Sprott Physical Silver Trust Notes to the Annual Financial Statements  December 31, 2014 1. Organization of the Trust 2. Basis of Preparation 2.1 Summary of Significant Accounting Policies (i) Cash (ii) Silver bullion Investments in silver bullion are measured at fair value determined by reference to published price quotations, with unrealized and realized  gains and losses recorded in income based on the International Accounting Standards 40  Investment Property fair value model as IAS 40 is the  most relevant standard to apply. Investment transactions in physical silver bullion are accounted for on the business day following the date the  order to buy or sell is executed. Realized and unrealized gains and losses of holdings are calculated on an average cost basis. Cash consists of cash on deposit with the Trust’s custodian, which is not subject to restrictions. The financial statements are presented in U.S. dollars and all values are rounded to the nearest dollar unless otherwise indicated. The financial statements have been prepared on a historical cost basis, except for physical silver bullion and financial assets and financial  liabilities held at fair value through profit or loss, that have been measured at fair value. The financial statements have been prepared in compliance with International Financial Reporting Standards (“IFRS”) as issued by the  International Accounting Standards Board (“IASB” or the “Board”)”. The financial statements of the Trust as at and for the year ended December 31, 2014 were authorized for issue by the Manager on March 10,  2015. Sprott Asset Management LP (the “Manager”) acts as the manager of the Trust pursuant to the Trust Agreement and management agreement  with the Trust. RBC Investor Services Trust, a trust company organized under the laws of Canada, acts as the trustee of the Trust. RBC  Investor Services Trust also acts as custodian on behalf of the Trust for the Trust’s assets other than physical silver bullion. The Royal  Canadian Mint acts as custodian on behalf of the Trust for the physical silver bullion owned by the Trust. The Trust’s registered office is located at Suite 2700, South Tower, Royal Bank Plaza, 200 Bay Street, Toronto, Ontario, Canada, M5J 2J1. The investment objective of the Trust is to seek to provide a secure, convenient and exchange-traded investment alternative for investors  interested in holding physical silver bullion without the inconvenience that is typical of a direct investment in physical silver bullion. The Trust invests and intends to continue to invest primarily in long-term holdings of unencumbered, fully allocated, physical silver bullion and does not  speculate with regard to short-term changes in silver prices. The Trust has only purchased and expects only to own “good delivery bars” as  defined by the London Bullion Market Association (“LBMA”), with each bar purchased being verified against the LBMA source. Sprott Physical Silver Trust (the “Trust”) is a closed-end mutual fund trust created under the laws of the Province of Ontario, Canada, pursuant  to a trust agreement dated as of June 30, 2010, as amended and restated as of October 1, 2010 (the “Trust Agreement”). The Trust’s initial  public offering was priced on October 28, 2010 and closed on November 2, 2010. The Trust is 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”) under the symbols “PSLV” and “PHS.U”,  respectively. 15