Sprott Asset Management L.P.

Headnote

NP 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief from s. 111 of the Act granted to permit pooled funds to purchase securities of related entities over a stock exchange and to facilitate fund on fund arrangements -- related issuer relief conditional on IRC approval and compliance with independent pricing and transparency requirements -- fund on fund relief conditional on compliance with requirements similar to s. 2.5 of NI 81-102.

Applicable Legislative Provisions

Securities Act (Ontario), R.S.O. 1990, c. S.5, as am., ss. 111(2)(a), 111(2)(b), 111(2)(c), 113.

National Instrument 81-102 Mutual Funds, s. 2.5(7).

National Instrument 81-107 Independent Review Committee for Investment Funds, s. 6.2.

July 27, 2010

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

SPROTT ASSET MANAGEMENT L.P.

(the Filer)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Jurisdiction of the principal regulator (the Legislation) for an exemption (the Exemption Sought) from:

1. the prohibitions contained in sub-paragraphs 111(2)(a) and 111(2)(c) of the Ontario Securities Act (the Act) to permit the Pooled Funds (as defined below) to purchase securities of Sprott Inc., Sprott Resource Corporation and any future related persons or company; and

2. the prohibition contained in sub-paragraph 111(2)(b) of the Act and the reporting requirement contained in sub-paragraph 117(1)(a) to permit the Pooled Funds to invest in Pooled Funds or NI 81-102 Funds.

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 Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, New Brunswick, Nova Scotia and Newfoundland and Labrador with respect to the relief sought.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 and the Legislation have the same meaning if used in this decision, unless otherwise defined. The following additional terms shall have the following meanings:

NI 81-102 means National Instrument 81-102 Mutual Funds.

NI 81-107 means National Instrument 81-107 Independent Review Committee for Investment Funds.

NI 81-102 Funds means the existing mutual funds and any future mutual funds managed or advised by the Filer to which NI 81-102 applies.

Pooled Funds means the existing mutual funds and any future mutual funds managed or advised by the Filer that are not reporting issuers and to which NI 81-102 does not apply.

Representations

The decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a limited partnership established under the laws of the Province of Ontario and is registered as an adviser in the category of portfolio manager in Ontario, British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Newfoundland and Labrador and as an exempt market dealer in Ontario. The Filer is not in default of securities legislation in any province or territory of Canada.

2. The Filer is, or will be, the manager and/or portfolio adviser for the NI 81-102 Funds and the Pooled Funds.

Relationships among the Sprott Entities

3. The general partner of the Filer, Sprott Asset Management GP Inc., is an indirect wholly-owned subsidiary of Sprott Inc., which is the sole limited partner of the Filer.

4. Sprott Inc., a corporation established under the laws of the Province of Ontario and the common shares of which are listed on the Toronto Stock Exchange (the TSX) under the symbol "SII", owns 99.99% of the voting securities of the Filer.

5. Sprott Resource Corporation (SRC) is a corporation established under the laws of Canada and the common shares of which are listed on the TSX under the symbol "SCP".

6. Eric Sprott, the Chief Executive Officer and a director of the general partner of the Filer, is the Chief Executive Officer and a director of Sprott Inc. Several other executive officers of the general partner of the Filer are also executive officers of Sprott Inc. In addition, Eric Sprott is a director of SRC. It is anticipated that in the future, an officer or director of the general partner of the Filer may also be an officer or director of Sprott Inc. and/or SRC.

7. Eric Sprott, being a substantial securityholder of Sprott Inc., is deemed to be a substantial securityholder of the Filer. In the future, an officer or director of the general partner of the Filer may have a significant interest in Sprott Inc. or SRC.

The NI 81-102 Funds and the Pooled Funds

8. Each of the NI 81-102 Funds is, or will be, an open-ended mutual fund trust established under the laws of the Province of Ontario, or a mutual fund corporation established under the laws of the Province of Ontario or of Canada. Each of the NI 81-102 Funds is, or will be, a reporting issuer in Ontario and/or at least one of the other provinces and territories of Canada.

9. Each of the Pooled Funds is, or will be, a limited partnership, a trust, or a corporation.

Investments in Related Issuers

10. Securities of Sprott Inc., SRC and any future related persons or company (collectively, Related Issuers) may be appropriate securities for the Pooled Funds to purchase, sell or hold.

11. Section 6.2 of NI 81-107 provides an exemption for the NI 81-102 Funds to invest in exchange-traded securities of Related Issuers in the secondary market. That exemption does not apply to the Pooled Funds.

12. Each Pooled Fund's investment in securities of Related Issuers will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Pooled Fund.

13. Each purchase of securities of a Related Issuer will occur in the secondary market and not under primary distributions or treasury offerings of such issuers. Furthermore, the Pooled Funds will only purchase exchange-traded securities of such issuers.

14. The Filer will establish an independent review committee (IRC) in respect of the Pooled Funds. The IRC of the Pooled Funds will be composed in accordance with section 3.7 of NI 81-107 and will be expected to comply with the standard of care set out in section 3.9 of NI 81-107.

15. The mandate of the IRC of the Pooled Funds will include approving purchases and sales of securities of Related Issuers. The IRC of the Pooled Funds will not approve purchases or sales of securities of Related Issuers unless the IRC has made the determination set out in section 5.2(2) of NI 81-107. In connection with these purchases and sales, the conditions under section 6.2(1)(a) of NI 81-107 will be complied with.

Fund-on-Fund Investments

16. A Pooled Fund, together with one or more related mutual funds including other Pooled Funds, may be a substantial securityholder of an NI 81-102 Fund or another Pooled Fund. The Pooled Funds are unable to rely upon the exemption codified under sub-section 2.5(7) of NI 81-102.

17. Investing in an underlying NI 81-102 Fund or Pooled Fund (the Underlying Funds) will allow the overlying Pooled Funds (the Top Funds) to achieve their investment objectives in the most cost effective way and will not be detrimental to the interests of other securityholders of the Underlying Funds. Such an investment can provide greater diversification for a Top Fund in particular asset classes on a less expensive basis than investing directly in the securities held by the applicable Underlying Fund. This investment structure will also allow investors with smaller investments to have access to a larger variety of investments than would otherwise be available.

18. Securities of each of the Top Funds, if distributed in Canada, will be distributed only to "accredited investors" within the meaning of National Instrument 45-106 -- Prospectus and Registration Exemptions, or to other investors pursuant to exemptions from the prospectus requirement.

19. Prior to a Top Fund making an investment in any Underlying Fund, the Filer will provide to investors in the Top Fund written disclosure (which could include disclosure in the offering memorandum or similar document of the Top Fund) which discloses: (i) the intent of the Top Fund to invest its assets in securities of the Underlying Funds; (ii) that the Underlying Funds are managed by the Filer or an affiliate of the Filer; (iii) the percentage of net assets of the Top Fund that the Top Fund intends to invest in securities of the Underlying Funds; and (iv) the process or criteria used to select the Underlying Funds.

20. Each of the Pooled Funds and the NI 81-102 Funds will prepare annual audited financial statements and interim unaudited financial statements in accordance with National Instrument 81-106 -- Investment Fund Continuous Disclosure (NI 81-106) and will otherwise comply with the requirements of NI 81-106 applicable to them. The holdings by a Top Fund of securities of an Underlying Fund will be disclosed in the financial statements.

21. The securityholders of a Top Fund will receive, on request, a copy of the prospectus or other similar document, if available, and the audited annual financial statements and semi-annual financial statements of any Underlying Fund in which the Top Fund invests.

22. A Top Fund's investment in an Underlying Fund will comply with most of the conditions prescribed for investments in other mutual funds under sub-section 2.5(2) of NI 81-102 except as modified under this Decision.

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 Exemption Sought is granted so long as:

1. Where a Pooled Fund invests in a Related Issuer:

(a) the transaction is consistent with, or is necessary to meet, the investment objective of the Pooled Fund;

(b) the IRC of the Pooled Fund has approved the transaction in respect of the Pooled Fund in accordance with section 5.2 of NI 81-107;

(c) the purchase of securities of Related Issuers is made on the exchange on which the security is listed and traded; and

(d) no later than the 90th day after the end of each financial year, the Filer files with the securities regulatory authority or regulator the particulars of any such investments.

2. Where a Pooled Fund invests in an NI 81-102 Fund or another Pooled Fund:

(a) securities of the Top Funds are distributed in Canada only under an exemption from the prospectus requirements;

(b) no management or incentive fees are payable by a Top Fund that, to a reasonable person, would duplicate a fee payable by the Underlying Fund for the same service;

(c) no sales or redemption fees are payable by a Top Fund in relation to its purchases or redemptions of the securities of the Underlying Funds; and

(d) the Filer does not vote any of the securities a Top Fund holds in an Underlying Fund, but the Filer may, if it chooses, arrange for all of the securities of the Underlying Funds held by Top Funds to be voted by the beneficial owners of units of the Top Funds.

Dated at Toronto this 27th day of July, 2010.