Sprott Physical Gold Trust FAQs

Units of the Gold Trust trade in US$ on the TSX and NYSE Arca exchanges and are purchased through a brokerage. Sprott doesn't sell the Units directly.
Ticker Symbol:PHY.U (TSX)/PHYS (NYSE Arca)
CUSIP number: 85207H104
ISIN:CA85207H1047

Units of the Gold Trust are denominated in US$ on both the TSX (PHY.U) and NYSE Arca (PHYS). Gold bullion is tradable internationally and its price is generally quoted in U.S. dollars.

Unitholders may be subject to brokerage commissions or other fees associated with trading (buying and selling) the units. There are no other fees payable directly by the unitholder except those related to the redemption of units for physical gold bullion. 

The Gold Trust is responsible for all other fees and expenses including the management fee. The Gold Trust pays the Manager a monthly management fee equal to 1⁄12 of 0.35% of the value of net assets of the Gold Trust (determined in accordance with the trust agreement), plus any applicable Canadian taxes. The management fee is calculated and accrued daily and payable monthly in arrears on the last day of each month.

The Management Expense Ratio (MER) is reported in the Gold Trust's quarterly financial statements and management report of fund performance, which can be found in the Financial Reports section of the website:

The Gold Trust is a closed-end mutual fund trust. Units of the Gold Trust trade in US$ on the TSX and NYSE Arca exchanges. The Sprott Gold Bullion Fund is an open-ended mutual fund available to Canadian investors and purchased in Cdn$.

For a comparison of all precious metals solutions available to Canadian investors, please see the brochure.

The units of the Gold Trust will generally trade at a premium or discount to the net asset value per unit (NAVPU), depending on relative supply and demand for the units in the secondary market (the stock exchanges).

The Gold Trust is a closed-end mutual fund trust and not an open-ended exchange traded fund (ETF). Unlike the Gold Trust, gold 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 price of ETFs on the stock exchange generally do not deviate significantly from net asset value.

By contrast, the Gold 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 of the Gold Trust will generally trade at a premium or discount to the net asset value per unit (NAVPU), depending on relative supply and demand for the units in the secondary market. The NAVPU and the premium-discount calculation (the % difference between the price of the Gold Trust units on the stock exchange and the NAVPU) are recorded each trading day on the Net Asset Value section of the website. Historical data charts showing the premium/discount frequency distribution are found on the same webpage.

Except with respect to cash held by the Gold Trust to pay expenses and anticipated redemptions, the Gold Trust expects to own only London Good Delivery physical gold bullion. The Manager intends to invest and hold 97% of the total net assets of the Gold Trust in physical gold bullion in London Good Delivery bar form. The Gold Trust does not invest in gold certificates or other financial instruments that represent gold or that may be exchanged for gold.

The total ounces of gold held within the Gold Trust and the number of units outstanding can be found on the Net Asset Value section of the website.

The Gold Trust's physical gold bullion is unencumbered and stored fully allocated in a secure storage location in Canada. The physical gold bullion is subject to periodic inspection and audits. Please see ''Custody of the Trust's Assets'' in the Prospectus.

Unitholders will have the ability, on a monthly basis to redeem their units for physical gold bullion for a redemption price equal to 100% of the NAV of the redeemed units, less redemption and delivery expenses, including:

• the handling of the notice of redemption
• the delivery of the physical bullion for units that are being redeemed (estimated at $5 per troy ounce at the time of the prospectus, Feb. 2010 for delivery anywhere within continental US and Canada)
• and the applicable gold storage in-and-out fees (minimum $50 plus $5 per each additional bar, at the time of the prospectus).

Redemption requests must be for amounts that are at least equivalent to the value of one London Good Delivery bar or an integral multiple thereof, plus applicable expenses. A ''London Good Delivery bar'' weighs between 350 and 430 troy ounces (generally, most bars weigh between 390 and 410 troy ounces). Any fractional amount of redemption proceeds in excess of a London Good Delivery bar or an integral multiple thereof will be paid in cash at a rate equal to 100% of the NAV of such excess amount. For full details including the procedure to redeem units for physical gold bullion, please see page 48 of the prospectus.

Provided that the Gold Trust qualifies and continues at all times to qualify as a ''mutual fund trust'' within the meaning of the Tax Act, the units will be qualified investments under the Tax Act and the regulations thereunder for trusts governed by registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), registered education savings plans (RESPs), deferred profit sharing plans, registered disability savings plans (RDSPs) and tax-free savings accounts (TFSAs), in the opinion of Heenan Blaikie LLP, counsel for the Gold Trust and Davies Ward Phillips & Vineberg LLP, counsel to the underwriters of the Gold Trust's initial public offering.

For further details, please see 'Eligibility Under The Tax Act For Investment By Canadian Exempt Plans' on page 100 of the Prospectus.

The Gold Trust believes a purchase of its units will qualify as an eligible investment for individual retirement accounts although there can be no assurance in that regard.

Section 406 of The U.S. Employee Retirement Income Security Act (ERISA) of 1974 as amended and Section 4975 of the U.S. Internal Revenue Code (Code) of 1986 as amended, prohibit certain transactions, unless a statutory or administrative exemption is applicable, involving:

• the assets of an ERISA Plan
• as well as those plans and accounts that are not subject to ERISA but which are subject to Section 4975 of the Code, such as:
• • individual retirement accounts (IRAs); and
  • entities that are deemed to hold the assets of such plans and accounts ("Plans") and certain persons (to whom we will refer as parties in interest or disqualified persons) having certain relationships to such Plans. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and other penalties and liabilities under ERISA and the Code

The Gold Trust anticipates that it qualifies for the exemption under the Plan Asset Regulations for ''publicly offered securities,'' although there can be no assurance in that regard.

In order to be considered a ''publicly offered security,'' the units must be:

1. freely transferable;
2. part of a class of securities that is owned by 100 or more investors independent of the Gold Trust and of one another; and
3. either
4. • part of a class of securities registered under Section 12(b) or 12(g) of the Exchange Act; or
   • sold to the Plan as part of an offering of securities to the public pursuant to an effective registration statement under the Unites States Securities Act of 1933, as amended and the class of securities of which the securities are a part is registered under the Exchange Act within 120 days (or such later time as may be allowed by the Securities and Exchange Commission) after the end of the Gold Trust's fiscal year during which the offering of such securities to the public occurred.

For further details, please see 'U.S. ERISA considerations' on page 94 of the Prospectus.

For U.S. taxable holders of Gold Trust units, 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 20% under current law, compared to a long-term capital gains tax rate of 28% applicable to the disposition of physical gold 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 election with respect to the units on the IRS Form 8621. Within 45 days from the end of each taxable year of the Trust, the Trust will provide a Passive Foreign Investment Company (PFIC) Annual Information Statement on its website providing all information necessary to enable unitholders or beneficial owners of units, as applicable, to elect to treat the Trust as a QEF. Please visit the Tax Information FAQ.

For detail on U.S. and Canadian federal income tax considerations, please see page 84 of the Prospectus.

In the United States, there are two methods: One, you can direct your broker to request a physical certificate from the Depository Trust Company (DTC). This may be a more expensive option as DTC generally charges ~$500 per certificate.
Two, you can direct your broker to initiate a DWAC certificate request (only a broker can initiate this) with the Trust's co-Transfer Agent, R&T Co (www.rtco.com). See their DWAC transfer form here:
http://www.rtco.com/forms/DWAC%20Certificate%20Request%20Form.pdf

Check with your brokerage if they offer this service and at what cost.

In Canada, you can direct your broker to withdraw units from CDS Clearing and Depository Services Inc. When the broker puts in the withdrawal, the transfer agent in Canada, Equity Financial Trust, will issue physical certificates to the broker.