MI 11-102 and NP 11-203 -- exemption granted to gold bullion fund from s. 2.3(e) of NI 81-102 -- exemption granted because fund will be a gold bullion fund whose investment objective is to invest directly in gold -- fund's prospectus will not be consolidated with prospectuses of manager's other funds -- fund will not invest in securities of other issuers other than non-redeemable investment funds that invest directly in gold -- fund's prospectus discloses risks associated with investing in a gold bullion fund.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 2.3(e), 19.1.
March 10, 2009
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF
APPLICATIONS IN MULTIPLE JURISDICTIONS
IN THE MATTER OF
SPROTT ASSET MANAGEMENT INC.
SPROTT GOLD BULLION FUND
The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption, pursuant to section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102), from clause 2.3(e) of NI 81-102 to permit the Fund to invest up to 100% of its net assets, taken at the market value at the time of purchase, in gold and/or permitted gold certificates (as such term is defined in NI 81-102) (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; and
(b) the Filer has provided notice that section 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, the Yukon Territory and Nunavut Territory, where applicable.
Terms defined in NI 81-102, National Instrument 14-101 Definitions, and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
This decision is based on the following facts represented by the Filer:
1. The Filer is a corporation incorporated under the laws of Ontario with its head office in Toronto, Ontario. The Filer will act as the manager and portfolio adviser for the Fund.
2. The Fund will be an open-end mutual fund trust established pursuant to a Trust Agreement governed under the laws of Ontario.
3. Neither the Filer nor the Fund is in default of securities legislation in any province or territory of Canada.
4. A preliminary simplified prospectus in respect of the Fund was filed via SEDAR under project No. 1369472 on January 28, 2009. Once a final prospectus for the Fund is filed and receipt is obtained, the Fund will be a "reporting issuer" under the Legislation or equivalent in each province and territory of Canada.
5. The investment objective of the Fund is to seek to provide a secure convenient alternative for investors seeking to hold gold for long-term appreciation and portfolio diversification. The Fund will invest primarily in unencumbered, fully allocated gold bullion, permitted gold certificates, and/or closed-end funds, the underlying interest of which is gold. The Fund may also invest a portion of its assets in cash, money market instruments, and/or treasury bills.
6. The Fund will not invest in securities of issuers that produce gold.
7. The Filer will include units of the Fund held by other funds that it manages when assessing such other funds' compliance with s. 2.3(e) of NI 81-102 or conditions contained in a decision granting such other funds an exemption from s. 2.3(e).
Bullion Held by the Fund
8. All gold bullion purchased by the Fund will be certified either "London Good Delivery", "COMEX Good Delivery" or "Zurich Good Delivery", and will be insured by the custodian or the sub-custodian to the full market value against destruction, disappearance or misappropriation, other than destruction, disappearance or misappropriation caused by war, nuclear incident, or government confiscation.
9. Pursuant to a sub-custodian agreement between Royal Trust Corporation of Canada and Bank of Nova Scotia dated October 8, 2003, as amended, The Bank of Nova Scotia will be the sub-custodian of the Fund responsible for storage and handling of gold bullion for the Fund.
10. All bullion held by the Fund in bar form will be physically held in the vaults of the Fund's custodian or sub-custodian in a location in Canada.
11. The Fund's auditors will perform a physical count once every year of all bullion held by the Fund in bar form.
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, so long as:
(a) the simplified prospectus of the Fund contains disclosure regarding the unique risks associated with an investment in the Fund including the risk that direct purchases of gold by the Fund may generate higher transaction and custody costs than other types of investments, which may impact the performance of the Fund; and
(b) the simplified prospectus of the Fund, including each renewal, will not be combined with the simplified prospectus and annual information form of any other mutual fund that the Filer manages.