Sprott Asset Management LP and Sprott Physical Platinum and Palladium Trust

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 platinum and palladium bullion, custodial provisions to allow Royal Canadian Mint to act as custodian and Via Mat 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.

Exemptive relief granted from National Instrument 41-101 General Prospectus Requirement, Form 41-101F2 Information Required in an Investment Fund Prospectus, and National Instrument 81-106 Investment Fund Continuous Disclosure -- Exemption from the requirements to include in the prospectus annual financial statements prepared in accordance with Canadian generally accepted accounting principles and to prepare on a continuing basis financial statements in accordance with Canadian generally accepted accounting principles -- A mutual fund trust intending to list its units on the TSX and NYSE Arca -- Issuer is a "foreign private issuer" with the SEC and permitted to file financial statements prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board with its Form F-1 registration statement -- IFRS issues such as classification of puttable instruments, consolidation, and deferred income taxes are not expected to impact the Trust's financial statements.

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.

National Instrument 41-101 General Prospectus Requirements, ss. 3.1(2), 4.2(2), 19.1.

Form 41-101F2 Information Required in an Investment Fund Prospectus, Item 38.

National Instrument 81-106 Investment Fund Continuous Disclosure, ss. 2.6, 17.1.

April 3, 2012

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 Filer)

AND

IN THE MATTER OF

SPROTT PHYSICAL PLATINUM AND

PALLADIUM TRUST

(the Trust)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer, 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 exemptive relief:

(a) pursuant to section 19.1 of National Instrument 41-101 General Prospectus Requirements (NI 41-101) from the requirements under subsection 3.1(2) and subsection 4.2(2) of NI 41-101, and Item 38 of Form 41-101F2 Information Required in an Investment Fund Prospectus to permit the Trust to include financial statements prepared using International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB), rather than Canadian generally accepted accounting principles (GAAP), in the final base PREP prospectus of the Trust (the Final Prospectus) to be filed in each of the Canadian Jurisdictions (as hereinafter defined); and

(b) pursuant to section 17.1 of National Instrument 81-106 Investment Fund Continuous Disclosure (NI 81-106) from the requirement under section 2.6 of NI 81-106 to permit the financial statements of the Trust to be prepared in accordance with IFRS-IASB rather than Canadian GAAP,

(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 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 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.

Representations

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

1. The Filer 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 Filer 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 Toronto Stock Exchange (TSX). Sprott Inc. is the sole limited partner of the Filer and the sole shareholder of the General Partner.

2. The Filer 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 and in Ontario as an investment fund 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 December 23, 2011 (the Trust Agreement), as the same may be amended, restated or supplemented from time to time. Pursuant to the Trust Agreement, RBC Dexia Investor Services Trust and the Filer are the trustee and the manager of the Trust, respectively.

4. In connection with an initial public offering (the Offering) of transferable, redeemable units of the Trust (the Units), a preliminary base PREP prospectus dated January 13, 2012 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.

5. 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 (SEC) in connection with the Offering of the Units in the United States.

6. The Trust subsequently filed via SEDAR an amended and restated preliminary base PREP prospectus of the Trust dated March 1, 2012 (the Preliminary Prospectus) amending and restating the preliminary base PREP prospectus of the Trust dated January 13, 2012 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.

7. The Trust intends to list the Units on the TSX and the New York Stock Exchange Arca (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.

8. 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 National Instrument 81-102 Mutual Funds. The Filer 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.

9. 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 physical platinum and palladium bullion (Bullion). 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".

10. The Filer and the Trust are not in default of securities legislation in the Canadian Jurisdictions.

11. Although the Filer 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.

12. As a newly established issuer, the Trust has not prepared any financial statements other than the audited statement of financial position of the Trust as at December 31, 2011 included in the Preliminary Prospectus filed with the Canadian Jurisdictions and the Registration Statement, as amended, filed with the SEC.

13. The SEC permits foreign private issuers, such as the Trust, to include in their Form F-1 filings financial statements prepared in accordance with IFRS-IASB. Preparing the Trust's financial statements in accordance with Canadian GAAP would require the Registration Statement, as amended, to include a reconciliation between U.S. GAAP and Canadian GAAP.

14. The Filer believes that reporting under a single accounting standard in each of Canada and the United States would eliminate complexity from the Trust's financial statement preparation process as well as avoid confusion for the users of the Trust's financial statements who are expected to primarily be non-Canadian investors.

15. As disclosed in an Accounting Standards Board Decision Summary dated December 12, 2011, the Canadian Accounting Standards Board decided to defer the mandatory IFRS-IASB changeover date for investment companies to January 1, 2014 to provide time for the International Accounting Standards Board to finalize its proposed investment entities standard. On February 29, 2012, the Canadian Accounting Standards Board published amendments to the Handbook of the Canadian Institute of Chartered Accountants requiring investment companies, which include investment funds such as the Trust, to prepare their financial statements in accordance with IFRS-IASB for financial years beginning on or after January 1, 2014, with earlier adoption permitted. If the Trust is permitted to prepare its financial statements since its inception date in accordance with IFRS-IASB, which is for a period prior to the date on which the Canadian Securities Administrators mandate such conversion for investment funds, the Trust, and ultimately the unitholders of the Trust (the Unitholders), will not be required to incur the expenses associated with a subsequent conversion to IFRS-IASB and the reconciliation to U.S. GAAP that would be required in the Registration Statement and for required periodic filings under the U.S. Securities Exchange Act of 1934, as amended. The Trust's financial statements will be audited in accordance with Canadian generally accepted auditing standards (GAAS) and the standards of the Public Company Accounting Oversight Board (United States) (PCAOB).

16. The Trust was created to invest and hold substantially all of its assets in Bullion. The Trust seeks to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding Bullion without the inconvenience that is typical of a direct investment in Bullion. The Trust does not anticipate making regular cash distributions to Unitholders.

17. The Trust intends to achieve its objective by investing primarily in long-term holdings of unencumbered, fully allocated, Bullion and will not speculate with regard to short-term changes in platinum or palladium prices. The Trust will not invest in platinum or palladium certificates, futures or other financial instruments that represent platinum or palladium or that may be exchanged for platinum or palladium. While the Trust will not rebalance the Trust's invested assets in Bullion back to equal weight after its initial purchases of Bullion with the proceeds of the Offering, the Trust may in the future allocate any additional proceeds raised in subsequent offerings of Units, if any, with a view to balancing the value of the Trust's holdings of Bullion at then current prices.

18. Except with respect to cash held by the Trust to pay expenses and anticipated cash redemptions of Units, the Trust expects to own only Bullion that is certified as Good Delivery. Good Delivery means Bullion conforming to the Good Delivery Standards of the London Platinum and Palladium Market (LPPM). The Filer intends to invest and hold approximately 97% of the total net assets of the Trust in Bullion, which will be stored in Good Delivery plate and/or ingot form. The Trust will purchase approximately equal dollar amounts of each of physical platinum and palladium bullion.

19. 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 Bullion in Good Delivery plate or ingot form and hold no more than 10% of the total net assets of the Trust, at the discretion of the Filer, in Bullion (in Good Delivery plate or ingot 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 F-1 (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 Filer 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.

20. The Filer and the Trust have made a significant commitment of time and resources to fully research and plan for the impact of the Trust's adoption of IFRS-IASB for financial periods prior to January 1, 2014 including, but not limited to, the consideration of the impact of IFRS-IASB on financial statement presentation and related disclosure requirements under applicable securities legislation, internal controls, investor relations, information technology systems, and business and contractual arrangements with service providers to the Trust.

21. The Filer and the General Partner have carefully assessed the readiness of their respective employees, management and board of directors for the Trust's adoption of IFRS-IASB for financial periods beginning on or after December 23, 2011 which is the Trust's inception date, and have concluded that all such persons are adequately prepared for the Trust's adoption of IFRS-IASB for financial periods beginning on or after December 23, 2011.

22. The Filer, in consultation with the Trust's external auditors, has determined that the Units can be classified as equity instruments under IFRS-IASB. The Trust Agreement provides that annual distributions of the Trust's net income and net realized capital gains, if any, to Unitholders will be at the discretion of the Trust rather than being a mandatory or automatic distribution to such Unitholders. Furthermore, if at any point in the future the classification of the Units has to be changed from equity to liability due to either changes in the Trust's structure or a change in accounting rules, such a change would not impact the calculation of the net asset value (the NAV) of the Trust pursuant to Part 14 of NI 81-106 since all liabilities represented by outstanding Units would be specifically excluded from the calculation of the NAV of the Trust.

23. The Filer, in consultation with the Trust's external auditors, has determined that the Trust will not be required to present consolidated financial statements under IFRS-IASB since, as noted in paragraphs 16, 17, 18 and 19, the Trust will invest all or substantially all of its assets in Bullion which will be valued on the basis of a fair value standard as set forth in the Trust Agreement.

24. The Filer, in consultation with the Trust's external auditors, currently expects that the Trust will not account for deferred taxes under International Accounting Standards (IAS) 12 Income Taxes of IFRS-IASB. However, the Filer notes that the application of IAS 12 Income Taxes to certain mutual fund trusts continues to be debated within the Canadian accounting profession. Nonetheless, the Filer and the Trust are of the view that there will be no difference in the calculation of the NAV of the Trust pursuant to Part 14 of NI 81-106 between IFRS-IASB and Canadian GAAP since the fair value of any such deferred tax liability would be nil.

25. The Preliminary Prospectus discloses, and any amendments to the Preliminary Prospectus, the Final Prospectus and any amendments thereto will disclose, the Trust's intention that its financial statements will be prepared in accordance with IFRS-IASB and audited in accordance with GAAS and the standards of the PCAOB.

26. The annual financial statements of the Trust to be included in the Final Prospectus and for subsequent financial periods, and the interim financial statements of the Trust for subsequent financial periods which will be prepared on a quarterly basis, will be prepared in accordance with IFRS-IASB.

Decision

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 Exemption Sought is granted provided that:

(a) the notes to the financial statements of the Trust disclose an unreserved statement of compliance with:

(i) in the case of annual financial statements, IFRS-IASB; and

(ii) in the case of an interim financial report, IAS 34 Interim Financial Reporting; and

(b) the Exemption Sought ceases to apply upon the application of any amendment to section 2.6 of NI 81-106 that changes the acceptable accounting principles, only as applicable to financial years beginning on or after the date on which the amendment comes into force.