Securities Law & Instruments


NP 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Exemptive relief granted to exchange-traded mutual fund offered in continuous distribution to permit purchases of silver bullion and the acceptance of bullion as subscription proceeds for units of the fund -- National Instrument 81-102 Investment Funds.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, paragraph 2.3(1)(f), subsection 9.4(2) and section 19.1.

March 11, 2016




The principal regulator in the Jurisdiction has received an application (the Application) from the Filer on behalf of the Fund for a decision under the securities legislation of the Jurisdiction (the Legislation) that exempts the Fund from:

(a) paragraph 2.3(1)(f) of National Instrument 81-102 Investment Funds (NI 81-102) to permit the Fund to invest up to 100% of its net assets, taken at market value at the time of purchase, in physical silver bullion in 1,000 troy ounce international bar sizes; and

(b) subsection 9.4(2) of NI 81-102 to permit the Fund to accept a combination of cash and physical silver bullion as subscription proceeds for units (Units) of the Fund;

together, the Requested Relief.

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

(a) the Ontario Securities Commission is the principal regulator for the Application; and

(b) the Filer 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 all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).


Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined. In addition, the following terms have the following meanings:

(a) Basket means Bullion in such amount as determined by the Filer in its discretion from time to time.

(b) Bullion means physical silver bullion.

(c) Dealer means a dealer (that may or may not be a Designated Broker) that enters into a continuous distribution agreement with the Filer or an affiliate of the Filer on behalf of the Fund, pursuant to which the Dealer may subscribe for and purchase Units from the Fund.

(d) Designated Broker means a dealer that enters into an agreement with the Filer or an affiliate of the Filer on behalf of the Fund to perform certain duties in relation to the Fund.

(e) Exchange means the Toronto Stock Exchange (TSX) or another stock exchange recognized by the Ontario Securities Commission.

(f) Prescribed Number of Units means the number of Units determined from time to time for the purpose of subscription orders, exchanges, redemptions or for other purposes.

(g) Redemption Rights means collectively, the Fund's bi-weekly redemption right for cash at 100% of net asset value (NAV) less costs and a daily redemption right for cash at 95% of NAV less costs which will remain in force from February 8, 2016 until the Fund converts into an exchange-traded mutual fund (ETF).


This decision is based on the following facts represented by the Filer.

1. The Filer is a corporation incorporated under the laws of the province of Ontario.

2. The registered office of the Filer is located at 130 Adelaide Street West, 17th Floor, Toronto, Ontario.

3. The Filer is registered as an investment fund manager, portfolio manager and an exempt market dealer under the Securities Act (Ontario) (the OSA).

4. The Filer is not in default of securities legislation in any of the Jurisdictions.

5. The Fund is a reporting issuer under the laws of all of the Jurisdictions.

6. The Fund was originally created to acquire and hold Bullion pursuant to a declaration of trust dated July 9, 2009 (the Declaration of Trust) and was not an investment fund.

7. Until February 8, 2016, Silver Administrators Ltd. (SAL) was the Fund's administrator.

8. On November 26, 2015, the Fund, SAL and the Filer entered into a definitive agreement (the Definitive Agreement) pursuant to which (i) the parties agreed to convert the Fund into an ETF, (ii) the Filer would become the Fund's investment fund manager, and (iii) SAL would provide bullion asset inventory management services to the Fund going forward.

9. A special meeting of the holders of Units (Unitholders) was called to consider and vote on the proposed conversion of the Fund from a closed-end investment trust to an ETF to be managed by the Filer, and a management information circular dated December 4, 2015 (the Circular) was prepared and delivered to Unitholders of the Fund in connection with the solicitation of proxies by the trustees of the Fund. Unitholder approval was obtained on January 26, 2016.

10. On February 8, 2016, the Declaration of Trust was amended and restated (the Amended and Restated Declaration of Trust) to implement the changes described in the Definitive Agreement (including adding the Redemption Rights), the Filer assumed the management responsibilities for the Fund and SAL became the Fund's silver bullion manager, all as described in the Circular.

11. On February 8, 2016, each of the following trustees of the Fund tendered their resignation as trustee and appointed the Filer as the successor trustee of the Fund: Bruce D. Heagle, Ian M.T. McAvity, Michael A. Parente, Jason A. Schwandt and J.C. Stefan Spicer.

12. On February 23, 2016, the Fund filed a preliminary prospectus (the Preliminary Prospectus) with the securities regulatory authorities in each of the Jurisdictions to qualify the issuance of its Units in each of the Jurisdictions on a continuous basis.

13. Subject to obtaining a receipt for the Fund's final prospectus for its continuous distribution of Units, the Fund will convert into an ETF and will be managed and marketed by the Filer.

14. The Fund is not in default of securities legislation in any of the Jurisdictions.

15. The investment objective of the Fund is to buy and hold substantially all of its assets in Bullion and, incidental thereto, minor amounts of silver certificates, if any. The Fund is not actively managed and does not anticipate making regular distributions.

16. The Fund invests in and holds substantially all of its assets in long-term holdings of Bullion in order to provide investors with a secure, convenient, low-cost alternative for investors interested in holding an investment in Bullion. The Fund invests in and holds unencumbered Bullion on a long-term basis in 1,000 troy ounce international bar sizes, and does not speculate with regard to short-term changes in silver prices.

17. The Fund's investment restrictions require the Fund to:

(a) invest in and hold a minimum of 90% of its net assets in Bullion, and

(b) not hold more than 10% of its total net assets in,

(i) silver certificates to enable payments, if any, to be made: (A) in connection with the redemption of any Units or other securities of the Fund, (B) in connection with making distributions, if any, to Unitholders, and (C) for working capital purposes; and

(ii) cash and interest-bearing accounts, short-term government debt or short-term investment grade corporate debt for working capital purposes.

18. All of the Fund's Bullion is held on an allocated basis by the Canadian Imperial Bank of Commerce (the Custodian) in its facilities in Regina, Saskatchewan pursuant to a safekeeping agreement between the Custodian and the Fund dated July 13, 2009.

19. With the approval of the Fund, the Custodian may appoint a sub-custodian to hold the Fund's Bullion. Any sub-custodian appointed to hold the Fund's Bullion will be an entity described in section 6.2 or 6.3 of NI 81-102, unless otherwise permitted by an exemption provided by Canadian securities regulatory authorities.

20. The Fund's auditors verify the physical count of all Bullion held by the Fund at least once a year.

21. Upon conversion to an ETF, Units may be subscribed for or purchased directly from the Fund by Dealers or Designated Brokers and orders may be placed for Units in the Prescribed Number of Units or an integral multiple thereof.

22. The Fund will appoint one or more Designated Brokers to perform certain functions, which include standing in the market with a bid and ask price for Units for the purpose of maintaining liquidity for Units.

23. Similar to other ETFs, the Fund will enter into a designated broker agreement with a Designated Broker the terms of which provide that, for each Prescribed Number of Units issued, a Designated Broker or Dealer must deliver payment consisting of, in the Filer's discretion: (i) one Basket and cash in an amount sufficient so that the value of the Bullion and the cash received is equal to the NAV of the Units next determined following the receipt of the subscription order; (ii) cash in an amount equal to the NAV of the Units next determined following the receipt of the subscription order; or (iii) a combination of Bullion and cash, as determined by the Filer, in an amount sufficient so that the value of the Bullion and cash received is equal to the NAV of the Units next determined following the receipt of the subscription order.

24. Neither the Dealers nor the Designated Brokers will receive any fees or commissions in connection with the issuance of Units to them. On the issuance of Units, an administrative fee may be charged to a Dealer or Designated Broker to offset the expenses (including any applicable TSX additional listing fees) incurred in issuing the Units.

25. Except as described above, Units may not generally be purchased directly from the Fund. Investors will generally be expected to purchase Units through the facilities of the applicable Exchange.

26. Unitholders that wish to dispose of their Units will generally be able to do so by selling their Units on the applicable Exchange, through a registered dealer, subject only to customary brokerage commissions. A Unitholder that holds a Prescribed Number of Units of the Fund or an integral multiple thereof will be able to exchange such Units with the Fund for cash and/or Baskets. A Unitholder will also be able to redeem Units for cash at a redemption price equal to the lesser of (i) 95% of the closing price of the Units on the applicable Exchange and (ii) the NAV per Unit on the date of redemption.

27. But for the Requested Relief, the Fund would be prohibited from investing in Bullion pursuant to paragraph 2.3(1)(f) of NI 81-102.

28. But for the Requested Relief, the Fund would be prohibited, pursuant to subsection 9.4(2) of NI 81-102 from accepting Bullion or a combination of Bullion and cash as payment for its Units as Bullion is not a "security" as defined in the OSA.

29. The Preliminary Prospectus contains and the final prospectus of the Fund will contain, full, true and plain disclosure regarding the Fund's investment in Bullion including disclosure regarding the Fund's concentrated holdings of Bullion.

30. The Requested Relief would not be prejudicial to the public interest or to investor protection.


The principal regulator is satisfied that the decision meets the test 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 Requested Relief is granted, provided that:

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

(b) in respect of the relief granted from subsection 9.4(2) of NI 81-102, the acceptance of any Bullion as payment for the issue price of Units is made in accordance with paragraph 9.4(2)(b); and

(c) the prospectus of the Fund discloses, in the investment strategy section, that the Fund has obtained relief to invest in Bullion.

"Vera Nunes"
Director (Acting), Investment Funds and Structured Products Branch
Ontario Securities Commission