Sprott Asset Management L.P. (Re), 2010 CanLII 49211

Headnote National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from s. 4.1(2) of NI 81-102 to permit mutual funds to purchase securities of related entities on secondary market – Relief also granted from self-dealing provisions in s. 4.2 of NI 81-102 to permit funds to conduct inter-fund trades with pooled funds and closed-end funds – Relief subject to conditions including IRC approval and pricing requirements – inter-fund transfers will comply with conditions in s. 6.1(2) of NI 81-107.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds – ss. 4.1(2), 4.2(1), 4.3, 19.1 National Instrument 81-107 Independent Review Committee for Investment Funds – s. 6.1(2)

August 27, 2010

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO

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)

AND

IN THE MATTER OF THE NI 81-102 FUNDS (as defined below)

DECISION

Background

The securities regulatory authority or regulator in Ontario received an Application (the Application) on behalf of the Filer and on behalf of the existing mutual funds and future mutual funds of which the Filer is the investment fund manager or the portfolio manager and to which National Instrument 81-102 Mutual Funds (NI 81-102) applies (each, an NI 81-102 Fund and, collectively, the NI 81-102 Funds) for a decision under section 19.1 of NI 81-102 providing the following relief (the Exemption Sought):

Transactions in Securities of Related Issuers

(a) from the requirement in section 4.1(2) of NI 81-102 that prohibits a dealer managed mutual fund from knowingly making an investment in a class of securities of an issuer (a Related Issuer) of which a partner, director, officer or employee of the dealer manager of the mutual fund, or a partner, director, officer or employee of an affiliate or associate of the dealer manager, is a partner, director or officer, unless the partner, director, officer or employee

(i) does not participate in the formulation of investment decisions made on behalf of the dealer managed mutual fund;

(ii) does not have access before implementation to information concerning investment decisions made on behalf of the dealer managed mutual fund; and

(iii) does not influence, other than through research, statistical and other reports generally available to clients, the investment decisions made on behalf of the dealer managed mutual fund;

in order to permit an NI 81-102 Fund to purchase certain exchange-traded securities of a Related Issuer in the secondary market (the Related Issuer Relief);

Transactions with Related Parties

(b) from the requirement in section 4.2(1) of NI 81-102 that prohibits a mutual fund from purchasing a security from or selling a security to any of the following acting as principal:

(i) the manager, portfolio adviser or trustee of the mutual fund;

(ii) a partner, director or officer of the mutual fund or of the manager, portfolio adviser or trustee of the mutual fund;

(iii) an associate or affiliate of a person or company referred to in (i) or (ii);

(iv) a person or company, having fewer than 100 security holders of record, of which a partner, director or officer of the mutual fund or of the manager or portfolio adviser of the mutual fund, is a partner, director, officer or security holder;

in order to permit an NI 81-102 Fund to purchase debt securities from or sell debt securities to a Pooled Fund (as defined herein) or a Closed-end Fund (as defined herein) (the Inter-fund Trade Relief).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions:

(a) the Ontario Securities Commission is the principal regulator for the 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, Prince Edward Island, Newfoundland & Labrador, Northwest Territories, Yukon and Nunavut (the Passport Jurisdictions).

Interpretation

Terms defined in MI 11-102, National Instrument 14-101 Definitions, NI 81-102 and National Instrument 81-107 Independent Review Committee for Investment Funds (NI 81-107) have the same meaning if used in this decision, unless otherwise defined.

The following additional terms shall have the following meanings:

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

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

Funds means the NI 81-102 Funds, the Pooled Funds, and the Closed-end Funds.

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, the Pooled Funds, and the Closed-end 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 Private Wealth L.P. is a “specified dealer”. The general partner of Sprott Private Wealth L.P. is Sprott Private Wealth GP Inc., which is also an indirect wholly-owned subsidiary of Sprott Inc.

5. 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 and of Sprott Private Wealth L.P.

6. Because of the relationship between the Filer and Sprott Private Wealth L.P., the Filer is a “dealer manager” as such term is defined in NI 81-102 and accordingly, the NI 81-102 Funds are “dealer managed mutual funds” as such term is defined in NI 81-102.

7. 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”.

8. 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 Filer (or the general partner of the Filer) are also executive officers of Sprott Inc. In addition, Eric Sprott is a director of SRC. Being one of the portfolio managers of the Filer, Eric Sprott does not meet the conditions in section 4.1(2) of NI 81-102.

9. The Filer anticipates that in the future, an officer or director of the Filer (or the general partner of the Filer) may also be an officer or director of Sprott Inc., SRC, and/or a Closed-end Fund (or the general partner of a Closed-end Fund or of the manager or portfolio adviser of the Closed-end Funds), and that such officer or director will also not meet the conditions in section 4.1(2) of NI 81-102.

10. The Filer is the trustee of certain of the Pooled Funds organized as trusts, and therefore such Pooled Funds would be deemed to be associates of the Filer. The Filer anticipates that in the future, the structure for future Pooled Funds may also result in certain future Pooled Funds being associates of the Filer.

The NI 81-102 Funds, the Pooled Funds, and the Closed-end Funds

11. 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.

12. Each of the Pooled Funds is, or will be, a limited partnership or a trust. One or more Pooled Funds is or will be an associate or affiliate of the manager, portfolio adviser or trustee of the NI 81-102 Funds because of the relationships described above.

13. 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. Certain Closed-end Funds may be Related Issuers of the NI 81-102 Funds in that one or more of the directors, officers or employees of the Filer (or the general partner of the Filer) 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 Fund).

Investments of the NI 81-102 Funds in Related Issuers

14. Securities of Sprott Inc., SRC or the Closed-end Funds may be appropriate securities for the investment portfolios of the NI 81-102 Funds. While section 6.2 of NI 81-107 permits the NI 81-102 Funds to invest in exchange-traded securities of Related Issuers in the secondary market, section 6.2 of NI 81-107 does not provide relief from section 4.1(2) of NI 81-102.

15. Each NI 81-102 Fund’s investment in securities of Sprott Inc., SRC, or the Closed-end Funds will be in accordance with the NI 81-102 Fund’s investment objectives, and will represent the business judgment of responsible persons uninfluenced by considerations other than the best interests of the NI 81-102 Fund.

16. Each purchase of securities of Sprott Inc., SRC, or the Closed-end Funds by an NI 81-102 Fund will occur in the secondary market and not under primary distributions or treasury offerings of such issuers.

Inter-fund Trades involving the NI 81-102 Funds

17. The Filer wishes to effect purchases or sales of debt securities between (i) the NI 81-102 Funds and the Pooled Funds and (ii) the NI 81-102 Funds and the Closed-end Funds (Inter-fund Trades).

18. Section 4.3(2) of NI 81-102 permits an NI 81-102 Fund to purchase debt securities from or sell debt securities to an entity that would otherwise be prohibited by section 4.2 of NI 81-102 if certain conditions are met. One of the conditions of section 4.3(2) is that the NI 81-102 Fund is purchasing from, or selling to, another mutual fund to which NI 81-107 applies.

19. The Filer cannot rely on section 4.3(2) of NI 81-102 to permit an NI 81-102 Fund to purchase debt securities from or sell debt securities to a Pooled Fund because the Pooled Funds are not subject to NI 81-107.

20. The Filer cannot rely on section 4.3(2) of NI 81-102 to permit an NI 81-102 Fund to purchase debt securities from or sell debt securities to a Closed-end Fund because a Closed-end Fund is not a “mutual fund” as defined in securities legislation.

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

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

22. The Filer has established an IRC in respect of the existing Closed-end Funds in accordance with the requirements of NI 81-107, and will establish an IRC for each future Closed-end Fund in accordance with the requirements of NI 81-107.

23. Related Issuer purchases and Inter-fund Trades by the NI 81-102 Funds will be referred to the IRC of the NI 81-102 Funds as contemplated by section 5.2(1) of NI 81-107. The IRC of the NI 81-102 Funds will not approve such purchase or sale transactions unless it has made the determinations set out in section 5.2(2) of NI 81-107.

24. Inter-fund Trades by the Closed-end Funds will be referred to the IRC of the Closed-end Funds as contemplated by section 5.2(1) of NI 81-107. The IRC of the Closed-end Funds will not approve such purchase or sale transactions unless it has made the determinations set out in section 5.2(2) of NI 81-107.

25. 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. The mandate of the IRC of the Pooled Funds will 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.

26. Each Inter-fund Trade will be consistent with the investment objective of the Funds engaged in the trade.

27. If the IRC of a Fund becomes aware of an instance where the Filer, as investment fund manager of the Fund, did not comply with the terms of this decision, or a condition imposed by the IRC in its approval, the IRC of such Fund will, as soon as practicable, notify in writing the securities regulatory authority or regulator in the jurisdiction under which the Fund is organized.

28. The Inter-fund Trades will comply with all of the conditions in sub-section 6.1(2)(b) to (g) of NI 81-107.

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 provided that the following conditions are met.

1. In respect of the Related Issuer Relief:

(a) the purchase or holding is consistent with, or is necessary to meet, the investment objective of the NI 81-102 Fund;

(b) the IRC of the NI 81-102 Fund has approved the transaction in accordance with Section 5.2(2) of NI 81-107;

(c) the purchase is made on an exchange on which the securities are listed and traded; and

(d) no later than the time the NI 81-102 Fund files its annual financial statements, the Filer files with the securities regulatory authority or regulator the particulars of any such investments; and

2. In respect of the Inter-fund Trade Relief:

(a) the IRC of the Funds involved in the Inter-fund Trade has approved the transaction in accordance with the terms of section 5.2(2) of NI 81-107; and

(b) at the time of an Inter-fund Trade, the transaction complies with all of the conditions in subsection 6.1(2)(b) to (g) of NI 81-107.

“ Vera Nunes “

Vera Nunes – Assistant Manager, Investment Funds

Sedar Project No. 1565091

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions – Relief granted from s. 4.1(2) of NI 81-102 to permit mutual funds to purchase securities of related entities on secondary market – Relief also granted from self-dealing provisions in s. 4.2 of NI 81-102 to permit funds to conduct inter-fund trades with pooled funds and closed-end funds – Relief subject to conditions including IRC approval and pricing requirements – inter-fund transfers will comply with conditions in s. 6.1(2) of NI 81-107.

Applicable Legislative Provisions

National Instrument 81-102 Mutual Funds – ss. 4.1(2), 4.2(1), 4.3, 19.1

National Instrument 81-107 Independent Review Committee for Investment Funds – s. 6.1(2)