Securities Law & Instruments

Headnote

NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted from National Instrument 81-102 Mutual Funds to exchange traded mutual fund from investment restriction on purchases of silver, custodial provisions to allow Royal Canadian Mint to act as custodian and Brinks to act as sub-custodian, and certain mutual fund requirements and restrictions on purchase and redemption orders, calculation and payment of redemptions and date of record for payment of distributions.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds, ss. 2.3(f), 3.3, 6.1(1), 6.1(3)(b), 6.2, 9.1, 10.2, 10.3, 10.4(1), 12.1(1), 14.1, 19.1.

October 27, 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 SILVER TRUST

(the Trust)

AND

IN THE MATTER OF

ROYAL CANADIAN MINT

(the Silver 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) Subsection 2.3(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 silver bullion (the Silver 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 Silver Custodian (as hereinafter defined) and the Registrar and Transfer Agent (as hereinafter defined), auditing and printing expenses 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 Silver Custodian as a custodian of the Trust to hold the Trust's Silver Bullion in Canada;

(d) Paragraph 6.1(3)(b) and Section 6.2, to permit the Silver Custodian to appoint The Brink's Company (the Sub-Custodian), acting through its Canadian subsidiary, Brink's Canada Limited, as sub-custodian of the Trust to hold the Trust's Silver Bullion in Canada;

(e) 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;

(f) 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;

(g) Paragraph 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;

(h) 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

(i) 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 June 30, 2010, as amended and restated as of October 1, 2010 (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 Financial 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 base PREP prospectus of the Trust (the Final Prospectus).

5. In connection with the Offering of the Units, a preliminary base PREP prospectus dated July 9, 2010 of the Trust was 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 the Final Prospectus.

6. Concurrently with filing the foregoing preliminary prospectus, the Trust 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. The Trust subsequently filed via SEDAR the third amended and restated preliminary base PREP prospectus of the Trust dated October 18, 2010 (the Preliminary Prospectus) amending and restating the second amended and restated preliminary base PREP prospectus of the Trust dated October 1, 2010 which amended and restated the amended and restated preliminary base PREP prospectus of the Trust dated September 7, 2010 which amended and restated the preliminary base PREP prospectus of the Trust dated July 9, 2010 with each of the Canadian Jurisdictions. Concurrently with filing the Preliminary Prospectus, the Trust filed via EDGAR an amended version of the Registration Statement with the SEC.

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

9. Although the Manager and the Trust are unable to predict with any accuracy as to where sales of Units will actually occur, the Offering is expected to be marketed to investors on a global basis and, in particular, to investors resident in Canada, the United States, Europe, Asia and the Middle East.

10. 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.

11. 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 Silver Bullion. Silver 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".

12. The Manager and the Trust are not in default of securities legislation in the Canadian Jurisdictions.

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

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

14. Except with respect to cash held by the Trust to pay expenses and anticipated redemptions of Units, the Trust expects to own only Silver Bullion in London Good Delivery bar form. The Manager intends to invest and hold approximately 97% of the total net assets of the Trust in Silver Bullion.

15. As disclosed in the Preliminary Prospectus, 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 Silver 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 Silver Bullion (in London Good Delivery bar form or otherwise), 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 DBRS 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.

16. The Manager and the Trust believe that, as the market in silver is highly liquid, there are no liquidity concerns with permitting the Trust to invest in Silver Bullion despite the restrictions of NI 81-102.

Net Asset Value of the Trust and Redemption of Units

17. 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 day on which the NYSE Arca or the TSX is open for trading (a Business Day), by the Trust's valuation agent, which is the Trustee.

18. 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 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.

19. Subject to the terms of the Trust Agreement and the Manager's right to suspend redemptions of Units in certain circumstances, Units may be redeemed at the option of a Unitholder in any month for Silver Bullion. Unitholders whose Units are redeemed for Silver 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 Silver Bullion must be for amounts that are at least equivalent to the value of ten London Good Delivery bars or an integral multiple of one bar in excess thereof, plus applicable expenses. A "London Good Delivery bar" of Silver Bullion weighs between 750 and 1,100 troy ounces (approximately 23 to 34 kilograms) and usually weighs approximately 1,000 troy ounces. Any fractional amount of redemption proceeds in excess of ten London Good Delivery bars or an integral multiple of one bar in excess 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 Silver 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 Silver 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 Silver Bullion for Units that are being redeemed and the applicable silver storage in-and-out fees.

20. A Unitholder that owns a sufficient number of Units who desires to exercise redemption privileges for Silver Bullion must do so by instructing his, her or its broker, who must be a direct or indirect participant of The Depository Trust Company (DTC) or CDS Clearing and Depository Services Inc. (CDS), to deliver to the Registrar and Transfer Agent on behalf of the Unitholder a written notice of the Unitholder's intention to redeem Units for Silver Bullion. A redemption notice to redeem Units for Silver 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 Silver 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 Silver Bullion received after such time will be processed in the next month. Any such redemption notice must include a valid signature guarantee to be deemed valid by the Trust.

21. Once a redemption notice for Silver 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 Silver Bullion complies with the applicable requirements, is for an amount of Silver Bullion that is equal to at least ten London Good Delivery bars in the Trust's inventory at the Silver 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 Silver 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 Silver Bullion was received and determined to be complete.

22. Any redemption notice for Silver 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 Silver Bullion less than at least ten London Good Delivery bars held by the Trust at the Silver Custodian, or in an amount that cannot be satisfied based on the bar sizes of Silver 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 Silver 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.

23. If the redemption notice for Silver 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 Silver 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 or DTC, as the case may be, for cancellation.

24. Based on instructions from the Manager, the Silver Custodian will release the requisite amount of Silver 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 Silver 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.

25. A Unitholder redeeming Units for Silver Bullion will receive the Silver Bullion from the Silver Custodian. Silver 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, provided that the delivery instructions are acceptable to the armoured transportation service carrier. The armoured transportation service carrier will be engaged by, or on behalf of, the redeeming Unitholder. Silver Bullion delivered to an institution located in North America authorized to accept and hold London Good Delivery bars will likely retain its London Good Delivery status while in the custody of such institution. Silver Bullion delivered pursuant to a Unitholder's delivery instruction to a destination other than an institution located in North America authorized to accept and hold London Good Delivery bars will no longer be deemed London Good Delivery once received by the Unitholder.

26. The armoured transportation service carrier will receive the Silver 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 Silver Bullion representing the redeemed Units has been placed with the armoured transportation service carrier, the Silver Custodian will no longer bear the risk of loss of, and damage to, such Silver Bullion. In the event of a loss after the Silver Bullion has been placed with the armoured transportation service carrier, the Unitholder will not have recourse against the Trust or the Silver Custodian.

27. Subject to the terms of the Trust Agreement and the Manager's right to suspend redemptions of Units in certain circumstances, Units may also be redeemed at the option of a Unitholder in any month for cash. 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 volume-weighted average 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.

28. 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. Any such redemption notice must include a valid signature guarantee to be deemed valid by the Trust.

29. 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.

30. 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 or DTC, 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 Silver Custodian (with respect to matters relating to the Silver Custodian):

31. The Trustee acts as the custodian of the assets of the Trust other than the Silver 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.

32. The Silver Bullion owned by the Trust will be fully allocated and stored in the vaults of a custodian and/or sub-custodian. The Trust intends to store its Silver Bullion at the vault facilities of the Silver Custodian. The Trust is unable to appoint the Silver Custodian as the sole custodian of its assets since the Silver Custodian cannot hold the cash or securities owned by the Trust. However, as described below, depending on the quantity of Silver Bullion held by the Trust, the vault facilities of the Sub-Custodian may be used to store a portion of the Trust's Silver Bullion.

33. The Silver 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 Silver Custodian had shareholders' equity of $209.9 million as at December 31, 2009. The Silver Custodian is responsible for the minting and distribution of Canada's circulation coins. As part of its operations, the Silver Custodian maintains a secure storage facility located in Canada that it owns and operates, and provides storage space to third parties.

34. The Silver Custodian has advised the Trust that due to its physical storage capacity constraints in Canada, having regard to the quantity of Silver Bullion that the Trust anticipates purchasing in connection with the Offering, the Silver Custodian may be required to store and hold a portion of the Trust's Silver Bullion on a fully allocated basis at vault facilities located in Canada leased by the Silver Custodian from the Sub-Custodian for this purpose. As a result of the foregoing, the Silver Custodian may be required to hold a portion of the Trust's Silver Bullion that it does not hold directly in its own vaults through the vaults of the Sub-Custodian located in Canada.

35. The Sub-Custodian is a public company listed on the New York Stock Exchange. The Sub-Custodian had shareholders' equity of U.S. $534.9 million as at December 31, 2009. The Sub-Custodian, through it subsidiaries, is a leading global provider of secure logistics for valuables, including diamonds, jewellery, precious metals, securities, currency and secure data, serving banks, retailers, governments, mines, refiners, metal traders, and diamantaires. The Sub-Custodian is an authorized depository for the London Bullion Market Association (LBMA) and has vault facilities that are accepted as warehouses for the LBMA.

36. The relationship between the Silver Custodian and the Sub-Custodian will be primarily one whereby the Silver Custodian is sub-contracting the vault facilities of this service provider for the purposes of storing the Trust's Silver Bullion in Canada. The Sub-Custodian, acting through its Canadian subsidiary, will be appointed as sub-custodian of the Trust in Canada pursuant to a written agreement between the Silver Custodian and the Sub-Custodian that complies with the requirements of Part 6 of NI 81-102. The Silver Custodian will remain responsible for (i) ensuring that adequate safeguards are in place, including satisfactory insurance arrangements; and (ii) indemnifying the Trust for all direct loss, damage or expense that may occur in connection with the Trust's Silver Bullion that is stored at the vault facilities of either the Silver Custodian or the Sub-Custodian arising out of any negligence, wilful misconduct, fraud or lack of good faith by the Silver Custodian or the Sub-Custodian in its capacity as sub-custodian of the Trust in Canada, including arising out of the failure of the Sub-Custodian to comply with its standard of care consistent with the standard of care under Part 6 of NI 81-102. Prior to appointing the Sub-Custodian, and on a periodic basis thereafter, the Silver Custodian will review the facilities, procedures, records and creditworthiness of the Sub-Custodian. The Trust will rely upon the Silver Custodian, who is in the business of precious metals storage, to satisfy itself as to the appropriateness of the use or continued use of the Sub-Custodian as sub-custodian of the Trust's Silver Bullion in Canada.

37. The Silver Custodian has also advised the Trust and the Manager that, pursuant to the terms of its existing relationship with the Sub-Custodian, the Sub-Custodian has arranged for sufficient insurance coverage in respect of any material held by the Silver Custodian through the vault facilities of the Sub-Custodian. The Manager has discussed with the Silver Custodian the level of insurance coverage obtained by the Sub-Custodian and the risks insured against by the Sub-Custodian and believes that the level of insurance will be sufficient.

38. The Manager and the Silver Custodian believe that the Sub-Custodian, acting through its Canadian subsidiary, has the resources and experience required to act as sub-custodian for the Trust's Silver Bullion in Canada.

39. The Silver Custodian will be appointed as the custodian of the Silver Bullion owned by the Trust pursuant to a silver storage agreement between the Manager, for and on behalf of the Trust, and the Silver Custodian (the Storage Agreement). The Storage Agreement will provide for the storage of the Silver Bullion generally and will not place any limitations on the Trust's ability to buy or sell Silver Bullion. The Storage Agreement, including the arrangements between the Silver Custodian and the Trust in connection with the Silver Bullion, will comply with the requirements of Part 6 of NI 81-102.

40. Under the Storage Agreement, upon written notice from the Manager to the Silver Custodian of the Manager's intention to have any of the Silver Bullion owned by the Trust delivered to the Silver Custodian, the Silver Custodian will receive such Silver 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 Silver Custodian will issue a "receipt of deposit" that confirms the bar count and the total weight in troy ounces of the Silver Bullion. The Silver Custodian reserves the right to refuse delivery in the event of storage capacity limitations at either its own vault facilities or at the vault facilities of the Sub-Custodian. In the event of a discrepancy arising during the verification process, the Silver Custodian will promptly notify the Manager. The Silver Custodian will keep the Silver 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 Silver Custodian will provide a monthly inventory statement, which the Manager will reconcile with the Trust's records of its Silver Bullion holdings. The Manager will have the right to physically count and have the Trust's auditors subject the Trust's Silver Bullion to audit procedures at the vault facilities of the Silver Custodian and at the Sub-Custodian upon request on any Silver Custodian business day (which means any day other than a Saturday, Sunday or a holiday observed by the Silver Custodian) during the Silver Custodian's regular business hours, provided that such physical count or audit procedures do not interrupt the routine operation of the Silver Custodian's facility or the Sub-Custodian's facility, as the case may be.

41. The Silver Bullion owned by the Trust and stored at the vault facilities of the Silver Custodian or, if Silver Bullion is stored with the Sub-Custodian, at the vault facilities of the Sub-Custodian, will be subject to a physical count by a representative of the Manager periodically on a spot-inspection basis as well as subject to audit procedures by the Trust's external auditors on at least an annual basis.

42. 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 Silver Custodian's or the Sub-Custodian's storage vaults without being accompanied by at least one representative of the Silver Custodian or the Sub-Custodian, as the case may be.

43. The Manager will ensure that no part of the stored Silver Bullion may be delivered out of safekeeping by the Silver Custodian (except to the Sub-Custodian or another authorized sub-custodian) or the Sub-Custodian without receipt of an instruction from the Manager in the form specified by the Silver Custodian or the Sub-Custodian indicating the purpose of the delivery and giving direction with respect to the specific amount.

44. Upon the Silver Custodian's receipt and taking into possession and control (either directly or through the Sub-Custodian) of any of the Silver Bullion owned by the Trust, whether through physical delivery or a transfer of the Silver Bullion from a different customer's account at the Silver Custodian, the Silver Custodian's liability under the Storage Agreement will commence with respect to such Silver Bullion. The Silver Custodian will bear all risk of physical loss of, or damage to, the Silver Bullion owned by the Trust in the Silver Custodian's custody (which includes Silver Bullion held by the Sub-Custodian), except in the case of circumstances or causes beyond the Silver 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 Silver Bullion in the Trust's account while in the Silver Custodian's possession and control. The Silver Custodian's liability terminates with respect to any Silver Bullion upon termination of the Storage Agreement upon transfer of such Silver Bullion to a different customer's account at the Silver Custodian or the Sub-Custodian, as requested by the Manager, or at the time such Silver Bullion is remitted to the armoured transportation service carrier pursuant to delivery instructions provided by the Manager on behalf of a redeeming Unitholder.

45. In the event of physical loss, damage or destruction of the Trust's Silver Bullion in the Silver Custodian's possession and control (which includes Silver Bullion stored with the Sub-Custodian), the Manager must give written notice to the Silver Custodian within five Silver 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 Silver Bullion, in any event no more than 30 days after the delivery by the Silver Custodian to the Trust of an inventory statement in which the discrepancy first appears. The Silver Custodian will, in its discretion, either (i) replace, or restore to its original state in the event of partial damage, as the case may be, the Trust's Silver Bullion that was lost, destroyed or damaged as soon as practicable after the Silver 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 Silver Bullion that was lost or destroyed, within five Silver Custodian business days from the date the Silver 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 Silver Bullion that was lost or destroyed, using the first available London fix of the LBMA from the date the Silver 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 Silver 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 Silver 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 Silver Custodian. The Silver 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 Silver Custodian and whether or not the Silver Custodian had knowledge that such losses or damages might be incurred.

46. Pursuant to the Storage Agreement, the Silver 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 a custodian would exercise in the same circumstances. The Silver Custodian will not be entitled to an indemnity from the Trust in the event the Silver Custodian breaches its standard of care.

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

48. The Manager may terminate the custodial relationship with the Silver Custodian by giving written notice to the Silver Custodian of its intent to terminate the Storage Agreement if: (i) the Silver Custodian has committed a material breach of its obligations under the Storage Agreement that is not cured within ten Silver Custodian business days following the Manager giving written notice to the Silver Custodian of such material breach; (ii) the Silver Custodian is dissolved or adjudged bankrupt, or a trustee, receiver or conservator of the Silver Custodian or of its property is appointed, or an application for any of the foregoing is filed; or (iii) the Silver Custodian is in breach of any representation or warranty contained in the Storage Agreement. The obligations of the Silver Custodian include, but are not limited to, maintaining an inventory of the Trust's Silver Bullion stored with the Silver Custodian, providing a monthly inventory to the Trust, maintaining the Trust's Silver Bullion physically segregated and specifically identified as the Trust's property, and taking good care, custody and control of the Trust's Silver Bullion. The Trust believes that all of these obligations are material and anticipates that the Manager would terminate the Silver Custodian as custodian if the Silver Custodian breaches any such obligation and does not cure such breach within ten Silver Custodian business days of the Manager giving written notice to the Silver Custodian of such breach. Prior to terminating the custodial relationship with the Silver Custodian, the Manager, with the consent of the Trustee, will appoint a replacement custodian for the Silver Bullion that complies with the requirements under NI 81-102.

49. The Silver Custodian carries such insurance as it deems appropriate for its businesses and its position as custodian of the Trust's Silver Bullion and will provide the Trust with at least 30 days' notice of any cancellation or termination of such coverage. The Trust's ability to recover from the Silver Custodian is not contingent upon the Silver Custodian's ability to claim on its own insurance or the Sub-Custodian's ability to claim on its own insurance. Based on information provided by the Silver Custodian, the Manager believes that the insurance carried by the Silver Custodian, together with its 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 Silver Bullion stored at the Silver Custodian or at the Sub-Custodian that is consistent with the protection afforded under insurance carried by other custodians that store silver commercially.

50. The Manager and the Trust believe that the custodial arrangements with the Silver Custodian and the Sub-Custodian in connection with the Trust's Silver Bullion are consistent with industry practice.

51. 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 Silver Bullion and the Silver Custodian or the Sub-Custodian holding the Silver Bullion owned by the Trust.

52. he 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 or sub-custodian and/or additional custodians or sub-custodians subject to the requirements under NI 81-102.

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 Silver Bullion by the Trust may generate higher transaction and custody costs than other types of investments, which may impact the performance of the Trust;

(b) the Trust and the Silver Custodian are limited to using the Sub-Custodian as sub-custodian for the Trust's Silver Bullion which will be held only in Canada;

(c) the Silver Custodian and the Sub-Custodian each has in excess of the highest minimum capitalization amount of shareholders' equity required under NI 81-102 for entities qualified to act as a custodian or a sub-custodian for assets held in Canada;

(d) in respect of the compliance reports to be prepared by the Silver Custodian pursuant to paragraphs 6.7(1)(b), 6.7(1)(c)(ii) and 6.7(2)(c) of NI 81-102, as such paragraphs will not be applicable given the nature of the relief granted herein, the Silver Custodian shall include a statement in such reports regarding the completion of the Silver Custodian's review process for the Sub-Custodian and that the Silver Custodian is of the view that the Sub-Custodian continues to be an appropriate sub-custodian to hold the Trust's Silver Bullion; and

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

"Vera Nunes"
Assistant Manager, Investment Funds Branch
Ontario Securities Commission