BMG Management Services Inc. et al., 2023 CanLII 133285

September 26, 2023

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 THE FUNDS (as defined below)

and

IN THE MATTER OF BMG SILVER BULLIONFUND, BMG GOLD BULLIONFUND, AND BMG BULLIONFUND (together, the Representative Funds)

and

IN THE MATTER OF BMG MANAGEMENT SERVICES INC. (the Representative Manager)

and

IN THE MATTER OF BANK OF MONTREAL (BMO) (collectively, the Filers)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filers 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 Investment Funds (NI 81-102) from:

(a) clause 6.1(3)(b) of NI 81-102, to permit the Sub-Custodians, which are persons or companies that are not described in sections 6.2 or 6.3 of NI 81-102, to be appointed as sub-custodians of the Funds to hold the Funds’ bullion; and

(b) section 6.2 of NI 81-102 to permit the Sub-Custodians to be appointed as sub-custodians of the Funds to hold the Funds’ bullion in Canada

(collectively, 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 this application, and

(b) the Filers have provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in each other province and territory in Canada (together with Ontario, the Jurisdictions).

Interpretation

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.

“Brink’s” means Brink’s Global Services International Inc.

“bullion” means physical silver, gold, platinum or palladium bullion.

“Business Day” means any day other than a Saturday, a Sunday or a holiday observed by the applicable Sub-Custodian.

“Custodian” means BMO or any entity that is an affiliate and acts as successor custodian and that meets the requirements in NI 81-102 for a custodian.

“Funds” means the Representative Funds and each other public investment fund managed by a Manager now or after the date of this decision that holds or intends to hold bullion in its investment portfolio and that has appointed or will appoint the Custodian to act as custodian under NI 81-102.

“Loomis” means Loomis International Corporate AG.

“Manager” means the Representative Manager and each of the investment fund managers of the Funds.

“Mint” means The Royal Canadian Mint.

“Representative Funds” means BMG Silver BullionFund, BMG Gold BullionFund and BMG BullionFund.

“Representative Manager” means BMG Management Services Inc.

“Sub-Custodians” means the Mint, Brink’s, and Loomis.

Representations

This decision is based on the following facts represented by the Filers, as indicated:

The Managers

1. The Representative Manager is a corporation incorporated under the laws of the province of Ontario. The head office of the Representative Manager is located in Toronto, Ontario.

2. The Representative Manager is registered under the securities legislation in Ontario, Quebec and Newfoundland & Labrador as an investment fund manager.

3. The Representative Manager is the manager and portfolio adviser of the Representative Funds.

4. Each of the Managers has been, or will be, formed and organized under the laws of Canada or a Jurisdiction. Each of the Managers is, or will be, registered under the securities legislation of one or more of the Jurisdictions in such registration categories as are necessary to carry on its business. Each of the Managers is, or will be, the investment fund manager of one or more of the applicable Funds.

The Funds

5. The Representative Funds are open-ended mutual fund trusts established under the laws of Ontario. The units of the Representative Funds are qualified for distribution pursuant to a simplified prospectus and Fund Facts dated December 6, 2022 that have been prepared and filed in accordance with the securities legislation of each applicable Jurisdiction.

6. The investment objective of the BMG BullionFund is to provide a secure, convenient method for investors seeking to hold gold, silver and platinum bullion as part of their portfolio for capital preservation, long-term appreciation, portfolio diversification and portfolio hedging purposes against the volatility of other investments. The BMG BullionFund invests in equal dollar proportions of unencumbered physical gold, silver and platinum bullion.

7. The investment objective of the BMG Gold BullionFund is to provide a secure, convenient method for investors seeking to hold gold bullion as part of their portfolio for capital preservation, long-term appreciation, portfolio diversification and portfolio hedging purposes against the volatility of other investments. The BMG Gold BullionFund invests only in unencumbered physical gold bullion.

8. The investment objective of the BMG Silver BullionFund is to provide a secure, convenient method for investors seeking to hold silver bullion as part of their portfolio for capital preservation, long-term appreciation, portfolio diversification and portfolio hedging purposes against the volatility of other investments. The BMG Silver BullionFund invests only in unencumbered physical silver bullion.

9. The Representative Funds have obtained exemptive relief from Canadian securities regulatory authorities to invest up to 100% of their net asset value, taken at market value at the time of investment, in physical silver, gold and/or platinum bullion. The Representative Funds’ investments in bullion are made in accordance with the conditions described in the exemptive relief and as described in the simplified prospectus of the Representative Funds. The Representative Funds are currently relying on exemptive relief in relation to their custodian arrangements for bullion, which relief is substantially similar to the Requested Relief and is described in the simplified prospectus of the Representative Funds.

10. Each of the Funds is, an investment fund established under the laws of Canada or a Jurisdiction. The securities of each of the Funds are qualified pursuant to a prospectus or a simplified prospectus, as applicable, that have been prepared and filed in accordance with the securities legislation of one or more of the Jurisdictions such that each of the Funds is a reporting issuer under the securities legislation in one or more of the Jurisdictions.

11. The investment objective and/or strategies of each of the Funds specifies that the Fund may invest in bullion. The investment by each of the Funds in bullion is made in accordance with the securities legislation of each applicable Jurisdiction or in accordance with an exemption granted by Canadian securities regulatory authorities. Each of the Funds’ investments in bullion are as described in the prospectus or simplified prospectus of the Fund.

BMO

12. BMO is a bank listed in Schedule I of the Bank Act (Canada) and is regulated and supervised by the Office of the Superintendent of Financial Institutions. BMO provides custodial services to a number of public investment funds in Canada.

13. The head office of BMO is located in Toronto, Ontario.

14. Each of BMO, the Representative Manager and the Representative Funds is not in default of securities legislation in any of the Jurisdictions.

Appointment of the Custodian

15. The Representative Manager has appointed, or will appoint, the Custodian to act as the custodian of the portfolio assets for the Representative Funds. Each of the Managers has appointed, or will appoint, the Custodian to act as the custodian of the portfolio assets for the applicable Funds. The Custodian will act as the custodian of the portfolio assets for the Representative Funds pursuant to the terms of a custodial services agreement (the Custodial Services Agreement), and the Custodian acts, or will act, as the custodian of the portfolio assets for the Funds pursuant to agreements (such agreements include the Custodial Services Agreement, other trust agreements or custodian agreements (collectively, the Fund Custodian Agreements), that comply with all of the requirements in Part 6 of NI 81-102, other than the matters covered in the Requested Relief.

16. BMO’s vault can accommodate a certain amount of bullion; however, due to physical storage capacity constraints and having regard to the amount of bullion which the Funds may acquire, BMO will require the ability to appoint the Sub-Custodians to maintain custody of the Funds’ bullion in Canada. There are a limited number of custodians that meet the requirements in NI 81-102 and which have the vault space, facilities, operational infrastructure and expertise to hold bullion in Canada on behalf of clients.

Appointment of the Sub-Custodians

17. As a result, BMO has appointed, or will appoint, the Sub-Custodians to be sub-custodians to BMO and to hold each Fund’s bullion in Canada pursuant to precious metals storage and custody agreements relating to bullion entered into between BMO and each of the Mint, Brink’s, and Loomis (each a Storage and Custody Agreement and together, the Storage and Custody Agreements). Each Manager, on behalf of each Fund, has provided, or will provide, written consent to such appointments, and such written consent will include consenting to the appointment of entities that are part of an international network of sub-custodians within the organization of the appointed Sub-Custodian. The Storage and Custody Agreements will comply with the requirements of Part 6 of NI 81-102, other than the matters covered in the Requested Relief. The head office of the Mint is located in Ottawa, Ontario, the head office of Loomis is located in Zurich, Switzerland, and the head office of Brink’s is located in Richmond, Virginia.

18. The Sub-Custodians are not entities that are currently eligible to act as sub-custodians for portfolio assets held in Canada as each of the Sub-Custodians is not, among other things, a bank listed in Schedule I, II or III of the Bank Act (Canada) or a trust company incorporated under the laws of Canada.

19. In order to meet the bullion custody supply needs of its public investment fund clients in Canada and in considering the options available to the Funds for custody of their bullion, the appointment by the Custodian of the Sub-Custodians as sub-custodians to the Custodian in respect of the bullion owned by the Funds is the most efficient and cost-effective means of providing storage for the Funds’ bullion in Canada and represents the least operational and custodial risk for the Funds in terms of transporting, storing and managing bullion. The Sub-Custodians are the appropriate choice to provide bullion custodial services to each Fund because they are each experienced in providing bullion storage and custodial services, and are familiar with the requirements relating to the physical handling and storage of bullion.

20. The Custodian has experience in providing bullion custody services to public investment fund clients. The Custodian has appointed, or will appoint, the Sub-Custodians as its sub-custodians as described in paragraph 17.

21. The Mint is established pursuant to the Royal Canadian Mint Act (Canada) (the “Mint Act”) and is a Canadian Crown corporation. Pursuant to section 5 of the Mint Act, the Mint is an agent of Her Majesty the Queen and, as such, its obligations generally constitute unconditional obligations of the Government of Canada. The Mint is responsible for the minting and distribution of Canada’s circulation coins and foreign circulation coins and numismatic products. As part of its operations, the Mint operates a gold refinery business and maintains secure storage facilities located in Canada that it owns and operates, and provides storage space to third parties.

22. The Mint had shareholders’ equity of (i) CAD$138.4MM as at December 31, 2022, the date of its most recent audited annual financial statements that have been made public, and (ii) CAD$150.9MM as at April 1, 2023, the date of its most recent interim unaudited financial statements that have been made public, each significantly in excess of the requirement in section 6.2 of NI 81-102.

23. Brink’s is part of The Brink’s Company, which is an Approved Weigher and Member of the London Bullion Market Association (LBMA). Brink’s operates several subsidiaries around the world, including Brink's Canada Ltd. which operates vaults in Toronto, Vancouver, Calgary, Montreal and Halifax, Canada.

24. Brink’s had shareholders’ equity of (i) US$570.2mm as at December 31, 2022, the date of its most recent audited annual financial statements that have been made public, and (ii) US$664.2mm as at June 30, 2023, the date of its most recent interim unaudited financial statements that have been made public, each significantly in excess of the requirement in section 6.2 of NI 81-102.

25. Loomis is part of Loomis AB (publ), which is an Approved Weigher and Member of the LBMA. Loomis operates several subsidiaries around the world, including Loomis International (CA) Inc. which operates vaults in Canada.

26. Loomis had shareholders’ equity of not less than CAD$10mm as at the date of its most recent audited annual financial statements that have been made public, and (ii) not less than CAD$10mm as at the date of its most recent interim unaudited financial statements that have been made public.

27. Each Sub-Custodian and their respective subsidiaries whose vault facilities may be utilised to hold the Funds’ bullion in Canada, has not less than the amount of shareholders’ equity required under NI 81-102 for entities qualified to act as a sub-custodian for portfolio assets held in Canada (the Shareholder Equity Threshold).

28. The Representative Manager, each Manager and the Custodian believe that each of the Sub-Custodians has the resources and experience required and are appropriate sub-custodians for the Funds’ bullion held in Canada because each Sub-Custodian is experienced in providing bullion storage and custodial services, and is familiar with the requirements relating to the physical handling and storage of bullion.

Custodial Arrangements

29. All physical bullion owned by each Fund will be stored in the vault facilities of the Custodian and of the Sub-Custodians located in Canada, on a fully allocated and segregated basis. The Custodian and the Sub-Custodians shall at all times record and identify in the books and records of the Custodian and the Sub-Custodians that such bullion constitutes the property of the Funds, which in the case of the Custodian and the Sub-Custodians will be done through the use of a unique account identifier on a per Fund basis.

30. Under the Storage and Custody Agreements, the custodial arrangements will be structured in a descending order such that monitoring, instructions, directions, information and other communications will flow from the Custodian, to each of the Sub-Custodians and vice versa in the case of reporting, instructions, directions, information and other communications ascending up through the custodial structure.

31. If a Fund’s bullion is to be stored at a Sub-Custodian’s facility under a Storage and Custody Agreement, the Custodian will give written notice to the applicable Sub-Custodian of its intention to have bullion delivered to and stored at the Sub-Custodian’s facility. The notice will specify the amount, weight, type, assay characteristics, bar number and bar brands of the precious metal being delivered. Each of the Sub-Custodians reserves the right to refuse delivery in the event of storage capacity limitations at its own vault facilities. Upon receiving the bullion, each of the Sub-Custodians will verify the characteristics of the bullion against the information on the notice. After verification, the Sub-Custodians will each issue a “receipt of deposit” that confirms the count, weight, type, assay characteristics, bar number and bar brands of the bullion received (each, a Receipt of Deposit). In the event of a discrepancy arising during the verification process, the applicable Sub-Custodian will promptly notify the Custodian and will also provide prompt notice to the Manager.

32. Each of the Sub-Custodians will be required by the Storage and Custody Agreements to keep each Fund’s fully allocated bullion identifiable as the Fund’s property under specifically identified account numbers as directed by the Custodian and will keep it physically segregated at all times from any other property belonging to each Sub-Custodian or any of its customers. Each Sub-Custodian will provide a monthly inventory statement to the Custodian, and the Custodian and the Manager will reconcile the inventory statement with its records of the Fund’s bullion holdings.

33. Each of the Sub-Custodians is not authorized to deliver stored bullion out of safekeeping by that Sub-Custodian without first receiving written instruction from the Custodian or obtaining the written approval of the Custodian to such delivery based on forms specified by the applicable Sub-Custodian indicating the purpose of the delivery and giving direction with respect to the specific amount. Such instructions and approvals are referred to as a Delivery Direction.

34. The Custodian will not issue a Delivery Direction to a Sub-Custodian unless it is directed by the Manager and the Fund, in the form specified in the agreement between the Fund and the Custodian.

35. Under each Storage and Custody Agreement, each of the Sub-Custodians has the right to reject bullion delivered to it if the bullion contains a hazardous substance or if such bullion is or becomes unsuitable or undesirable for metallurgical, environmental or other reasons.

36. All bullion bars purchased by the Funds will be certified by the relevant vendor as bullion conforming to the good delivery standards of the LBMA, the London Platinum and Palladium Market or another internationally recognized bullion trading body.

37. The Representative Manager, each Manager and the Custodian believe that the Fund Custodian Agreement is consistent with industry practice. The Representative Manager, each Manager, the Custodian and the Sub-Custodians believe that each Storage and Custody Agreement and the custodial arrangements with the Custodian and the Sub-Custodians in connection with the Funds’ bullion are consistent with industry practice.

Supervision of the Custodian and the Sub-Custodians

38. The Manager is responsible for oversight of the work performed by the Custodian relating to the custody of portfolio assets of the Fund. In this regard, each Manager will oversee the Custodian, including, through the Custodian, any custodial functions that are performed by any sub-custodians appointed by the Custodian, and the selection and appointment of any sub-custodian by the Custodian, and will conduct ongoing reviews of the quality of the Custodian’s services. Each Manager will have the same access to the records of the Custodian as it would if the Manager itself performed the activities and maintained the records.

39. The Custodian may appoint sub-custodians to hold the portfolio assets of the Funds from time to time. The Custodian is responsible for oversight of the sub-custodians in accordance with its standard of care relating to the custody of portfolio assets of the Fund. The Custodian will have the same access to the records of the sub-custodian as it would if the Custodian itself performed the activities and maintained the records.

40. The Custodian operates internal review and approval processes which evaluate its sub-custodians by reviewing legal, financial, agent bank, market, operational and other areas of risk to ensure both the safety of assets and the efficient processing of same is maintained at all times. These processes are evaluated on an ongoing basis by internal and external audit teams and applicable regulatory bodies.

41. The relationship between the Custodian and each of the Sub-Custodians will be primarily one whereby the Custodian is (a) responsible for oversight of the work performed by each Sub-Custodian and (b) sub-contracts the vault facilities of each Sub-Custodian for the purposes of storing a Fund’s bullion. The Custodian will be responsible for ensuring that, with regard to each Sub-Custodian, adequate safeguards are in place, including, in the experience and judgment of the Custodian, satisfactory insurance arrangements. Under the relevant Fund Custodian Agreement, the Custodian is required to use reasonable care in the selection and monitoring of sub-custodians. Pursuant to this obligation, the Custodian has engaged in, and on a periodic basis thereafter, will engage in a review of the facilities, procedures, records, creditworthiness and level of insurance coverage of each Sub-Custodian to satisfy itself as to the continuing appropriateness of using each Sub-Custodian as a sub-custodian of the Funds’ physical bullion. The Funds will rely upon the Custodian to satisfy itself as to the appropriateness of the use or continued use of each Sub-Custodian of each Fund’s bullion.

Audit Rights

42. In relation to each Fund, the sub-custodial activities of each Sub-Custodian will be limited to holding the Fund’s bullion.

43. Each of the Custodian and the Manager will exercise its audit rights under the Storage and Custody Agreements on an on-going basis in order to satisfy itself that each of the Sub-Custodians is in substantial compliance with the terms of the applicable Storage and Custody Agreement and, in particular, that the bullion of the Funds held by each Sub-Custodian (i) is held by the applicable Sub-Custodian at vault facilities that are accepted as warehouses for the LBMA or are, in the opinion of each of the Manager, the Custodian, and the applicable Sub-Custodian, of a similar standard, (ii) is physically segregated and specifically identified as specified in paragraphs 29 and 32, (iii) has not sustained loss, damage or destruction, and (iv) remains the subject of subsisting policies of insurance which covers the applicable Sub-Custodian’s liability for the loss, damage or destruction of such bullion in amounts which both the Custodian and the applicable Sub-Custodian deem appropriate in their experience and judgement acting reasonably.

44. Each Fund will have the right to physically count and have the Fund’s auditor subject the Fund’s bullion to audit procedures at the vault facilities at each Sub-Custodian upon request on any Business Day during the regular business hours of the applicable Sub-Custodian, provided that the Fund has given the applicable Sub-Custodian, a minimum of five business days’ prior written notice and that such physical count or audit procedures do not interrupt the routine operation of the applicable Sub-Custodian’s facilities. Each Sub-Custodian has the right to reschedule the physical audit in the event that the applicable Sub-Custodian determines, acting reasonably, that the audit would disrupt the routine operation of the Sub-Custodian’s facility.

45. The Manager and the Custodian will ensure that bullion held by each Sub-Custodian will be subject to a physical count and inventory reconciliation by a representative (including an agent) of the Manager and the Custodian, as applicable, annually and periodically on a spot-inspection basis (subject to the notice provisions described in paragraph 44), as well as subject to audit procedures by each Fund’s external auditor on at least an annual basis on prior notice.

46. The Storage and Custody Agreements require that if a Fund’s representative (including a director or officer or representative, including an agent, of the Manager) is accessing a Sub-Custodian’s facility, such representative must be accompanied by at least one representative of the Custodian or at least one representative of the applicable Sub-Custodian.

Insurance

47. Each Fund Custodian Agreement requires that each of the Custodian and any Sub-Custodian must at all times maintain insurance in such amounts and on such terms and conditions as the Manager and the Custodian considers appropriate in respect of each Fund’s bullion against all risk of physical loss, or damage to, bullion stored in the Custodian’s or any Sub-Custodian’s vaults except risks that are either uninsurable or beyond their control such as war, hostile or warlike actions, chemical, biological, electromagnetic or nuclear weapons or incidents, terrorism and government confiscation.

48. The Custodian’s ability to recover from each of the Sub-Custodians is not contingent upon each Sub-Custodian’s ability to claim on its own insurance.

49. Each Manager believes that the insurance carried by the Custodian or the insurance carried by each of the Sub-Custodians, provides each Fund with such protection in the event of loss or theft of the Fund’s bullion stored at each Sub-Custodian that is consistent with the protection afforded by other custodians that store precious metals bullion commercially and is sufficient.

50. The Custodian confirms that each Sub-Custodian has arranged for insurance coverage in respect of any bullion held by it in amounts, which the Custodian deems appropriate in its experience and judgment, acting reasonably. The Custodian has discussed with each Sub-Custodian the level of insurance coverage obtained by each Sub-Custodian and the risks insured against by each Sub-Custodian and believes that the level of insurance will be sufficient and appropriate for the applicable Fund.

51. Each Fund Custodian Agreement provides that the Custodian shall not cancel or terminate its insurance or permit its sub-custodians, including each Sub-Custodian, to cancel such insurance coverage except upon 30 days prior written notice to the Manager, on behalf of each Fund.

52. By no later than the date of the final receipt of the next simplified prospectus of the Fund (after a Fund first relies on this decision), each Fund will disclose, in its prospectus, the material details of the Fund’s custodial and sub-custodial arrangements.

53. On a periodic basis (at least annually) each Sub-Custodian will confirm to the Custodian that it has reviewed its insurance policy to ensure that it has the insurance coverage set forth in paragraph 47 and that any changes to its insurance coverage have been reported to the Custodian. The Custodian will report the results of the confirmations referred to in this paragraph to each Manager.

54. On a periodic basis (at least annually) the Custodian will confirm to each Manager that it has reviewed its insurance policy to ensure it has the insurance coverage as set forth in paragraph 47 and that any changes to its insurance coverage have been reported to the Manager.

Liability and Standard of Care

55. The Custodian shall indemnify and hold harmless the Fund in respect of all direct loss, damage or expense (a Loss) arising out of any negligence, willful misconduct, fraud or lack of good faith or breach of the standard of care by the Custodian in respect of the services contemplated under the Fund Custodian Agreements. The Custodian has the right under each Storage and Custody Agreement to seek recourse against the applicable Sub-Custodian in the event such Loss was as a result of a failure by the applicable Sub-Custodian to comply with the standard of care.

56. Pursuant to the Fund Custodian Agreements, the Custodian has agreed to exercise (i) the same degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances or (ii) at least the same degree of care as it exercises with respect to its own property of a similar kind if this is a higher degree of care than the degree of care described in (i) hereto.

57. Pursuant to each Storage and Custody Agreement, each Sub-Custodian has agreed to exercise (i) the same degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances or (ii) at least the same degree of care as it exercises with respect to its own property of a similar kind if this is a higher degree of care than the degree of care described in (i) hereto. The Custodian has satisfied itself that the degree of care to which each Sub-Custodian is subject under the applicable Storage and Custody Agreement is no less than the degree of care to which the Custodian is subject under the applicable Fund Custodian Agreement.

58. Upon each Sub-Custodian sending a Receipt of Deposit to the Custodian, each Sub-Custodian’s liability to the Custodian will commence with respect to such bullion and each Sub-Custodian will bear all risk of loss, destruction and/or damage to the bullion owned by the Fund in the applicable Sub-Custodian’s custody, subject to certain limitations generally based on events beyond the applicable Sub-Custodian’s reasonable control, including, without limitation, acts or omissions or the failure to cooperate by the Custodian and/or third parties, fire or other casualty, act of God, strike, lockout or other labour disturbance, riot, war or other violence, or any law, order or requirement of any governmental agency or authority. To the extent that a Sub-Custodian is liable, each Sub-Custodian has contractually agreed to replace or pay for lost, damaged or destroyed bullion in the Fund’s account while in the applicable Sub-Custodian’s care, custody and control. Under each Storage and Custody Agreement, each Sub-Custodian’s liability terminates with respect to any bullion: (i) at the expiration of the 90 day prior notice of termination for convenience of the Storage and Custody Agreement, whether or not the Fund’s bullion thereafter remains in the applicable Sub-Custodian’s possession and control; (ii) 90 days following the termination of the Storage and Custody Agreement for default, whether or not the Fund’s bullion thereafter remains in the applicable Sub-Custodian’s possession and control; (iii) upon transfer of such bullion to a different customer’s account at the applicable Sub-Custodian; or (iv) upon remittance of the bullion to the Custodian’s carrier or representative in the event that the applicable Sub-Custodian returns the bullion for the reasons specified in the Storage and Custody Agreement.

59. Each Fund will not be responsible for any losses or damages to the Fund arising out of any breach of standard of care by the Custodian or any Sub-Custodian.

60. The Custodian and each Sub-Custodian are not entitled to an indemnity from the Funds in the event that any of the Custodian and each Sub-Custodian breaches its standard of care.

61. Should the Custodian discover a physical loss, damage or destruction of a Fund’s bullion in any of the Sub-Custodians’ custody, care and control, the Custodian must give written notice to the applicable Sub-Custodian within five business days after the discovery of any such loss, damage or destruction and will also give written notice to the Fund’s Manager. For any discrepancy in the quantity of bullion on an inventory statement, the Custodian must give the applicable Sub-Custodian written notice of the loss regarding such discrepancy within 60 days after the receipt of the inventory statement in which the discrepancy first appears and will also give written notice to the Fund’s Manager. The applicable Sub-Custodian will, at its discretion, as soon as practicable: (i) replace, or restore to its original state in the event of partial damage, as the case may be, the Fund’s bullion that was lost, destroyed or damaged based on the advised weight and assay characteristics provided in the initial notice; (ii) compensate the Custodian for the monetary value of the bullion that was lost or destroyed based on the advised weight and assay characteristics provided in the initial notice and the market value of such bullion that was lost or destroyed as of the first trading date following the discovery by the applicable Sub-Custodian of the loss, damage or destruction or, if first discovered by the Custodian, the date of receipt by the applicable Sub-Custodian of the relevant notice of loss from the Custodian; or (iii) replace a portion of the lost or damaged bullion and compensate the Custodian for the monetary value of the remaining portion of the lost or damaged bullion based on the advised weight and assay characteristics provided in the initial notice and the market value of such bullion that was lost or destroyed as of the first trading date following the discovery by the applicable Sub-Custodian of the loss, damage or destruction or, if first discovered by the Custodian, the date of receipt by the applicable Sub-Custodian of the relevant notice of loss from the Custodian. If the Custodian fails to give such notice in accordance with the terms of the applicable Storage and Custody Agreement, all claims against the applicable Sub-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 applicable Sub-Custodian if a notice of loss, damage or destruction has been given in accordance with the terms of the applicable Storage and Custody Agreement but an action, suit or proceeding has not been commenced within 24 months from the time of discovery of the loss, damage or destruction. Each Sub-Custodian will not be responsible for any special, incidental, consequential, indirect or punitive losses or damages (including lost profits or lost savings), whether or not the applicable Sub-Custodian had knowledge that such losses or damages might be incurred.

Termination and Changes to the Custodial Arrangements

62. The Custodian may terminate the sub-custodial relationship with any of the Sub-Custodians by giving written notice to the applicable Sub-Custodian of its intent to terminate the applicable Storage and Custody Agreement if (i) the applicable Sub-Custodian is in default in carrying out any of its obligations under the Storage and Custody Agreement that is not cured within ten business days following the Custodian giving written notice to the applicable Sub-Custodian of such default; (ii) the applicable Sub-Custodian is dissolved or adjudged bankrupt, or a trustee, receiver or conservator of the applicable Sub-Custodian or of its property is appointed, or an application for any of the foregoing is filed; or (iii) the applicable Sub-Custodian is in breach of any representation or warranty contained in its Storage and Custody Agreement. The obligations of each Sub-Custodian with respect to each Fund include, but are not limited to, maintaining an inventory of the Fund’s bullion stored with each Sub-Custodian, providing a monthly inventory to the Custodian, maintaining the Fund’s bullion physically segregated, allocated and specifically identifiable as the Fund’s property under specifically identified account numbers as directed by the Custodian, and taking good care, custody and control of the Fund’s bullion.

63. The Custodian believes that all of the obligations of each Sub-Custodian as described in paragraph 61 are material and anticipates that it would terminate any of the Sub-Custodians if a Sub-Custodian breaches any such obligations and does not cure such breach within ten business days of the Custodian giving written notice to the applicable Sub-Custodian of such breach. Prior to terminating the sub-custodial relationship with the applicable Sub-Custodian, the Custodian or the Fund will appoint a replacement sub-custodian for bullion that complies with the requirements under NI 81-102.

64. The Manager has determined that it would be in the best interests of each Fund to receive the Requested Relief.

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 Requested Relief is granted provided that:

(a) Each of the Sub-Custodians meet the Shareholder Equity Threshold;

(b) The Custodian will provide to the Principal Regulator for the Funds on an annual basis beginning 60 days after the date upon which the Requested Relief is first relied upon by the Funds, either (i) a current list of all such Funds that are relying on the Requested Relief, or (ii) an update to the list of such Funds or confirmation that there has been no change to such list;

(c) The Funds are limited to using each of the Sub-Custodians as sub-custodians for the Funds’ bullion only, which will be held by the Sub-Custodians in Canada;

(d) In respect of the periodic compliance reports to be prepared by the 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 Custodian shall include a statement in such reports regarding the completion of its review process for the Sub-Custodians and that the Custodian is of the view that the Sub-Custodians continue to be appropriate sub-custodians to hold the Funds’ bullion in Canada;

(e) Prior to a Fund relying on this Decision, the Custodian provides to the Fund:

(i) a copy of this Decision;

(ii) a disclosure statement informing the Fund of the implications of this Decision; and

(iii) a form of acknowledgment of the matters referred to in paragraph (e) below, to be signed and returned by the Fund to the Custodian; and

(f) A Fund and its Manager seeking to rely on this Decision will, prior to doing so:

(i) acknowledge receipt of a copy of this Decision providing the Requested Relief;

(ii) appoint the Custodian as its custodian under NI 81-102;

(iii) consent to the Custodian providing to staff of the Principal Regulator for the Fund on an annual basis the name of the Fund so long as it relies on this Decision; and

(iv) deliver to the Custodian a signed acknowledgement and agreement binding the Fund to the foregoing.

“Darren McKall”

Darren McKall Manager, Investment Funds and Structured Products Branch Ontario Securities Commission Application #: 2023/0083