assets in physical
platinum and palladium bullion. The Trust seeks to provide a convenient and
exchange-traded investment alternative for investors interested in holding
physical platinum and palladium bullion without the inconvenience that is
typical of a direct investment in physical platinum and palladium bullion. The
Trust intends to invest primarily in long-term holdings of unencumbered, fully
allocated, physical platinum and palladium bullion and will not speculate with
regard to short-term changes in platinum and palladium prices. The Trust does
not anticipate making regular cash distributions to Unitholders. See "Business
of the Trust". RBC Investor Services Trust, which we will refer to as
RBC Investor Services, is the trustee of the Trust. The Manager is the sponsor
and promoter of the Trust and the manager of the Trust pursuant to the
Management Agreement. The material terms of the Trust Agreement and the
Management Agreement are discussed under the sections "Description of the Trust
Agreement" and "Certain Transactions", respectively. Each outstanding Unit
represents an equal, fractional, undivided ownership interest in the net assets
of the Trust attributable to the particular class of Units. Expected advantages
of investing in the Units include:
Convenient Way to Own Physical Platinum and Palladium Bullion. The
Trust has listed its Units on NYSE Arca and received conditional
approval to list the Units on the TSX. The Trust will provide
institutional and retail investors with indirect access to physical
platinum and palladium bullion while providing them with the liquidity
of an exchange-traded security. The Units may be bought and sold on
NYSE Arca and the TSX like any other exchange-listed securities.
º Investment in Physical Platinum and Palladium Bullion Only. Except
with respect to cash held by the Trust to pay expenses and anticipated
cash redemptions, the Trust expects to own only physical platinum and
palladium bullion that is certified as conforming to the Good Delivery
Standard of the London Platinum and Palladium Market, or LPPM, which
we will refer to as Good Delivery. The Manager intends to invest and
hold approximately 97% of the total net assets of the Trust in
physical platinum and palladium 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. 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.
º Lower Transaction Costs. The Manager believes that, for many
investors, costs associated with buying and selling the Units in the
secondary market and the payment of the Trust's ongoing expenses would
be lower than the costs associated with buying and selling physical
platinum and palladium bullion, and storing and insuring physical
platinum and palladium bullion in traditional allocated platinum or
palladium bullion accounts, as applicable.
º Ability to Redeem Units for Physical Platinum and Palladium
Bullion. Subject to a minimum redemption amount of 25,000 Units,
Unitholders will have the ability, on a monthly basis and as described
herein, to redeem their Units for physical platinum and palladium
bullion in any month for a redemption price equal to 100% of the
aggregate Net Asset Value divided by the total number of Units then
outstanding; which we will refer to as the NAV per Unit, of the
redeemed Units less redemption and delivery expenses, including the
handling of the notice of redemption, the delivery and transportation
of the physical platinum and palladium bullion for Units that are
being redeemed and the applicable storage in-and-out fees and
applicable taxes. Net Asset Value or NAV means the net asset value
of the Trust on a particular date equal to (i) the aggregate fair
value of the assets of the Trust, less (ii) the aggregate fair value
of liabilities of the Trust.
º Storage with the Royal Canadian Mint. The Trust's physical platinum
and palladium bullion will be fully allocated and stored with the
Royal Canadian Mint, which we will refer to as the Mint, or a
sub-custodian of the Mint. The current sub-custodian of the Mint is
Via Mat International Ltd., through its subsidiary, Via Mat
International (USA) Inc., which we will refer to as Via Mat. The Mint
is a Canadian Crown corporation and its obligations generally
constitute unconditional obligations of the Canadian Government. The
Mint will be responsible for and bear the risk of loss of, and damage
to, the Trust's physical platinum and palladium bullion that is in its
or its sub-custodian's custody (regardless of the location at which
the Mint decides to store physical platinum and palladium bullion).
The physical platinum and palladium bullion will be subject to a
physical count by a representative of the Manager periodically on a
spot inspection basis and subject to audit procedures by the Trust's
external auditors on at least an annual basis. The Trust will not
separately insure its assets, including physical platinum and
palladium bullion, or provide any additional protections against loss
apart from the insurance carried by the Mint and RBC Investor
Services. Under certain circumstances, the liability of the Mint
may be limited.
º Experienced Manager. The Trust will be administered by Sprott Asset
Management LP, which we will refer to as the Manager. The Manager is
registered in Canada as an investment fund manager and portfolio
manager and in the United States as an investment adviser and is
wholly-owned by Sprott Inc., a public company whose securities are
listed on the TSX. The Manager has considerable experience and a long
track record of investing in precious metals on behalf of investors.
º Potential Tax Advantage for Certain U.S. Investors. Any gains realized
on the sale of Units by an investor that is an individual, trust or
estate, including such investors that own Units through partnerships
and other pass-through entities for U.S. federal income tax purposes,
may be taxable as long-term capital gains (at a maximum rate of 15%
under current law (scheduled to increase to 20% for taxable years
beginning after December 31, 2012), compared to a long-term capital
gains tax rate of 28% applicable to the disposition of physical
platinum and palladium bullion and other "collectibles" held for more
than one year), provided that such U.S. investor has held the units
for more than one year at the time of the sale and such U.S. investor
has made a timely and valid Qualified Electing Fund, which we will
refer to as QEF, election with respect to the Units by filing IRS
Form 8621 with his, her or its U.S. federal income tax return. A
capital gain recognized upon a redemption of Units for physical
platinum and palladium bullion by an electing U.S. Holder will be
treated in essentially the same manner as above (i.e., generally as a
long term capital gain taxable at the rate of 15% under current law
(scheduled to increase to 20% for taxable years beginning after
December 31, 2012)), except that any portion of the gain which is
equal to the electing U.S. holder's pro rata share of any capital gain
recognized by the Trust upon the distribution of the physical platinum
and palladium bullion to the electing U.S. Holder will be taxable to
the electing U.S. Holder at a maximum rate of 28% under current law if
the Trust held the physical platinum and palladium bullion for more
than one year. The Trust intends to provide annually each U.S. Holder
(as defined under "Material Tax Considerations—Material U.S. Federal
Income Tax Considerations—U.S. Federal Income Taxation of
U.S. Holders") of Units with all necessary information in order to
make and maintain a QEF election.
º Benefits of Investing in Platinum and Palladium. An investment in
platinum and palladium may provide several benefits to investors. The
Manager believes that platinum and palladium have uncertain supply
fundamentals and strong demand fundamentals rooted in diverse sectors.
The Trust competes with other financial vehicles, including traditional debt
and equity securities issued by companies in the platinum and palladium industry
and other securities backed by or linked to platinum or palladium, or both,
direct investments in platinum or palladium, or both, and investment vehicles
similar to the Trust. The most direct competition the Trust faces in obtaining
investors is from platinum and palladium Exchange-Traded Funds, which we will
refer to as ETFs, and mutual funds and closed-end funds that hold platinum or
palladium or platinum—or palladium-related securities. These other products all
offer investors a way to gain exposure to the price of platinum and palladium by
tracking the spot price of platinum or palladium bullion, although they may have
structural features that are different from those of the Trust.
Unlike the Trust, ETFs issue or redeem units daily, reflecting purchases or
redemptions of units by investors. Such purchases and redemptions are effected
by a financial intermediary, engaged by the ETF administrator to create a market
for the ETF units. As such, the trading prices of ETFs on the stock exchange
generally do not deviate significantly from net asset value. By contrast, the
Trust does not employ any financial intermediary, and does not intend to issue
new Units, or redeem existing Units, on a day-to-day basis. As such, the Units
will generally trade at a premium or discount to the Net Asset Value per Unit,
depending on relative supply and demand for the Units in the secondary market.
Unlike closed-end funds and ETFs, mutual funds are not traded throughout the
day and only allow an investor liquidity at the end of the day based on the
closing net asset value.
ETFs and mutual funds that track the price of platinum or palladium, or
both, as the case may be, may provide exposure to the price of platinum or
palladium, or both, by holding physical platinum or palladium, or through
financial instruments or contracts that provide exposure to the price of
platinum or palladium. Moreover, ETFs and mutual funds do not generally give
investors the right to redeem their units for physical platinum or palladium, as
the case may be. The Trust believes that it maintains a strong position in this
competitive environment by offering investors close to full exposure to the
price of physical platinum and palladium bullion with the ability to redeem
Units for physical platinum and palladium bullion (subject to certain minimum
amounts—see "Redemption of Units"), the liquidity of an ETF, and a potential tax
advantage for U.S. investors, relative to holding platinum and palladium
directly, as compared to a platinum and palladium ETF.
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The Trust's office is located at Suite 2700, South Tower, Royal Bank Plaza,
200 Bay Street, Toronto, Ontario, Canada M5J 2J1. The Manager's office is
located at Suite 2700, South Tower, Royal Bank Plaza, 200 Bay Street, Toronto,
Ontario, Canada M5J 2J1 and its telephone number is (416) 362-7172. The office
of the Trust's trustee, RBC Investor Services Trust, is located at
155 Wellington Street West, Street Level, Toronto, Ontario, Canada M5V 3L3. The
custodian for the Trust's physical platinum and palladium bullion, the Mint, is
located at 320 Sussex Drive, Ottawa, Ontario, Canada K1A 0G8. The Mint will
engage Via Mat as a sub-custodian for the Trust's physical palladium bullion.
The principal office of Via Mat is located at 130 Sheridan Blvd., Inwood,
New York, USA 11096. The custodian for the Trust's assets other than physical
platinum and palladium bullion, RBC Investor Services, is located at
155 Wellington Street West, Street Level, Toronto, Ontario, Canada M5V 3L3.
Trust's website: www.sprottplatinumpalladium.com.