Sprott Asset Management L.P.

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from s. 13.5(2)(a) of NI 31-103 to purchase securities of related entities on secondary market -- Relief also granted from s. 13.5(2)(b) of NI 31-103 to permit inter-fund trades between public mutual funds, pooled funds and managed accounts and to permit inter-fund trades at last sale price -- Relief subject to conditions including IRC approval or client consent -- relief also subject to pricing and transparency conditions -- inter-fund trades will comply with conditions in s. 6.1(2) of NI 81-107 -- Relief also granted from s. 13.5(2)(a) of NI 31-103 to allow pooled funds to invest in underlying funds that are corporations under common management -- relief granted subject to certain conditions including no duplication of management fees.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions, ss. 13.5, 15.1.

National Instrument 81-102 Mutual Funds, ss. 2.5(2), 2.5(7).

National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1, 6.2.

September 30, 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 the following:

Transactions in Securities of Related Issuers

(a) the prohibition in section 13.5(2)(a) of NI 31-103 against a registered adviser knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, from purchasing a security of an issuer (a Related Issuer) in which a responsible person or an associate of a responsible person (referred to as Access Persons) is a partner, officer or director unless this fact is disclosed to the client and the written consent of the client is obtained before the purchase, in order to permit a Pooled Fund to purchase exchange-traded securities of a Related Issuer in the secondary market

(the Related Issuer Relief);

Fund on Funds Transactions

(b) the prohibition contained in section 13.5(2)(a) of NI 31-103 to permit a Pooled Fund to invest in related Pooled Funds or NI 81-102 Funds

(the Fund on Fund Relief);

Transactions with Related Parties

(c) the prohibition in section 13.5(2)(b) of NI 31-103 against a registered adviser knowingly causing an investment portfolio managed by it, including an investment fund for which it acts as an adviser, from purchasing or selling a security from or to the investment portfolio of an associate of a responsible person or any investment fund for which a responsible person acts as an adviser, such that the following purchases and sales (each purchase or sale, an Inter-fund Trade) are permitted and, for Inter-fund Trades of exchange-traded securities, are permitted to be executed at the Last Sale Price:

(i) an Inter-fund Trade between an NI 81-102 Fund and another NI 81-102 Fund, Closed-end Fund, or a Pooled Fund;

(ii) an Inter-fund Trade between a Pooled Fund and another Pooled Fund, an NI 81-102 Fund, or a Closed-end Fund;

(iii) an Inter-fund Trade between a Closed-end Fund and another Closed-end Fund, NI 81-102 Fund, or a Pooled Fund; and

(iv) an Inter-fund Trade between a Managed Account and an NI 81-102 Fund, a Pooled Fund, or a Closed-end Fund;

(the Inter-fund Trade 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 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, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, Yukon, Northwest Territories and Nunavut with respect to the relief sought.

Interpretation

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

Clients means clients of the Managed Accounts who are not responsible persons.

Closed-end Funds means the existing or future non-redeemable investment funds that are reporting issuers and managed by the Filer.

Funds means the Closed-end Funds, the NI 81-102 Funds, and the Pooled Funds, and any one of them may be referred to as a Fund.

Last Sale Price means the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade on that trading day where the securities involved in the Inter-fund Trade are exchange-traded securities (which term shall include Canadian and foreign exchange-traded securities).

Managed Accounts means fully managed accounts of Clients managed by the Filer.

NI 31-103 means National Instrument 31-103 Registration Requirements and Exemptions.

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 or any future mutual funds managed by the Filer to which NI 81-102 applies.

Pooled Funds means the existing mutual funds or any future mutual funds managed by the Filer 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 Funds. The Filer also carries on certain investment management activities on a discretionary basis and is the portfolio adviser for the Managed Accounts.

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 who is an Access Person may also be an officer or director of Sprott Inc. and/or of SRC.

7. Eric Sprott, being a substantial securityholder of Sprott Inc., is deemed to be a substantial securityholder of the Filer. In addition, Eric Sprott has a significant interest in Sprott Inc.

The NI 81-102 Funds, the Pooled Funds, and the Closed-end 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 or a trust and will not be a reporting issuer.

10. Each of the Closed-end Funds will be a trust established under the laws of the Province of Ontario, or a corporation established under the laws of the Province of Ontario or of Canada, or a limited partnership established under the laws of the Province of Ontario, and will be a reporting issuer in Ontario and/or at least one of the other provinces and territories of Canada. The Filer anticipates that certain Closed-end Funds may be related persons of the Pooled Funds in that one or more of the directors, officers or employees of the Filer (or the general partner of the Filer) who is an Access Person will also be directors, officers or employees of the Closed-end Funds (or the general partner of the Closed-end Fund or of the manager or portfolio adviser of the Closed-end Funds).

The Managed Accounts

11. The Filer offers discretionary portfolio management services to high net worth individuals and institutional investors and enters into an investment management agreement (the Investment Management Agreement) with each such Client.

Transactions in Securities of Related Issuers

12. Securities of Sprott Inc., SRC, the Closed-end Funds or other Related Issuers may be appropriate securities for the Pooled Funds to purchase, sell or hold.

13. Each Pooled Fund's investment in securities of Sprott Inc., SRC, the Closed-end Funds or other Related Issuers will be consistent with the investment objectives of such Pooled Fund, and will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the Pooled Fund.

14. Each purchase of securities of Sprott Inc., SRC, the Closed-end Funds or other Related Issuers by a Pooled Fund 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.

15. The Filer cannot rely upon the exemption codified under section 6.2(2) of NI 81-107 because the Pooled Funds are not subject to NI 81-107.

Fund on Funds Transactions

16. In connection with the investments of a Pooled Fund in another Fund, there will be no duplication of management or incentive fees.

17. When a Pooled Fund invests in another Fund, the Filer will not charge or receive any sales fees or redemption fees in relation to the purchase of securities of the underlying funds by the top fund. As a result, no duplication of any sales fees or redemption fees can occur where a Pooled Fund invests in another Fund.

18. A Pooled Fund that invests in another Fund will not vote on any of the securities it holds in the underlying funds, but the Filer may, if it chooses, arrange for all of the securities of the underlying funds held by the Pooled Fund be voted by the beneficial owners of securities of the Pooled Fund.

19. The Filer cannot rely upon the exemption codified under section 2.5(7) of NI 81-102 because the Pooled Funds are not subject to NI 81-102.

Transactions with Related Parties

20. In respect of Inter-fund Trades that involve a Pooled Fund or a Managed Account, the Filer cannot rely on the exemption under section 6.1(4) of NI 81-107, because neither a Pooled Fund nor a Managed Account is subject to NI 81-107.

21. The Investment Management Agreement with each Client for each Managed Account will contain the authorization of the Client for the Filer to purchase securities from or sell securities to a Fund.

22. The Filer will provide to each Client specific disclosure on the relationships between the Filer and the Funds.

23. The Filer determines that it would be in the best interests of the Funds and the Managed Accounts if an Inter-fund Trade of exchange-traded securities could be made at Last Sale Price instead of at the current market price, as required under paragraph 6.1(2)(e) of NI 81-107. This will result in the Inter-fund Trade being done at the price which is closest to the market price at the time the decision to make the Inter-fund Trade is made.

24. An Inter-fund Trade to be effected at the Last Sale Price will be implemented by the Filer as follows:

(a) the Filer, as the portfolio manager, will deliver the trade instruction in respect in respect of a purchase or sale of a security by a Fund or a Managed Account, as applicable (Fund A), to a trader on the Filer's trading desk;

(b) the Filer, as the portfolio manager, will deliver the trade instruction in respect of a purchase or sale of a security by another Fund or Managed Account, as applicable (Fund B), to a trader on the Filer's trading desk;

(c) the trader on the Filer's trading desk will have the discretion to execute the trade as an Inter-fund Trade between Fund A and Fund B at the Last Sale Price of the security, prior to the execution of the trade;

(d) the policies applicable to the Filer's trading desk will require that all orders are to be executed on a timely basis and will remain open only for 30 days unless the Filer, as portfolio manager, cancels the order sooner; and

(e) the trader on the Filer's trading desk will advise of the Last Sale Price.

Fund Governance for the NI 81-102 Funds, the Pooled Funds, and the Closed-end Funds

25. The Filer has established an independent review committee (IRC) in respect of the existing NI 81-102 Funds and the existing Closed-end Fund in accordance with the requirements of NI 81-107, and will establish an IRC for each future NI 81-102 Fund and Closed-end Fund in accordance with the requirements of NI 81-107.

26. Inter-fund Trades involving the NI 81-102 Funds and the Closed-end Funds will be referred to the IRC of such Funds for approval and the IRC will not approve the Inter-fund Trades unless it has made the determinations set out in section 5.2(2) of NI 81-107.

27. The Filer will establish an 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.

28. 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) of NI 81-107 will be complied with.

29. The mandate of the IRC of the Pooled Funds will also include approving Inter-fund Trades. The IRC of the Pooled Funds will not approve Inter-fund Trades unless the IRC has made the determination set out in section 5.2(2) of NI 81-107.

30. Section 6.1(4) of NI 81-107 provides an exemption from section 13.5(2)(b) of NI 31-103 in respect of Inter-fund Trades, so long as such trades comply with the conditions in section 6.1(2) of NI 81-107. The Inter-fund Trades will comply with all of the conditions in section 6.1(2) except paragraph 6.1(2)(a) and, for Inter-fund Trades of exchange-traded securities, paragraphs 6.1(2)(a) and 6.1(2)(e), as provided under the Exemption Sought in 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 as follows.

Related Issuer Relief

1. The Related Issuer Relief is granted so long as:

(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) in respect of the purchase of securities of a Related Issuer, such purchase is made on an exchange on which the securities are listed and traded and 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;

Fund on Funds Relief

2. The Fund on Fund Relief is granted so long as:

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

(b) in respect of the purchase of securities of another Fund:

(i) no management or incentive fees are payable by the Pooled Fund that, to a reasonable person, would duplicate a fee payable by the underlying fund for the same service;

(ii) no sales or redemption fees are payable by the Pooled Fund in relation to its purchases or redemptions of the securities of the underlying funds;

(iii) the Pooled Fund does not vote on any of the securities it holds in the underlying funds, but the Filer may, if it chooses, arrange for all of the securities of the underlying funds held by the Pooled Fund be voted by the beneficial owners of units of the Pooled Fund; and

(iv) investors in the Pooled Funds receive disclosure:

(1) that the Pooled Fund may purchase securities of other Funds;

(2) that the Pooled Fund and the underlying funds in which it invests are managed by the Filer; and

(3) of the approximate or maximum percentage of net assets of the Pooled Fund that is dedicated to investing in securities of other Funds.

Inter-fund Trade Relief

3. The Inter-fund Trade Relief is granted so long as:

(a) the Inter-fund Trade is consistent with the investment objective of the Fund or the Managed Account;

(b) the Filer refers the Inter-fund Trade to the IRC in the manner contemplated by section 5.1 of NI 81-107 and the Filer complies with any standing instructions an IRC provides in connection with the Inter-fund Trade;

(c) in the case of an Inter-fund Trade between Funds:

(i) the IRC of each Fund has approved the Inter-fund Trade in respect of the Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(ii) the Inter-fund Trade complies with subsection 6.1(2) of NI 81-107 except for paragraph 6.1(2)(a) and, for Inter-fund Trades of exchange-traded securities, paragraphs 6.1(2)(a) and 6.1(2)(e); and

(iii) for Inter-fund Trades of exchange-traded securities, the Inter-fund Trade is executed at Last Sale Price;

(d) in the case of an Inter-fund Trade between a Managed Account and a Fund:

(i) the IRC of the Fund has approved the Inter-fund Trade in respect of such Fund in accordance with the terms of section 5.2(2) of NI 81-107;

(ii) the investment management agreement or other documentation in respect of the Managed Account authorizes the transaction;

(iii) the Inter-fund Trade complies with subsection 6.1(2) of NI 81-107 except for paragraph 6.1(2)(a) and, for Inter-fund Trades of exchange-traded securities, paragraphs 6.1(2)(a) and 6.1(2)(e); and

(iv) for Inter-fund Trades of exchange-traded securities, the Inter-fund Trade is executed at Last Sale Price.