (subject to approval by the armoured transportation service carrier); and (iv) outside of the United States and Canada, to any address approved by the armoured transportation service carrier.

24. The armoured transportation service carrier will receive the Gold Bullion in connection with a redemption of Units approximately 10 Business Days after the end of the month in which the redemption notice is processed. Once the Gold Bullion representing the redeemed Units has been placed with the armoured transportation service carrier, the Gold Custodian will no longer bear the risk of loss of, and damage to, such Gold Bullion. In the event of a loss after the Gold Bullion has been placed with the armoured transportation service carrier, the Unitholder will not have recourse against the Trust or the Gold Custodian.

25. Subject to the terms of the Trust Agreement, Units may also be redeemed at the option of a Unitholder for cash on a monthly basis. Unitholders whose Units are redeemed for cash will be entitled to receive a redemption price per Unit equal to 95% of the lesser of (i) the volume-weighted average trading price of the Units traded on the NYSE Arca or, if trading has been suspended on the NYSE Arca, the trading price of the Units traded on the TSX, for the last five days on which the respective exchange is open for trading for the month in which the redemption request is processed, and (ii) the Net Asset Value per Unit of the redeemed Units as of 4:00 p.m. (Toronto time) on the last day of such month on which the NYSE Arca is open for trading. Cash redemption proceeds will be transferred to a redeeming Unitholder approximately three Business Days after the end of the month in which such redemption notice is processed by the Trust.

26. To redeem Units for cash, a Unitholder must instruct the Unitholder's broker to deliver a notice to redeem Units for cash to the Registrar and Transfer Agent. A redemption notice to redeem Units for cash must be received by the Registrar and Transfer Agent no later than 4:00 p.m. (Toronto time) on the 15th day of the month in which the redemption notice for cash will be processed or, if such day is not a Business Day, then on the immediately following day that is a Business Day. Any redemption notice to redeem Units for cash received after such time will be processed in the next month.

27. Any redemption notice for cash delivered to the Registrar and Transfer Agent regarding a Unitholder's intent to redeem Units that the Registrar and Transfer Agent or the Manager determines to be incomplete, not in proper form or not duly executed will for all purposes be void and of no effect and the redemption privilege to which it relates will be considered for all purposes not to have been exercised thereby. For each redemption notice for cash, the Registrar and Transfer Agent will notify the redeeming Unitholder's broker that such redemption notice for cash has been deemed insufficient or accepted and duly processed, as the case may be.

28. Upon receipt of the redemption notice for cash, the Registrar and Transfer Agent and the Manager will determine on the last Business Day of the applicable month the amount of cash that will be delivered to the redeeming Unitholder. Also on the last Business Day of the applicable month, the redeeming Unitholder's broker will deliver the redeemed Units to CDS Clearing and Depository Services Inc. or The Depository Trust Company, as the case may be, for cancellation.

The Trust's Custody Arrangements

This decision is also based on the following facts represented by the Manager, the Trust and the Gold Custodian (with respect to matters relating to the Gold Custodian):

29. The Trustee acts as the custodian of the assets of the Trust other than the Gold Bullion pursuant to the Trust Agreement. The Trustee will only be responsible for the assets of the Trust that are directly held by it, its affiliates or appointed sub-custodians.

30. The Gold Bullion owned by the Trust will be stored on an unencumbered and fully allocated basis in the vaults of a custodian. The Trust intends to store all of its Gold Bullion with the Gold Custodian. The Gold Custodian will be responsible for and will bear all risk of the loss of, and damage to, the Gold Bullion owned by the Trust that is in the Gold Custodian's custody, subject to certain limitations based on events beyond the Gold Custodian's control.

31. The Gold Custodian operates pursuant to the Royal Canadian Mint Act (Canada) and is a Canadian crown corporation. Crown corporations are "agents of Her Majesty the Queen" and, as such, their obligations generally constitute unconditional obligations of the Government of Canada. The Gold Custodian is responsible for the minting and distribution of Canada's circulation coins. As part of its operations, the Gold Custodian maintains a secure storage facility located in Ottawa, Ontario that it owns and operates, and provides storage space to third parties.

32. The Gold Custodian was appointed as the custodian of the Gold Bullion owned by the Trust pursuant to a precious metals storage agreement dated as of December 20, 2009 between the Manager, for and on behalf of the Trust, and the Gold Custodian (the Storage Agreement). The Storage Agreement provides for the storage of the Gold Bullion generally and will not place any limitations on the Trust's ability to buy or sell Gold Bullion. The Storage Agreement establishes neither a principal and agent relationship, a partnership or a joint venture between the Gold Custodian and the Trust nor a contractual relationship between the Gold Custodian and the Unitholders.

33. Under the Storage Agreement, upon written notice from the Manager to the Gold Custodian of the Manager's intention to have any of the Gold Bullion owned by the Trust delivered to the Gold Custodian, the Gold Custodian will receive such Gold Bullion based on a list provided by the Manager in such written notice that specifies the amount, weight, type, assay characteristics and value, and serial number of the London Good Delivery bars. After verification, the Gold Custodian will issue a "receipt of deposit" that confirms the bar count and the total weight in fine ounces of the Gold Bullion received by the Gold Custodian. The Gold Custodian reserves the right to refuse delivery of any Gold Bullion in the event of storage capacity limitations. In the event of a discrepancy arising during the verification process, the Gold Custodian will promptly notify the Manager. The Gold Custodian will keep the Gold Bullion owned by the Trust specifically identified as the property of the Trust and will keep it on a labelled shelf or physically segregated pallets at all times. The Gold Custodian will provide a monthly inventory statement, which the Manager will reconcile with the Trust's records of its Gold Bullion holdings.

34. The Manager will inspect or cause to be inspected the Gold Bullion owned by the Trust and stored at the vault facilities of Gold Custodian periodically on a spot inspection basis and, together with a representative of the external auditors of the Trust, physically audit each Gold Bullion bar annually to confirm the bar number.

35. The Manager will ensure that no part of the stored Gold Bullion may be delivered out of safekeeping by the Gold Custodian without receipt of an instruction from the Manager in the form specified by the Gold Custodian indicating the purpose of the delivery and giving direction with respect to the specific amount.

36. The Manager will ensure that no director or officer of the Manager or its General Partner, or representative of the Trust or the Manager will be authorized to enter into the Gold Bullion storage vaults of the Gold Custodian without being accompanied by at least one representative of the Gold Custodian.

37. The Manager will have the right to audit the physical storage of the Trust's Gold Bullion at the Gold Custodian upon request on any Gold Custodian business day (which means any day other than a Saturday, a Sunday or a holiday observed by the Gold Custodian) during the Gold Custodian's regular business hours, provided that such audit does not interrupt the routine operation of the Gold Custodian's facility.

38. Upon the Gold Custodian's receipt and taking into possession and control of any of the Gold Bullion owned by the Trust, whether through physical delivery or a transfer of the Gold Bullion from a different customer's account at the Gold Custodian, the Gold Custodian's liability will commence with respect to such Gold Bullion. The Gold Custodian will bear all risk of loss of, or damage to, the Gold Bullion owned by the Trust in the Gold Custodian's custody, except in the case of circumstances or causes beyond the Gold Custodian's reasonable control including, without limitation, acts or omissions or the failure to cooperate of the Manager, acts or omissions or the failure to cooperate by any third party, fire or other casualty, act of God, strike or labour dispute, war or other violence, or any law, order or requirement of any governmental agency or authority, and has contractually agreed to replace or pay for lost, damaged or destroyed Gold Bullion in the Trust's account while in the Gold Custodian's care, custody and control. The Gold Custodian's liability terminates with respect to any Gold Bullion owned by the Trust upon termination of the Storage Agreement, whether or not the Trust's Gold Bullion remains in the Gold Custodian's possession and control, upon transfer of such Gold Bullion to a different customer's account at the Gold Custodian, as requested by the Manager, or at the time such Gold Bullion is remitted to the armoured transportation service carrier pursuant to delivery instructions provided by the Manager on behalf of a redeeming Unitholder.

39. In the event of physical loss, damage or destruction of the Gold Bullion owned by the Trust in the Gold Custodian's custody, care and control, the Manager must give written notice to the Gold Custodian within five Gold Custodian business days after the discovery of any such loss, damage or destruction, but, in the case of loss or destruction of the Trust's Gold Bullion, in any event no more than 30 days after the delivery by the Gold Custodian to the Trust of an inventory statement in which the discrepancy first appears. The Gold Custodian will, at its option, either (i) replace or restore to its original state in the event of partial damage, as the case may be, the Trust's Gold Bullion that was lost, damaged or destroyed within five Gold Custodian business days from the date the Gold Custodian becomes aware of said loss or destruction, based on the advised weight and assay characteristics provided in the initial notice or (ii) compensate the Trust, through the Manager, for the monetary value of the Trust's Gold Bullion that was lost or destroyed, within five Gold Custodian business days from the date the Gold Custodian becomes aware of said loss or destruction, based on the advised weight and assay characteristics provided in the initial notice and the market value of such Gold Bullion that was lost or destroyed, using the first available afternoon (p.m.) London fix of the London Bullion Market Association from the date the Gold Custodian becomes aware of said loss or destruction. If such notice is not given in accordance with the terms of the Storage Agreement, all claims against the Gold Custodian will be deemed to have been waived. In addition, no action, suit or other proceeding to recover any loss, damage or destruction may be brought against the Gold Custodian unless notice of such loss, damage or destruction has been given in accordance with the terms of the Storage Agreement and unless such action, suit or proceeding shall have been commenced within 12 months from the time such notice is sent to the Gold Custodian. The Gold Custodian will not be responsible for any special, incidental, consequential, indirect or punitive losses or damages (including lost profits or lost savings), except as a result of gross negligence or wilful misconduct by the Gold Custodian and whether or not the Gold Custodian had knowledge that such losses or damages might be incurred.

40. Pursuant to the Storage Agreement, the Gold Custodian will be required to exercise the same degree of care and diligence in safeguarding the property of the Trust as any reasonably prudent person acting as custodian of the Gold Bullion would exercise in the circumstance. The Gold Custodian will not be entitled to an indemnity from the Trust in the event the Gold Custodian breaches its standard of care.

41. The Gold Custodian reserves the right to reject Gold Bullion delivered to it by the Trust if the Gold Bullion contains a hazardous substance or if the Gold Bullion is or becomes unsuitable or undesirable for metallurgical, environmental or other reasons.

42. The Gold Custodian carries such insurance as it deems appropriate for its businesses and its position as custodian of the Gold Bullion owned by the Trust. The Storage Agreement provides that the Gold Custodian will provide the Trust with at least 30 days' notice of any cancellation or termination of such insurance coverage. The Trust's ability to recover from the Gold Custodian is not contingent upon the Gold Custodian's ability to claim on its own insurance. Based on information provided by the Gold Custodian, the Manager believes that the insurance carried by the Gold Custodian will be appropriate for the Trust and that the insurance carried by the Gold Custodian, together with the Gold Custodian's status as a Canadian crown corporation with its obligations generally constituting unconditional obligations of the Government of Canada, provides the Trust with such protection in the event of loss or theft of the Trust's Gold Bullion stored at the Gold Custodian that is consistent with the protection afforded under insurance carried by other custodians that store Gold Bullion commercially.

43. In addition, if the Gold Custodian were to become a private enterprise, the Manager, on behalf of the Trust, will make a determination whether the Gold Custodian should remain the custodian of the Trust's Gold Bullion in light of applicable circumstances, such as the level of insurance carried by the Gold Custodian after such privatization, the availability of other custodians and the risk in moving the Trust's Gold Bullion to another custodian.

44. The Manager will not be responsible for any losses or damages to the Trust arising out of any action or inaction by the Trust's custodians or any sub-custodian holding the assets of the Trust, including the Trustee holding the assets of the Trust other than the Gold Bullion and the Gold Custodian holding the Gold Bullion owned by the Trust.

45. The Manager, with the consent of the Trustee, will have the authority to change the custodial arrangements described above including, but not limited to, the appointment of a replacement custodian and/or additional custodians subject to the requirements under NI 81-102.

46. The Manager may terminate the custodial relationship with the Gold Custodian by giving written notice to the Gold Custodian of its intent to terminate the Storage Agreement if (i) the Gold Custodian has committed a material breach of its obligations under the Storage Agreement that is not cured within 10 Gold Custodian business days following the Manager giving written notice to the Gold Custodian of such material breach; (ii) the Gold Custodian is dissolved or adjudged bankrupt, or a trustee, a receiver or a conservator of the Gold Custodian or its property is appointed, or an application for any of the foregoing is filed; or (iii) the Gold Custodian is in breach of any representation or warranty contained in the Storage Agreement. The obligations of the Gold Custodian include, but are not limited to, maintaining an inventory of the Trust's Gold Bullion stored with the Gold Custodian, providing a monthly inventory to the Trust, maintaining the Trust's Gold Bullion physically segregated and specifically identified as the Trust's property, and taking good care, custody and control of the Trust's Gold Bullion. The Trust believes that all of these obligations are material and anticipates that the Manager would terminate the Gold Custodian as custodian if the Gold Custodian breaches any such obligation and does not cure such breach within 10 Gold Custodian business days of the Manager giving written notice to the Gold Custodian of such breach.

47. The Manager and the Gold Custodian are of the view that the concerns raised in the media during the Summer of 2009 relating to the security measures employed at the Gold Custodian are not related to the security of the Trust's Gold Bullion to be stored at the Gold Custodian and, as a result, are not relevant to the custodian arrangements between the Manager, on behalf of the Trust, and the Gold Custodian. On November 24, 2009, the Gold Custodian announced in a press release that the Gold Custodian had received written confirmation from the Royal Canadian Mounted Police that its thorough investigation into the unreconciled difference of gold and silver inventories at the end of the Gold Custodian's 2008 fiscal year did not support further effort in the continuance of a criminal investigation into this matter. This conclusion was consistent with the outcome of reviews of physical security and computer systems at the Gold Custodian's Ottawa, Ontario facility by the Banks Group and Microsoft Services. The Gold Custodian has reviewed physical security, technical processes and prior period accounting with the assistance of external third party experts. These reviews are complete and the Gold Custodian intends to make these reports public once the audit of the Gold Custodian's 2008 financial statements are completed by the Office of the Auditor General of Canada.

Decision

The Principal Regulator is satisfied that the decision meets the tests set out in the Legislation for the Principal Regulator to make the decision.

The decision of the Principal Regulator under the Legislation is that the Exemption Sought is granted provided that:

(a) the Manager, on behalf of the Trust, ensures that the prospectus of the Trust contains disclosure regarding the unique risks associated with an investment in the Trust, including the risk that direct purchases of Gold Bullion by the Trust may generate higher transaction and custody costs than other types of investments, which may impact the performance of the Trust; and

(b) the Trust complies with applicable TSX and NYSE Arca requirements in setting the record date for the payment of distributions to Unitholders.

"Rhonda Goldberg"
Manager, Investment Funds Branch
Ontario Securities Commission