sppp_Ex99

Management Report of Fund Performance (in U.S. dollars)

Investment Objective and Strategies

Sprott Physical Platinum and Palladium Trust (the “Trust”) is a closed end mutual fund trust organized under the laws of the Province of Ontario, Canada, created to invest and hold substantially all of its assets in physical platinum and palladium bullion. The Trust seeks to provide a secure, 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 bullion. The Trust intends to achieve its objective by investing primarily in long-term holdings of unencumbered, fully allocated, physical platinum and palladium bullion and does not speculate with regard to short-term changes in platinum and palladium prices.

The units of the Trust are listed on the New York Stock Exchange (“NYSE”) Arca and the Toronto Stock Exchange (“TSX”) under the symbols “SPPP” and “SPPP.U”, respectively.

Risks

The risks of investing in the Trust are detailed in the Trust’s annual information form dated March 30, 2020. There have been no material changes to the Trust since inception that have affected the overall level of risk. The principal risks associated with investing in the Trust are the price of platinum and palladium, the net asset value and/or the market price of the units, the purchase, transport, insurance and storage of physical platinum and palladium bullion, liabilities of the Trust, and redemptions of units.

Results of Operations

For the year ended December 31, 2019, the total unrealized gain on physical platinum bullion amounted to $8.7 million and the unrealized gain on physical palladium bullion amounted to $25.2 million compared with an unrealized gain on physical platinum bullion of $2.4 million and an unrealized gain on physical palladium bullion of $4.2 million for the same period in 2018.

During the year ended December 31, 2019, the Trust issued 190,715 units for gross proceeds of $2.4 million and redeemed 2,154,236 units for physical bullion. During the same period in 2018, the Trust issued no units and 3,317,971 units were redeemed for physical bullion.

The value of the net assets of the Trust as of December 31, 2019 was $117.7 million or $14.87 per unit compared to $101.5 million or $10.27 as at December 31, 2018. The Trust held 24,009 ounces of physical platinum bullion and 48,540 ounces of physical palladium bullion as at December 31, 2019, compared to 28,279 ounces of physical platinum bullion and 62,613 ounces of physical palladium bullion as of December 31, 2018. As at December 31, 2019, the spot price of physical platinum bullion was $966.58 an ounce and the spot price of physical palladium bullion was $1,945.62 an ounce, compared to a spot price for platinum bullion of $795.66 an ounce and a spot price for palladium bullion of $1,261.75 an ounce as at December 31, 2018. The Trust returned 44.8% compared to the returns on spot platinum and palladium bullion of 21.5% and 54.2%, respectively for the period from January 1, 2019 to December 31, 2019.

The Trust’s net asset value per unit on December 31, 2019 was $14.87 compared to $10.27 per unit as at December 31, 2018. The units closed at $14.39 on the NYSE Arca and $14.30 on the TSX on December 31, 2019 compared to closing prices of $9.86 on the NYSE Arca and $9.89 on the TSX on December 31, 2018. The units are denominated in U.S. dollars on both exchanges. During the period from January 1, 2019 to December 31, 2019, the Trust’s units traded on the NYSE Arca at an average discount to net asset value of approximately 4.0%.

Recent Developments

On June 24, 2016, the Trust entered into a sales agreement with Cantor Fitzgerald & Co. whereby the Trust may, in its sole discretion and subject to its operating and investment restrictions, offer and sell trust units through an “at the market offering” program (the “ATM Program”) in transactions on the NYSE Arca or any other existing trading market for the trust units in the United States or to or through a market maker in the United States pursuant to a registration statement filed with the U.S. Securities and Exchange Commission and a prospectus supplement to a short form base shelf prospectus filed with the Ontario Securities Commission, as principal regulator, and with each of the securities commissions or similar regulatory authorities in each of the provinces and territories of Canada. On January 29, 2020, an amendment was made in which Virtu Americas LLC became an additional agent to the sales agreement. There were no further material changes to the sales agreement. During the year ended December 31, 2019, the Trust sold 190,715 units through the ATM Program, compared to ($nil) in the prior period.

Operating Expenses

The Trust pays its own operating expenses, which include, but are not limited to, audit, legal, trustee fees, unitholder reporting expenses, general and administrative fees, filing and listing fees payable to applicable securities regulatory authorities and stock exchanges, storage fees for the physical bullion, costs incurred in connection with the Trust’s continuous disclosure public filing requirements and investor relations and any expenses associated with the Independent Review Committee of the Trust. Operating expenses for the year ended December 31, 2019 amounted to $779,418 (not including applicable Canadian taxes) compared to $407,092 for the same period in 2018. The increase was primarily related to higher bullion storage costs and unitholder reporting costs. Operating expenses for the year ended December 31, 2019 amounted to 0.75% of the average net assets during that period on an annualized basis, compared to 0.40% for the same period in 2018.

Related Party Transactions

Management Fees

The Trust pays the Manager, Sprott Asset Management LP, a monthly management fee equal to 1/12 of 0.50% of the value of the net assets of the Trust (determined in accordance with the Trust’s 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. For the period from January 1, 2019 to December 31, 2019, the Trust incurred management fees of $520,195 (not including applicable Canadian taxes) compared to $511,447 for the same period in 2018.

Financial Highlights

The following tables show selected key financial information about the Trust and are intended to help you understand the Trust’s financial performance for the years shown.

Net assets per unit1




	December 31,	December 31,	December 31,	December 31,	December 31,
	2019	2018	2017	2016	2015
	$	$	$	$	$
Net assets per unit, beginning of year	10.27	9.49	7.01	6.29	8.83
Increase (decrease) from operations2:
Total revenue	–	–	–	–	–
Total expenses	(0.18)	(0.09)	(0.08)	(0.08)	(0.08)
Realized losses for the year	0.63	0.08	(0.10)	(0.15)	(0.69)
Unrealized gains (losses) for the year	3.94	0.59	2.68	0.93	(1.72)
Total increase (decrease) from operations	4.39	0.58	2.50	0.70	(2.49)
Net assets per unit, end of year	14.87	10.27	9.49	7.01	6.29

This information is derived from the Trust’s financial statements.

Net assets per unit is calculated based on the actual number of units outstanding at the relevant time. The increase/decrease from operations is based on the weighted average number of units outstanding over the year shown. This table is not intended to be a reconciliation of the beginning to ending net assets per unit.

Ratios and Supplemental Data


	December 31,	December 31,	December 31,	December 31,	December 31,
	2019	2018	2017	2016	2015
Total net asset value (000’s)1	$117,709	$101,518	$125,267	$103,530	$96,229
Number of Units outstanding1	7,917,629	9,881,150	13,199,121	14,758,966	15,308,934
Management expense ratio2	1.29%	0.97%	0.94%	1.09%	1.01%
Trading expense ratio3	Nil	Nil	Nil	Nil	Nil
Portfolio turnover rate4	1.68%	0.04%	0.02%	Nil	Nil
Net asset value per Unit	$14.87	$10.27	$9.49	$7.01	$6.29
Closing market price – NYSE Arca	$14.39	$9.86	$9.34	$6.90	$6.16
Closing market price – TSX	$14.30	$9.89	$9.27	$6.84	$6.14

This information is provided as at the date shown, as applicable.

Management expense ratio (“MER”) for the periods are based on total expenses (including applicable Canadian taxes and excluding commissions and other portfolio transaction costs) for the stated period and are expressed as annualized percentages of daily average net asset value during the period.

The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of daily average net asset value during the period shown. Since there are no direct trading costs associated with physical bullion trades, the trading expense ratio is nil.

The Trust’s portfolio turnover rate indicates how actively the Trust’s portfolio adviser trades its portfolio investments. A portfolio turnover rate of 100% is equivalent to the Trust buying and selling all of the securities in its portfolio once in the course of the year. The higher the Trust’s portfolio turnover rate in a year, the greater the chance of an investor receiving taxable capital gains in the year. There is not necessarily a relationship between a high turnover rate and the performance of the Trust.

Past Performance

The indicated rates of return are the historical total returns including changes in unit values and assume reinvestment of all distributions in additional units of the Trust. These returns do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that may reduce returns. Please note that past performance is not indicative of future performance. All rates of returns are calculated based on the Net Asset Value of the units of the Trust.

Year-by-Year Returns

The bar chart below indicates the performance of the Trust units for years shown. The chart shows, in percentage terms, how much an investment made on the first day of each period would have grown or decreased by the last day of each period.

*Return for the period from December 19, 2012 to December 31, 2012 (not annualized).

Summary of Investment Portfolio

As of December 31, 2019


					% of
		Fair Value		Fair	Net Asset
		per ounce	Cost	Value	Value
	Ounces	$	$	$	%
Physical platinum bullion	24,009	966.58	37,048,277	23,206,770	20
Physical palladium bullion	48,540	1,945.62	33,896,719	94,440,043	80
Cash				269,328	0.2
Other Net Liabilities				(207,016)	(0.2)
Total Net Asset Value				117,709,125	100.0

This summary of investment portfolio may change due to the ongoing portfolio transactions of the Trust.

Report of Independent Registered Public Accounting Firm

To Sprott Asset Management LP, the Trustee and the Unitholders of Sprott Physical Platinum and Palladium Trust

Opinion on the Financial Statements

We have audited the accompanying statements of financial position of Sprott Physical Platinum and Palladium Trust (the Trust) as of December 31, 2019 and 2018, the related statements of comprehensive income, changes in equity, and cash flows for each of the years ended December 31, 2019 and December 31, 2018 and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Trust as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years ended December 31, 2019 and December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Trust Accounting Oversight Board (United States) (PCAOB), the Trust’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 30, 2020 expressed an unqualified opinion on the effectiveness of the Trust’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Manager and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the existence of physical bullion

As discussed in Notes 1, 3 and 6 to the financial statements, the fair value of physical platinum and palladium bullion held by the Trust was $23,206,770 and $94,440,043 as at December 31, 2019, respectively. The Trust invests primarily in long-term holdings of unencumbered, fully allocated, physical platinum and palladium bullion. The Trust owns “Good Delivery Bars” as defined by the London Platinum and Palladium Market (“LPPM”). The physical bullion was held by a third party custodian (the custodian) as at December 31, 2019.

We identified the evaluation of the existence of physical bullion as a critical audit matter. Subjective auditor judgment was required to evaluate the extent and nature of evidence obtained to assess the existence of physical bullion.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Trust’s physical bullion process, including controls related to a) physical bullion trade approvals b) periodic reconciliation of physical bullion performed by Sprott Asset Management LP (the Manager) between the Trust’s and custodian’s records and c) annual physical bullion count. We tested a sample of physical bullion transactions during the year by inspecting approvals and comparing to underlying documentation. We attended and observed the annual physical count of the Trust’s physical platinum and palladium bullion performed at the custodian’s locations by the Manager. We performed a physical count for all the physical bullion and an examination of a selection of bullion for Good Delivery Bars as defined by LPPM that included checks such as name of refiner, bullion purity and bar weight. We also obtained the physical bullion count result of the Manager and reconciled it to the Trust’s records. We obtained a direct external confirmation from the custodian of physical bullion existence as at December 31, 2019 and compared the total ounces in the confirmation to those recorded by the Trust. We also inspected the physical bullion reconciliation performed by the Manager as at December 31, 2019 and compared the total ounces to both the Trust’s and the custodian’s records.

Chartered Professional Accountants, Licenced Public Accountants

We have served as the Trust’s auditor since 2016.

Toronto, Canada

March 30, 2020

Report of Independent Registered Public Accounting Firm

To Sprott Asset Management LP, the Trustee and the Unitholders of Sprott Physical Platinum and Palladium Trust

Opinion on Internal Control Over Financial Reporting

We have audited Sprott Physical Platinum and Palladium Trust’s (the Trust) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the statements of financial position of the Trust as of December 31, 2019 and 2018, the related statements of comprehensive income, changes in equity, and cash flows for each of the years ended December 31, 2019 and December 31, 2018, and the related notes (collectively, the financial statements), and our report dated March 30, 2020 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Responsibility for Financial Information. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Statements of comprehensive income

(in U.S. dollars, except unit amounts)


	For the	For the
	year ended	year ended
	December 31, 2019	December 31, 2018
	$	$
Income
Net realized gains on redemptions and sales of platinum and palladium bullion	5,417,320	923,964
Change in unrealized gains on bullion	33,932,533	6,643,266
	39,349,853	7,567,230

Expenses
Management fees (note 8)	520,195	511,447
Bullion storage fees	585,243	178,392
Listing and regulatory filing fees	91,911	102,349
Unitholder reporting costs	84,070	6,091
Sales tax	46,311	66,403
Legal fees	81,667	71,084
Custodial fees	10,764	7,810
Administrative fees	75,891	48,111
Audit fees	68,708	45,992
Trustee fees	3,770	4,187
Independent Review Committee fees	11,045	1,076
Net foreign exchange losses (gains)	354	(107)
	1,579,929	1,042,835

Net income and comprehensive income	37,769,924	6,524,395
Weighted average number of Units	8,605,467	11,183,502

Increase in total equity from operations per Unit	4.39	0.58

The accompanying notes are an integral part of these financial statements.

Statements of financial position

(in U.S. dollars)


	As at	As at
	December 31, 2019	December 31, 2018
	$	$
Assets
Current assets
Cash	269,328	94,846
Platinum bullion	23,206,770	22,500,856
Palladium bullion	94,440,043	79,002,490
Prepaid assets	139,161	139,161
Total assets	118,055,302	101,737,353

Liabilities
Current liabilities
Accounts payable	346,177	219,548
Total liabilities	346,177	219,548

Equity
Unitholders’ capital	79,368,922	98,487,213
Unit premiums and reserves	795	795
Retained earnings	53,500,500	18,178,931
Underwriting commissions and issue expenses	(15,160,853)	(15,149,134)
Total equity (note 7)	117,709,364	101,517,805

Total liabilities and equity	118,055,541	101,737,353

Total equity per Unit	14.87	10.27

The accompanying notes are an integral part of these financial statements.

On behalf of the Manager, Sprott Asset Management LP,

by its General Partner, Sprott Asset Management GP Inc.:



Kevin Hibbert	John Ciampaglia
Director	Director

Statements of changes in equity

(in U.S. dollars, except unit amounts)

For the years ended December 31, 2019 and 2018


				Underwriting	Unit
	Number of		Retained	Commissions	Premiums
	Units	Unitholders’	Earnings	and Issue	and
	Outstanding	Capital	(Deficit)	Expenses	Reserves	Total Equity
	$	$	$	$	$	$

Balance as at January 1, 2018	13,199,121	131,666,923	8,743,010	(15,143,489)	686	125,267,130
Proceeds from issuance of Units (note 7)	–	–	–	–	–	–
Cost of redemption of Units (note 7)	(3,317,971)	(33,179,710)	2,911,526	–	109	(30,268,075)
Net income for the year	–	–	6,524,395	–	–	6,524,395
Underwriting commissions and issue expenses	–	–	–	(5,645)	–	(5,645)
Balance as at December 31, 2018	9,881,150	98,487,213	18,178,931	(15,149,134)	795	101,517,805
Balance as at January 1, 2019	9,881,150	98,487,213	18,178,931	(15,149,134)	795	101,517,805	–
Proceeds from issuance of Units (note 7)	190,715	2,424,069	–	–	–	2,424,069
Cost of redemption of Units (note 7)	(2,154,236)	(21,542,360)	(2,448,355)	–	–	(23,990,715)
Net income for the year	–	–	37,769,924	–	–	37,769,924
Underwriting commissions and issue expenses	–	–	–	(11,719)	–	(11,719)
Balance as at December 31, 2019	7,917,629	79,368,922	53,500,500	(15,160,853)	795	117,709,364

The accompanying notes are an integral part of these financial statements.

Statements of cash flows

(in U.S. dollars)


	For the year ended	For the year ended
	December 31, 2019	December 31, 2018
	$	$

Cash flows from operating activities
Net income for the year	37,769,924	6,524,395
Adjustment to reconcile net income (loss) for the year to net cash from operating activities
Realized gains on redemptions and sales of bullion	(5,417,320)	(923,964)
Change in unrealized gains on bullion	(33,932,533)	(6,643,266)
Net changes in operating assets and liabilities
Increase in accounts payable	126,629	2,350
Increase in prepaid assets	–	5,645
Net cash used in operating activities	(1,453,300)	(1,034,840)

Cash flows from investing activities
Purchases of bullion	(1,733,951)	–
Sales of bullion	1,034,956	1,215,065
Net cash provided by investing activities	(698,995)	1,215,065

Cash flows from financing activities
Proceeds from issuance of Units (note 7)	2,424,069	–
Payments on redemption of Units (note 7)	(85,573)	(94,015)
Underwriting commissions and issue expenses	(11,719)	(5,645)
Net cash used in financing activities	2,326,777	(99,660)

Net increase in cash during the year	174,482	80,565
Cash at beginning of year	94,846	14,281
Cash at end of year	269,328	94,846

The accompanying notes are an integral part of these financial statements.

(in U.S. dollars)

Financial Risk Management (note 6)

Investment Objective

The investment objective of the Trust is 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 bullion. The Trust invests and intends to continue to invest primarily in long-term holdings of unencumbered, fully allocated, physical platinum and palladium bullion and does not speculate with regard to short-term changes in platinum and palladium prices. The Trust will only purchase and expects only to own “Good Delivery Bars” as defined by the London Platinum and Palladium Market (“LPPM”), with each bar purchased being verified against the LPPM source.

Significant risks that are relevant to the Trust are discussed here. General information on risks and risk management is described in Note 6 of the Generic Notes.

Fair Value Measurements

The reconciliation of bullion holdings for the years ended December 31, 2019 and 2018 is presented as follows:


	December 31, 2019	December 31, 2018
	$	$
Balance at beginning of year	101,503,346	125,325,241
Purchases	1,733,951	-
Sales	(1,034,956)	(1,215,065)
Redemptions for physical bullion	(23,905,142)	(30,174,060)
Realized gains on sales and redemptions for physical bullion	5,417,320	923,964
Change in unrealized gains	33,932,533	6,643,266
Balance at end of year	117,647,052	101,503,346

Realized gains (losses) on physical bullion include both realized gains (losses) on sales of physical bullion, and realized gains (losses) occurring upon unitholder redemptions for physical bullion.

Market Risk

a) Other Price Risk

If the market value of each of platinum and palladium bullion increased by 1%, with all other variables held constant, this would have increased total equity and comprehensive income by approximately $1.2 million (December 31, 2018: $1.0 million); conversely, if the value of each of platinum and palladium bullion decreased by 1%, this would have decreased total equity and comprehensive income by the same amount.

b) Currency Risk

As at December 31, 2019, approximately $246,000 (December 31, 2018: $134,000) of the Trust’s liabilities were denominated in Canadian dollars. As a result, a 1% change in the exchange rate between the Canadian and U.S. Dollars would have no material impact to the Trust.

1. Organization of the Trusts

Sprott Physical Gold Trust, Sprott Physical Silver Trust, Sprott Physical Platinum and Palladium Trust and Sprott Physical Gold and Silver Trust (collectively, the “Trusts” and each a “Trust”) are closed-end mutual fund trusts created under the laws of the Province of Ontario, Canada, pursuant to trust agreements. Sprott Asset Management LP (the “Manager”) acts as the manager of the Trusts. RBC Investor Services Trust, a trust company organized under the laws of Canada, acts as the trustee of the Trusts. RBC Investor Services Trust also acts as custodian on behalf of the Trusts for the Trusts’ assets other than physical bullion. The Royal Canadian Mint acts as custodian on behalf of the Trusts for the physical bullion owned by the Trusts. The Trusts’ registered office is located at Suite 2600, South Tower, Royal Bank Plaza, 200 Bay Street, Toronto, Ontario, Canada, M5J 2J1.

The Trusts are authorized to issue an unlimited number of redeemable, transferable trust units (the “Units”). All issued Units have no par value, are fully paid for, and are listed and traded on the New York Stock Exchange Arca (the “NYSE Arca”) and the Toronto Stock Exchange (the “TSX”). The date of inception and trading symbols of each of the Trusts is as follows:


Trust	Trust Agreement date	Initial Public Offering date	NYSE Area and TSX symbols, respectively
Sprott Physical Gold Trust	August 28, 2009, as amended and restated as of December 7, 2009 and as further amended and restated as of February 1, 2010	March 3, 2010	PHYS, PHYS.U
Sprott Physical Silver Trust	June 30, 2010, as amended and restated as of October 1, 2010	October 28, 2013	PSLV, PHS.U
Sprott Physical Platinum and Palladium Trust	December 23, 2011, as amended and restated as of June 6, 2012	December 19, 2012	PPP, SPPP.U
Sprott Physical Gold & Silver Trust	October 26, 2017	January 16, 2018	CEF, CEF.U

The financial statements of each of the Trusts are as at and for the year ended December 31, 2019. These financial statements were authorized for issue by the Manager on March 30, 2020.

2. Basis of Preparation

These financial statements have been prepared in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IASB”) and include estimates and assumptions made by the Manager that may affect the reported amounts of assets, liabilities, income, expenses and the reported amounts of changes in Net Assets during the reporting period. Actual results could differ from those estimates.

The financial statements have been prepared on a going concern basis using the historical cost convention, except for physical bullion and financial assets and financial liabilities held at fair value through profit or loss, which have been measured at fair value.

The financial statements are presented in U.S. dollars and all values are rounded to the nearest dollar unless otherwise indicated.

Estimation uncertainty

For tax purposes, the Trusts generally treat gains from the disposition of bullion as capital gains, rather than income, as the Trusts intend to be long-term passive holders of bullion, and generally dispose of their holdings in bullion only for the purposes of meeting redemptions and to pay expenses. The Canada Revenue Agency has, however, expressed its opinion that gains (or losses) of mutual fund trusts resulting from transactions in commodities should generally be treated for tax purposes as ordinary income rather than as capital gains, although the treatment in each particular case remains a question of fact to be determined having regard to all the circumstances.

The Trusts based their assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Trusts. Such changes are reflected in the assumptions when they occur.

5. Fair Value Measurements

The Trusts use a three-tier hierarchy as a framework for disclosing fair value based on inputs used to value their investments. The fair value hierarchy has the following levels:

Level 1Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Trusts have the ability to access at the measurement date;

Level 2Quoted prices which are not active, or inputs that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

Level 3Prices, inputs or complex modeling techniques which are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Physical bullion is measured at fair value. The fair value measurement of all bullion falls within Level 1 of the hierarchy, and is based on published price quotations. All fair value measurements are recurring. The carrying values of cash, accounts receivable and accounts payable approximate their fair values due to their short-term nature.

6. Financial Risk, Management and Objectives

The Trusts’ objective in managing risk is the creation and protection of unitholder value. Risk is inherent in the Trusts’ activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The Trusts have investment guidelines that set out their overall business strategies, their tolerance for risk and their general risk management philosophy, as set out in each Trust’s offering documents. The Trusts’ Manager is responsible for identifying and controlling risks. The Trusts are exposed to market risk (which includes price risk, interest rate risk and currency risk), credit risk, liquidity risk and concentration risk arising from the bullion that they hold. Only certain risks of the Trusts are actively managed by the Manager, as the Trusts are passive investment vehicles. Significant risks that are relevant to the Trusts are discussed below. Refer to the Notes to financial statements — Trust specific information of each Trust for specific risk disclosures.

Price risk

Price risk arises from the possibility that changes in the market price of each Trust’s investments, which consist almost entirely of bullion, will result in changes in fair value of such investments.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The Trusts do not hedge their exposure to interest rate risk as that risk is minimal.

Currency risk

Currency risk arises from the possibility that changes in the price of foreign currencies will result in changes in carrying value. Each Trust’s assets, substantially all of which consist of an investment in bullion, are priced in U.S. dollars. Some of the Trusts’ expenses are payable in Canadian dollars. Therefore, the Trusts are exposed to currency risk, as the value of their liabilities denominated in Canadian dollars will fluctuate due to changes in exchange rates. Most of such liabilities, however, are short term in nature and are not significant in relation to the net assets of the Trusts, and, as such, exposure to foreign exchange risk is limited. The Trusts do not enter into currency hedging transactions.

Credit risk

Credit risk arises from the potential that counterparties will fail to satisfy their obligations as they come due. The Trusts primarily incur credit risk when entering into and settling bullion transactions. It is each Trust’s policy to only transact with reputable counterparties. The Manager closely monitors the creditworthiness of the Trusts’ counterparties, such as bullion dealers, by reviewing their financial statements when available, regulatory notices and press releases. The Trusts seek to minimize credit risk relating to unsettled transactions in bullion by only engaging in transactions with bullion dealers with high creditworthiness. The risk of default is considered minimal, as payment for bullion is only made against the receipt of the bullion by the custodian.

Liquidity risk

Liquidity risk is defined as the risk that the Trusts will encounter difficulty in meeting obligations associated with financial liabilities and redemptions. Liquidity risk arises because of the possibility that the Trusts could be required to pay their liabilities earlier than expected. The Trusts are also subject to redemptions for both cash and bullion on a regular basis. The Trusts manage their obligation to redeem units when required to do so and their overall liquidity risk by only allowing for redemptions monthly, which require 15-day advance notice to the Trusts. Each Trust’s liquidity risk is minimal, since it’s primary investment is physical bullion, which trades in a highly liquid market. All of the Trusts’ financial liabilities, including due to brokers, accounts payable and management fees payable have maturities of less than three months.

Concentration risk

Each Trust’s risk is concentrated in the physical bullion of precious metals.

7. Unitholders’ Capital

The Trusts are authorized to issue an unlimited number of redeemable, transferrable Trust Units in one or more classes and series of Units. The Trusts’ capital is represented by the issued, redeemable, transferable Trust Units. Quantitative information about the Trusts’ capital is provided in their statements of changes in equity. Under the trust agreements of each Trust, Units may be redeemed at the option of the unitholder on a monthly basis for physical bullion or cash. Units redeemed for physical bullion will be entitled to a redemption price equal to 100% of the Net Asset Value (“NAV”) of the redeemed Units on the last business day of the month in which the redemption request is processed. A unitholder redeeming Units for physical bullion will be responsible for expenses in connection with effecting the redemption and applicable delivery expenses, including the handling of the notice of redemption, the delivery of the physical bullion for Units that are being redeemed and the applicable bullion storage in-and-out fees. Units redeemed for cash will be entitled to a redemption price equal to 95% of the lesser of

(i) the volume-weighted average trading price of the Units traded on the NYSE Arca, or, if trading has been suspended on the NYSE Arca, on the TSX for the last five business days of the month in which the redemption request is processed and (ii) the NAV of the redeemed Units as of 4:00 p.m., Eastern Standard time, on the last business day of the month in which the redemption request is processed.

When Units are redeemed and cancelled and the cost of such Units is either above or below their stated or assigned value, the unitholders’ capital is reduced by an amount equal to the stated or assigned value of the Units. The difference between the redemption price and the stated or assigned values of the Units is allocated to the Unit premiums and reserves account (equal to the 5% reduction to the redemption price for Units redeemed for cash as described above) and the retained earnings account based on the allocated portion attributable to the redemption.

The Trusts’ units are classified as equity on the Statements of Financial Position, since the Trusts’ units meet the criteria in IAS 32, Financial Instruments: Presentation (“IAS 32”) for classification as equity.

Net Asset Value

NAV is defined as a Trust’s net assets (fair value of total assets less fair value of total liabilities, excluding all liabilities represented by outstanding Units, if any) calculated using the value of physical gold bullion based on the end-of-day price provided by a widely recognized pricing service.

Capital management

As a result of the ability to issue, repurchase and resell Units of the Trusts, the capital of the Trusts as represented by the Unitholders’ capital in the statements of financial position can vary depending on the demand for redemptions and subscriptions to the Trusts. The Trusts are not subject to externally imposed capital requirements and have no legal restrictions on the issue, repurchase or resale of redeemable Units beyond those included in their trust agreements. The Trusts may not issue additional Units except (i) if the net proceeds per Unit to be received by the Trusts are not less than 100% of the most recently calculated NAV immediately prior to, or upon, the determination of the pricing of such issuance or (ii) by way of Unit distribution in connection with an income distribution.

Each Trusts’ objectives for managing capital are:

To invest and hold substantially all of the Trust’s assets in physical bullion; and

To maintain sufficient liquidity to meet the expenses of each Trust, and to meet redemption requests as they arise.

Refer to “Financial risk, management and objectives” (Note 6) for the policies and procedures applied by the Trusts in managing their capital.

8. Related Party Disclosures

Management Fees

The Trusts pay the Manager a monthly management fee, calculated and accrued daily and payable monthly in arrears on the last day of each month. Management fees are unique to each Trust and are subject to applicable taxes.

9. Independent Review Committee (“IRC”)

In accordance with National Instrument 81-107, Independent Review Committee for Investment Funds (“NI 81-107”), the Manager has established an IRC for a number of funds managed by it, including the Trusts. The mandate of the IRC is to


	KPMG LLP
	Chartered Professional Accountants
	Bay Adelaide Centre	Telephone: (416) 777-8500
	333 Bay Street Suite 4600	Fax: (416) 777-8818
	Toronto, ON M5H 2S5	Internet: www.kpmg.ca
	Canada

	KPMG LLP
	Chartered Professional Accountants
	Bay Adelaide Centre	Telephone: (416) 777-8500
	333 Bay Street Suite 4600	Fax: (416) 777-8818
	Toronto, ON M5H 2S5	Internet: www.kpmg.ca
	Canada


	Sprott Physical Platinum and Palladium Trust



	Report to Unitholders
	December 31, 2019


Sprott Physical Bullion Trusts Generic Notes to Financial Statements December 31, 2019