Exhibit 10.2


 


MANAGEMENT
AGREEMENT


 


THIS AGREEMENT made and entered
into as of the · day
of ·,
2009


 


B E T W E E N:


 


SPROTT
PHYSICAL GOLD TRUST,


a closed-end mutual fund
trust established under the laws of the Province of Ontario, by its trustee, RBC DEXIA INVESTOR SERVICES TRUST,  a
trust company incorporated under the federal laws of Canada


 


(hereinafter referred to as
the “Trust”)


 


OF
THE FIRST PART


 


- and -


 


SPROTT
ASSET MANAGEMENT LP,


a limited
partnership formed under the laws of the Province of Ontario


 


(hereinafter
referred to as the “Manager”)


 


OF THE SECOND PART


 


WHEREAS the Trust was
established under the laws of the Province of Ontario pursuant to a trust
agreement dated as of August 28, 2009, as amended and restated as of December
7, 2009 (the “Trust Agreement”);


 


AND
WHEREAS the Trust was created to invest and hold
substantially all of its assets in physical gold bullion, which will provide
holders of units of the Trust with a secure, convenient and exchange-traded
investment alternative for investors interested in holding physical gold
bullion without the inconvenience that is typical of a direct investment in
physical gold bullion;


 


AND
WHEREAS pursuant to the Trust Agreement, RBC Dexia Investor
Services Trust and the Manager were appointed as the trustee and the manager of
the Trust, respectively;


 


AND
WHEREAS pursuant to the Trust Agreement, the Manager has the
full authority and exclusive power to manage and direct the business and
affairs of the Trust including, without limitation, to provide the Trust with
all necessary investment management services and all management and
administrative services, and to provide such other services and facilities as
described in the Trust Agreement;


 


AND
WHEREAS, pursuant to the Trust Agreement, the Trustee has
no responsibility for the investment management of the Trust Property (as
hereinafter defined) or for monitoring the Investment Policy (as hereinafter
defined);


 


AND
WHEREAS the Trust and the Manager wish to evidence by this
Agreement the manner in which the Manager will provide investment management
services to the Trust and such other


 

















 


management and
administrative services to the Trust as hereinafter described, subject to the
terms and conditions set out herein.


 


NOW THEREFORE in
consideration of the mutual covenants and agreements contained herein and for
other good and valuable consideration (the receipt and sufficiency of which is
hereby acknowledged) the parties hereto agree as follows:


 


1.             Definitions and Interpretations


 


The terms defined in this Section whenever used
in this Agreement shall, unless the context otherwise requires, have the
respective meanings hereinafter specified:


 


(a)           “Agreement” means this management agreement dated as of the day and year
first above written as the same may be amended, restated or supplemented from
time to time and “herein”, “hereof”, “hereby”, “hereunder” and similar expressions refer to
this Agreement and include every instrument supplemental or ancillary to this
Agreement and, except where the context otherwise requires, not to any
particular article, section or subsection thereof;


 


(b)           “Applicable Laws”  means, unless the
context otherwise dictates, any applicable statute of Canada or of a province
or territory of Canada or any applicable statute of the United States of
America or of a state or territory of the United States of America or any
applicable regulations, orders, instruments, policies or other laws made under
statutory authority by any governmental or regulatory body or agency having
jurisdiction over the Trust including, but not limited to, Securities
Legislation and the Tax Act;


 


(c)           “Business Day” means any day on which the New York Stock
Exchange Arca or the Toronto Stock Exchange are open for trading;


 


(d)           “Custodian”  means the
Trustee, acting as the custodian of the Trust Property other than the Gold
Bullion, and any sub-custodians appointed by the Trustee, in accordance with
the Trust Agreement, or any successor custodian of the Trust Property other
than the Gold Bullion appointed in accordance with the Trust Agreement or
pursuant to a separate written custodial agreement;


 


(e)           “Disclosure Documents” means any  (final)
prospectus of the Trust filed in all provinces and territories of Canada and
any registration statement of the Trust filed with the United States Securities
and Exchange Commission or similar offering documents, and any continuous
disclosure documents of the Trust filed with applicable Securities Authorities
as may be used by the Manager or required by applicable Securities Legislation
in connection with qualifying the distribution of the Units to the public,
including any amendments to such offering documents or continuous disclosure
documents;


 


(f)            “Expense Cap” shall have the meaning set forth in Section 8
hereof;


 


(g)           “Gold Bullion”  means physical
gold bullion in London Good Delivery bar form that is unencumbered, fully
allocated and stored at the Gold Custodian by or on behalf of the Trust;


 


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(h)           “Gold Custodian”  means the Royal
Canadian Mint, acting as the custodian of the Gold Bullion, and any
sub-custodians appointed by the Royal Canadian Mint, in accordance with the
Storage Agreement, or any successor custodian of the Gold Bullion appointed in
accordance with the Trust Agreement or pursuant to a separate written custodial
agreement;


 


(i)            “Investment Policy” shall have the meaning set forth in Section 3
hereof;


 


(j)            “LBMA” means the London Bullion Market Association which is
the London-based trade association that represents the wholesale gold and
silver bullion market in London and maintains a list of accredited melters and
assayers whose gold and silver bars are accepted by members of the London
bullion market in settlement against transactions between each other and other acceptable
counterparts, which is referred to as the LBMA Good Delivery List;


 


(k)           “Management Fee” shall have the meaning set forth in Section 8
hereof;


 


(l)            “Manager” means Sprott Asset Management LP, acting as the
manager of the Trust, and appointed in accordance with the Trust Agreement;


 


(m)          “Net Asset Value of the Trust” shall have the meaning and
shall be calculated in accordance with the Trust Agreement;


 


(n)           “Securities Authorities”  means the Ontario
Securities Commission and equivalent securities regulatory authorities in each
other province and territory of Canada, and the United States Securities and
Exchange Commission;


 


(o)           “Securities Legislation” means the laws, regulations, rules,
requirements and policies of the Securities Authorities which are in effect
from time to time and applicable to the Trust including, but not limited to,
National Instrument 81-102 Mutual Funds,
National Instrument 81-106 Investment Fund Continuous
Disclosure, National Instrument 81-107 Independent
Review Committee for Investment Funds and the United States Securities Act of 1933, as amended;


 


(p)           “Storage Agreement” means the precious metals storage agreement between the Manager, on
behalf of the Trust, and the Gold Custodian, to be dated on or about the date
of filing the final prospectus and registration statement with the applicable
Securities Authorities, as the same may be amended, restated or supplemented
from time to time;


 


(q)           “Tax Act”  means the Income Tax Act (Canada)
and the regulations, rules, requirements and policies promulgated thereunder,
as amended from time to time;


 


(r)            “Trust” means Sprott Physical Gold Trust, a closed-end mutual
fund trust established pursuant to the Trust Agreement;


 


(s)           “Trust Agreement” means the trust agreement of the Trust dated
as of August 28, 2009, as amended and restated as of December 7,
2009, as the same may be further amended, restated, supplemented or replaced
from time to time;


 


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(t)            “Trust Property”  at any time,
means any and all securities, cash (including free credit balances), property
and assets, real and personal, tangible and intangible, transferred, conveyed
or paid to the Trust including, without limitation:


 


(i)            all funds realized from the
sale of Units;


 


(ii)           Gold Bullion from time to
time delivered to and received by the Trust or held for its account as directed
by the Manager and accepted by the Gold Custodian on behalf of the Trust in
accordance with the Storage Agreement;


 


(iii)          all investments, sums or property
of any type or description (other than the Gold Bullion) from time to time
delivered to and received by the Trust or held for its account as directed by
the Manager and accepted by the Trustee on behalf of the Trust in accordance
with the Trust Agreement;


 


(iv)          any proceeds of disposition
of any of the foregoing property and assets; and


 


(v)           all income,
interest, profit, gains and accretions and additional rights arising from or
accruing to such foregoing property or such proceeds of disposition;


 


(u)           “Trustee” means RBC Dexia Investor Services Trust, acting as
the trustee of the Trust, or any successor trustee appointed in accordance with
the Trust Agreement;


 


(v)           “Unit”  means a unit of beneficial
interest, in any class or series of a class of the Trust, as presently
constituted pursuant to the Trust Agreement or as the same may from time to
time hereinafter be constituted, and collectively referred to as the “Units; and


 


(w)          “Valuation Date”  means each
Business Day, unless the Manager determines that the assets of the Trust should
be valued less frequently, either generally or in respect of one or more
specific instances, in which event “Valuation Date”
shall mean such Business Day or Business Days as the Manager determines.


 


In this Agreement, where the
context so indicates, the singular shall include the plural and the masculine
shall include the feminine and neuter.


 


2.             Appointment of the Manager


 


The Manager hereby directs the Trustee to execute this Agreement on
behalf of, and in order for, the Trust to appoint the Manager to provide or
engage others to provide all necessary or advisable investment management and
administrative services and facilities as hereinafter set forth and the Manager
hereby accepts such appointment and agrees to act in such capacity and to
provide or cause to be provided such investment management and administrative
services and facilities upon the terms set forth in this Agreement.


 


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The Trust hereby retains the Manager to manage the
Trust Property in the name of the Trust with full discretionary authority as to
all trades on a continuing basis until terminated and subject to and in
accordance with the provisions of this Agreement.


 


The Manager may from time to time employ or retain any other person or
entity to manage on behalf of the Manager or to assist the Manager in managing
or providing investment management and administrative services to all or any
portion of the Trust Property, and in
performing other duties of the Manager set out in this Agreement.  In the event that the Manager engages such
other person or entity with respect to providing investment management services
to the Trust Property, and such other person or entity is not registered as an
adviser (or exempt from such registration requirement) under the Securities Act (Ontario), the Manager
shall be responsible under the terms of this Agreement and the Trust Agreement
to the Trust for advice received from such other person or entity with respect
to the Trust Property as if such advice were given by the Manager.


 


In accordance with its authority and exclusive powers to manage and
direct the investment management and administrative services for the Trust, the
Manager, on behalf of the Trust, shall select brokers or dealers to transact
trades in respect of the Trust Property. 
The Manager may execute a portion of such portfolio transactions through
an affiliate (as such term is defined in the Securities
Act (Ontario)) which is a registered investment dealer. The Manager
or its affiliates will offer competitive rates and will only execute trades as
an investment dealer for the Trust when the executions obtained would be on
terms and conditions no less favourable to the Trust than would otherwise be
obtainable if the orders were placed through independent brokers or dealers and
at commission rates equal or comparable to rates that would have been charged
by independent brokers or dealers.


 


Funds of the Manager shall not be commingled with
those of the Trust under any circumstances.


 


3.             Investment Policy


 


The Trust’s investment objective, strategy and operating restrictions
with respect to the Trust Property are set out in Article 22 of the Trust
Agreement and Schedule “A” attached hereto (the “Investment
Policy”).  Subject to
applicable Securities Legislation and the terms of the Trust Agreement and this
Agreement, the Manager shall advise the Trust in writing promptly of any
material change to the Investment Policy, and any such writing shall be annexed
hereto as a supplementary schedule.


 


4.             Investment Management Services


 


The Manager shall manage the Trust Property by taking
such action from time to time in connection therewith as the Manager, in its
sole discretion, shall deem necessary or desirable for the proper investment
management of the Trust Property at all times in compliance with the Investment
Policy.  It is expressly understood that
the Manager’s investment discretion shall, subject to the Investment Policy, be
absolute.  Without limiting the
generality of the preceding sentence, the Manager shall not be limited to
investing the Trust Property in securities of a class authorized for investment
by trustees.


 


The Trust hereby grants to the Manager, subject to the
Trust Agreement, all power and authority necessary to give effect to the
foregoing including, without limitation, the power to:


 


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(a)                                  provide
or arrange to be provided research, information, data, advice, opportunities
and recommendations with respect to the making, acquiring (by purchase,
investment, re-investment, exchange or otherwise), holding and disposing
(through sale, exchange or otherwise) of Trust Property in the name of, on
behalf of, and at the risk of, the Trust;


 


(b)                                 obtain
for the Trust such services as may be required in acquiring, disposing of and
owning Trust Property including, but not limited to, the placing of orders with
brokers and investment dealers to purchase, sell and otherwise trade in or deal
with any Trust Property in the name of, on behalf of, and at the risk of, the
Trust;


 


(c)                                  direct
the delivery of the Trust Property sold, exchanged or otherwise disposed of
from the Trust’s account and to direct the payment for Trust Property acquired
for the Trust’s account upon delivery to the Custodian or the Gold Custodian,
as the case may be;


 


(d)                                 direct
the holding of all or any part of the Trust Property in cash or cash
equivalents from time to time available for investment in Gold Bullion,
securities and other assets, which cash or cash equivalents shall be invested
or held on deposit with a Canadian chartered bank, trust company, custodian or
prime broker appointed by the Trust from time to time, and investing all or any
part of said cash or cash equivalents from time to time available for
investment in short-term debt obligations of or guaranteed by the Government of
Canada or a province thereof, or the Government of the United States of America
or a state thereof, or such other short-term investment grade corporate debt
obligations as the Manager, in its discretion, deems advisable;


 


(e)                                  arrange
for, and complete, for and on behalf of the Trust, the purchase and sale of
Gold Bullion, at the best available prices available over a prudent period of
time;


 


(f)                                    provide
to the Trust and the Gold Custodian delivery and payment particulars in respect
of each purchase and sale of Gold Bullion;


 


(g)                                 arrange
or cause to be arranged with the Gold Custodian, or other custodians possessing
industry expertise, for the storage of Gold Bullion which is owned by the
Trust, including arrangements regarding indemnities or insurance in favour of
the Trust for the loss of such Gold Bullion in accordance with industry
practices;


 


(h)                                 monitor
relationships with gold bullion brokers to ensure trades in Gold Bullion to be
held as London Good Delivery bars are effected and executed in accordance with
LBMA compliance standards;


 


(i)                                     monitor
relationships with the Gold Custodian and any other custodian that has been
appointed by the Trust to hold and store the Gold Bullion which is owned by the
Trust;


 


(j)                                     exercise,
or direct the exercise of, any and all rights, powers and discretion in
connection with the Trust Property, including the power to vote the securities
at meetings of securityholders or executing proxies or other instruments on
behalf 


 


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of the Trust for that purpose, and to consent to any reorganization or
similar transaction;


 


(k)                                  make
any election to be made in connection with any mergers, acquisitions, tender
offers, take-over bids, arrangements, bankruptcy proceedings or other similar
occurrences which may affect the Trust Property;


 


(l)                                     execute
any prospectus, registration statement or similar offering document relating to
the offering of securities of the Trust filed with the Securities Authorities
on behalf of the Trust; and


 


(m)                               generally
perform any other act necessary to enable it to carry out its obligations under
this Agreement and the Trust Agreement.


 


The Manager agrees to give notice to the Trust:


 


(a)                                  of any legal or
contractual restrictions on the ability of the Trust to trade in any specific
security or securities generally, including securities deposited in its account
by the Manager, on behalf of the Trust, as Trust Property; or


 


(b)                                 of any issuer of
which the Trust is an insider, unless the Investment Policy precludes
transactions in securities of such an issuer.


 


5.             Records


 


The Manager shall keep at all times proper books of
account and records relating to the services performed hereunder, which books
of account and records shall be accessible for inspection by the Trust at any
time during normal business hours.


 


6.             Information, Statements and Reports


 


The Manager shall provide the Trust with periodic
statements describing the Trust Property, and transactions involving the Trust
Property, as follows:


 


(a)                                  at the end of
each month in which a transaction has been effected in respect of the Trust
Property; or


 


(b)                                 at the end of
each calendar quarter if no transaction has been effected with respect to the
Trust Property.


 


The Manager shall provide the Trust with notice of any change in the
primary portfolio manager(s) who are responsible for the day-to-day
investment management decisions made on behalf of the Trust Property as set out
in Schedule “A” attached hereto.  The
Manager shall also provide the Trust with notice of any action, inquiry or
proceeding involving the Manager which is initiated by a Securities Authority
having jurisdiction over the Manager’s investment management operations, unless
such action, inquiry or proceeding is initiated in conjunction with
correspondence and applications made in the ordinary course of maintaining such
registrations in good standing and such action, inquiry or proceeding does not
have an adverse material effect on the Trust, including the Manager’s ability
to act as discretionary investment manager to the Trust Property.


 


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7.             Custody of Trust Property


 


It is agreed that the
Manager, on behalf of the Trust, shall be entitled to make arrangements for the
Trust Property, or any part thereof, to be held by such custodian(s) as
the Manager may designate; in such event, the Manager agrees to provide the
Trust with a copy of any authorization to such custodian(s) regarding
acceptance of instructions from the Manager or the Trust and the Trust agrees
not to withdraw any of the Trust Property so held without notice to the
Manager.


 


Subject to the foregoing paragraph, the Trust and the Manager agree
that the Gold Bullion will be held by the Gold Custodian appointed by the
Manager, on behalf of the Trust, and the Trust Property other than the Gold
Bullion will be held by the Custodian appointed by the Manager, on behalf of
the Trust.


 


8.             Fees and Expenses


 


In consideration for the management, administrative and investment
management services rendered by the Manager pursuant to this Agreement and the
Trust Agreement, the Manager shall receive from the Trust a monthly management
fee (the “Management Fee”) set out in Schedule “B”
attached hereto, as such may be amended from time to time.


 


In addition to the Management Fee paid to the Manager pursuant to the
foregoing paragraph, the Trust shall reimburse the Manager for all expenses
incurred by the Manager in connection with the duties set out in Section 4
hereof (including payments to third parties in that regard) to the extent such
expenses were incurred for and on behalf of the Trust and do not represent
administrative costs of the Manager necessary for it to carry out its functions
hereunder.  Such expenses shall be
reimbursed on each Valuation Date when incurred.


 


The Management Fee payable to the Manager by the Trust shall be subject
to the following:


 


(a)                       If
the expenses of the Trust, including the Management Fee, at the end of any
month exceed an amount equal to 1/12 of 0.65% of the Net Asset Value of the
Trust (the “Expense Cap”), the Management Fee
payable to the Manager for such month will be reduced by the amount of such
excess up to the gross amount of the Management Fee earned by the Manager from
the Trust for such month.  Any such
reduction in the Management Fee will not be carried forward or payable to the
Manager in future months.


 


(b)                      In calculating the expenses
of the Trust for purposes of the Expense Cap, the following items will be
excluded:  any applicable taxes payable
by the Trust or to which the Trust may be subject including federal and
provincial income taxes, goods and services taxes and withholding taxes, and
any extraordinary expenses of the Trust.


 


The expenses of the Trust’s initial public offering of Units and the
on-going operating expenses of the Trust, and the responsibility for the
payment thereof, are as set out in the Trust Agreement.


 


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9.             Compensation for Additional Services


 


If and to the extent that the Manager shall render
services to the Trust other than those required to be rendered pursuant to the
provisions of this Agreement, such additional services and activities will be
compensated for separately and shall be on such terms that are generally no
less favourable to the Trust than those available from arm’s length parties
(within the meaning of the Tax Act) for comparable services.


 


10.           Other Activities of the
Manager


 


The Trust acknowledges that
the Manager has investment management responsibilities and contracts with other
persons, companies, limited partnerships, investment funds and other
entities.  The Trust therefore agrees
that the Manager may provide investment management and other services to such
other persons and entities which are similar or different from the services
provided to the Trust by the Manager even though such other persons or entities
may be the same or similar to the Trust. 
The Trust hereby accedes to such advisory arrangement consequences on
the understanding that the Manager will act in good faith and follow a policy
of allocating over a period of time investment opportunities to the Trust on a
basis which is, in the Manager’s reasonable opinion, fair and equitable to the
Trust relative to investment opportunities allocated to other persons or
entities for which the Manager is responsible, and of which the Manager has
knowledge, in which case the Manager shall not be liable to account to the
Trust for any profit, commission or remuneration made or received from or by
reason of such investment decisions or advice.


 


The Manager, on behalf of the Trust, may from time to time invest the
Trust Property in securities of an issuer in which the Manager or any
affiliate, or any director, partner, officer, shareholder and/or employee of
either has an interest or is an officer, a partner or a director, as set out
under the sub-heading “Conflicts of Interest” in Schedule “C” attached hereto.


 


11.           Authority to Enter into Agreement


 


Each of the parties
to this Agreement hereby represents and warrants to the other that it is duly
authorized and empowered to execute, deliver and perform this Agreement and
that such action does not conflict with or violate any provision of law, regulation,
policy, contract, deed of trust or other instrument to which it is a party or
by which it is bound and that this Agreement constitutes a valid and binding
obligation of it enforceable in accordance with its terms.


 


The
Trust shall provide to the Manager concurrently with the execution and delivery
by the Trust of this Agreement all such evidence of authority to act including,
without limitation, designations of authorized persons and certified copies of
the Trust Agreement and other documents, as the Manager may require.  The Manager may continue to rely on all such
evidence until notice to the contrary given hereunder has been received by it.


 


12.           Representations and
Warranties of the Manager


 


The Manager hereby represents and warrants to
the Trust that:


 


(a)                                  the
Manager is registered under the securities legislation in British Columbia,
Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and
Newfoundland and Labrador as an adviser in the category of portfolio manager
and in Ontario as a dealer in the category of exempt market dealer; and


 


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(b)                                 the
Manager has obtained, completed, executed, filed, received and passed, as the
case may be, all registrations, filings, approvals, authorizations, consents
and/or examinations required under applicable Securities Legislation or by any
Securities Authority by reason of its activities as Manager hereunder and it
shall maintain such registrations, filings, authorizations and consents
throughout the term of this Agreement.


 


13.           Standard of Care


 


The
Manager shall exercise the powers granted and discharge its duties hereunder
honestly, in good faith and in the best interests of the Trust and, in
connection therewith, shall exercise the degree of care, diligence and skill
that a reasonably prudent professional manager would exercise in comparable
circumstances.  However, it is agreed
that the Manager does not in any way guarantee the performance of the Trust
Property and shall not be responsible for any loss in respect of the Trust
Property, except where such loss arises out of acts or omissions of the Manager
done or suffered in breach of its standard of care or through the Manager’s own
negligence, wilful
misconduct, wilful
neglect, default, bad faith or dishonesty or a material failure in complying
with Applicable Laws or the provisions set forth in this Agreement or the Trust
Agreement.


 


14.           Liability of the Manager


 


The Manager shall
not be liable to the Trust or any unitholder thereof for any loss suffered by
the Trust or any unitholder thereof, as the case may be, which arises out of
any action or inaction of the Manager if such course of conduct did not
constitute a breach of its standard of care or negligence, wilful misconduct,
wilful neglect, default, bad faith or dishonesty or a material failure in
complying with Applicable Laws or the provisions set forth in this Agreement or
the Trust Agreement, and if the Manager, in good faith, determined that such
course of conduct was in the best interests of the Trust.


 


The Trust acknowledges and agrees that the Manager shall not be
responsible for any loss of opportunity whereby the value of any of the Trust
Property could have been increased nor shall it be responsible for any decline
in value of any of the Trust Property unless such decline is the result of the
Manager’s breach of its standard of care or negligence, wilful misconduct,
wilful neglect, default, bad faith or dishonesty or a material failure in
complying with Applicable Laws or the provisions set forth in this Agreement or
the Trust Agreement.


 


The Trust acknowledges and agrees that the Manager shall not be
responsible for any losses or damages to the Trust arising out of any action or
inaction by the Gold Custodian, the Custodian or any sub-custodian holding the
Trust Property, unless such action or inaction arises out of or is the result
of the Manager’s breach of its standard of care or negligence, wilful
misconduct, wilful neglect, default, bad faith or dishonesty or a material
failure in complying with Applicable Laws or the provisions set forth in this
Agreement or the Trust Agreement.


 


The Manager may
rely and act upon any statement, report or opinion prepared by or any advice
received from auditors, solicitors, notaries or other professional advisors of
the Manager and shall not be responsible or held liable for any loss or damage
resulting from relying or acting thereon if the advice was within the area of
professional competence of the person from whom it was received and the Manager
acted reasonably and in good faith in relying thereon.


 


The Manager hereby acknowledges and agrees that the
obligations of the Trust hereunder are not personally binding upon the
unitholders of the Trust, any annuitant under a plan of which 


 


10

















 


a unitholder of the Trust acts as a trustee or carrier, or the agents
of the Trust and that the Manager shall not resort to or seek redress, recourse
or satisfaction from the private property of any of the foregoing, whether the
liability be based on contract, tort or otherwise.  The Manager agrees that only the Trust and
the Trust Property shall be bound by and subject to the obligations and
liabilities arising out of this Agreement.


 


15.           Indemnity


 


The
Trust shall indemnify and hold harmless the Manager and its partners, officers,
agents and employees from and against any and all expenses, losses, damages,
liabilities, demands, charges, costs and claims of any kind or nature
whatsoever (including legal fees, judgments and amounts paid in settlement,
provided that the Trust has approved such settlement in accordance with the
Trust Agreement) in respect of the acts, omissions, transactions, duties,
obligations or responsibilities of the Manager as manager to the Trust, save
and except where such expenses, losses, damages, liabilities, demands, charges,
costs or claims are caused by acts or omissions of the Manager done or suffered
in breach of its standard of care or through the Manager’s own negligence,
wilful misconduct, wilful neglect, default, bad faith or dishonesty or a
material failure in complying with Applicable Laws or the provisions set forth
in this Agreement or the Trust Agreement.


 


16.           Not Partners or Joint
Venturers


 


The Trust and the Manager are not partners or joint venturers with each
other and nothing herein shall be construed so as to make them partners or
joint venturers or impose any liability as such on either of them; provided,
however, that nothing herein shall be construed so as to prohibit the Trust and
the Manager or its affiliates from embarking upon an investment together as
partners, joint venturers or in any other manner whatsoever, subject to
Applicable Law.


 


17.           Term


 


This Agreement shall
become effective on the date hereof and shall be in force until ·, 2014  and shall be automatically
renewed from time to time thereafter for additional terms of one year unless
otherwise terminated pursuant to Section 18 hereof.


 


18.           Termination


 


This Agreement shall continue in full force and
effect until this Agreement is terminated by either party giving at least 90
days’ prior written notice (or such shorter period as the parties in writing may
mutually agree upon) to the other party of such termination.


 


The Trust may terminate immediately this Agreement if the Manager is,
in the opinion of the Trustee, in material default of its obligations under
this Agreement or the Trust Agreement and such default continues for 120 days
from the date that the Manager receives notice of such default from the Trustee
and no successor manager has been appointed by the unitholders of the Trust
pursuant to the Trust Agreement.


 


In addition, the Trust may terminate immediately this Agreement where
the Manager (i) has been declared bankrupt or insolvent or has entered into liquidation
or winding-up, whether compulsory or voluntary (and not merely a voluntary
liquidation for the purposes of amalgamation or reconstruction); (ii) makes a
general assignment for the benefit of its creditors or otherwise acknowledges
its insolvency; or (iii) the assets of the Manager have become subject to
seizure or confiscation by any public or governmental authority.


 


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Such termination of the Agreement will be without prejudice to the
rights and liabilities created under this Agreement prior to the effective date
of the termination.  Termination of this
Agreement in accordance with the terms hereof shall not result in any penalty
or other fee.


 


The parties acknowledge and agree that any change of the Manager (other
than to its affiliate) requires the approval of the unitholders of the Trust
and the approval of Securities Authorities in accordance with applicable
Securities Legislation.


 


Upon termination or assignment of this Agreement, the Manager shall
forthwith deliver to the Trust, in the case of termination, or to the assignee,
in the case of an assignment:


 


(a)                                  all
records, documents and books of account of the Trust; and


 


(b)                                 all
materials and supplies of the Trust,


 


which are in the
possession or control of the Manager and relate directly or indirectly to the
performance by the Manager of its obligations under this Agreement; provided,
however, that the Manager may retain notarial or other copies of such records,
documents and books of account and the Trust or the assignee shall produce at
its head office the originals of such records, documents and books of account
whenever reasonably required to do so by the Manager for the purpose of legal
proceedings or dealings with any governmental authorities.


 


Notwithstanding the foregoing paragraphs, the Trust reserves the right
to make a partial withdrawal from the Trust Property by providing prior written
notice to the Manager.


 


With respect to any transactions entered into by the Manager on behalf
of the Trust prior to giving or receiving notice of termination or partial
withdrawal, such transactions shall not be affected by such termination or
partial withdrawal and adequate provisions will be made for proper settlement
of outstanding commitments and the orderly transfer of the Trust Property.


 


19.                                 Conflict of
Interest Policy


 


Attached as Schedule “C” hereto is a copy of the Manager’s Statement of
Policies, which policy may be amended or restated from time to time.


 


20.                                 Confidentiality
and Anti-Money Laundering Legislation


 


The Manager shall treat as confidential all information pertaining to
the Trust including, without limitation, the financial affairs of the Trust,
and the Manager shall not disclose such confidential information to persons who
are not involved in the management and operation of the Trust, except with the
Trust’s consent or as may be necessary to comply with Applicable Laws or rules,
regulations and policies of Securities Authorities.  The Trust will treat all investment advice
and information which it receives from the Manager as confidential and for the
exclusive use of the Trust.


 


With respect to any prospective investor or unitholder
in the Trust, the Manager shall comply with Applicable Laws aimed at the
prevention of money laundering and terrorist financing.  If, as a result of any information or other
matter coming to the attention of the Manager, or any of its directors,
partners, officers, employees, or its professional advisors, the 


 


12

















 


Manager
knows or suspects that a
prospective investor or unitholder of the Trust is engaged in money laundering
or terrorist financing, the Manager shall be required to report such
information or other matter to the Financial Transactions and Reports Analysis
Centre of Canada and such report or any other report required by Applicable
Laws shall not be treated as a breach of any restriction upon the disclosure of
information imposed by Canadian law or otherwise.


 


21.                                 Notices


 


Any notice or
other communication required or permitted to be given hereunder shall be in
writing and if delivered, shall be delivered to a responsible officer of the
Trust or to the Manager, as the case may be, and if mailed shall be mailed by
prepaid registered mail:


 


(a)                                  in
the case of the Trust:


 


c/o RBC Dexia Investor Services Trust


155 Wellington Street West,
5th Floor


RBC Centre


Toronto, Ontario


M5V 3L3


 


Attention:                           Head
of Funds


 


Telephone:                      (416)
974-5273


Facsimile:                          (416)
955-1240


 


(b)                                 in
the case of the Manager:


 


Sprott Asset Management LP


Royal Bank Plaza, South Tower


200 Bay Street


Suite 2700, P.O. Box 27


Toronto, Ontario


M5J 2J1


 


Attention:                           Kirstin
McTaggart, Chief Compliance Officer


 


Telephone:                      (416)
943-4065


Facsimile:                          (416)
943-6497


 


or at such other address and
number as the party to whom such communication is to be given shall have last
notified the party giving the same in the manner provided in this section.


 


Any
notice so mailed shall be deemed to have been given and received at the time of
delivery.  Any notice so mailed shall be
deemed to have been given and received if given by the Trust, when received by
the Manager, and if given by the Manager, on the third Business Day following
such mailing, except in the event of interruption of normal postal service, in
which event it shall be deemed given when received by the Trust.  Either party may from time to time upon
written notice to the other party change their or its address.


 


13

















 


22.                                 Headings


 


The
inclusion of section headings in this Agreement is for convenience of reference
only and shall not affect the construction or interpretation hereof.


 


23.                                 Governing Law


 


This
Agreement shall be governed by, and construed in accordance with, the laws of
the Province of Ontario and the federal laws of Canada applicable therein and
shall be treated in all respects as an Ontario contract.  The parties hereto hereby attorn to the
jurisdiction of the courts of Ontario for arbitration of any disputes between
them with respect to the subject matter hereof.


 


24.                                 Entire Agreement


 


This
Agreement, including the Schedules attached hereto, and the Trust Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes and replaces all prior understandings, agreements,
negotiations or discussions, whether written or oral, between the parties with
respect thereto.  There are no
representations, warranties, terms, conditions, undertakings or collateral
agreements or understanding, express or implied, between the parties other than
those expressly set forth in this Agreement and the Trust Agreement.


 


25.                                 Further Acts


 


Each of the Trust and
the Manager shall promptly do, make, execute or deliver, or cause to be done,
made, executed or delivered, all such further acts, documents and things as the
other party hereto may reasonably require from time to time for the purpose of
giving effect to this Agreement.


 


26.                                 Invalidity of
Provisions


 


Each
of the provisions contained in this Agreement is distinct and severable and a
declaration of invalidity or unenforceability of any such provision or part
thereof by a court of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof. 
To the extent permitted by Applicable Law, the parties waive any
provision of law which renders any provision of this Agreement invalid or
unenforceable in any respect.


 


27.                                 Amendment


 


This Agreement may not
be amended, changed, supplemented or otherwise modified in any respect except
by written instrument executed by the parties hereto or their respective
successors or permitted assigns.


 


28.                                 Assignment


 


This Agreement shall not be assigned by the
Trust without the prior written consent of the Manager.  Upon notice to the Trust, the Manager may
transfer or assign any and all rights granted hereunder to any of its
successors or affiliates.


 


14

















 


29.                                 Successors


 


This
Agreement shall enure to the benefit of, and be binding upon, the parties
hereto and their respective successors and permitted assigns.


 


30.                                 Counterparts


 


This Agreement may be executed in several
counterparts, each of which when so executed shall be deemed to be an original
and such counterparts together shall constitute one and the same instrument.


 


[The remainder of this page has been intentionally left blank.]


 


15

















 


IN WITNESS WHEREOF the
Trust and the Manager, by proper officers duly authorized on their behalf, have
executed this Agreement as of the date first above written.


 


 


	
   

  	
  SPROTT PHYSICAL GOLD TRUST, by its Trustee, RBC DEXIA INVESTOR
  SERVICES TRUST

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  We have the authority to bind the Trust.

  
	
   

  	
   

  
	
   

  	
  SPROTT ASSET MANAGEMENT LP, by its general partner, SPROTT ASSET MANAGEMENT
  GP INC., in its capacity as the Manager of the Trust

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Eric S. Sprott

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Kirstin H. McTaggart

  
	
   

  	
   

  	
  Corporate Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
  We have the authority to bind the Manager.

  



 


16

















 


SCHEDULE “A”


 


INVESTMENT POLICY


 


Investment Objective


 


The Trust was
created to invest and hold substantially all of its assets in Gold Bullion. The
Trust seeks to provide a secure, convenient and exchange-traded investment
alternative for investors interested in holding Gold Bullion without the
inconvenience that is typical of a direct investment in Gold Bullion.  The Trust does not anticipate making regular
cash distributions to unitholders.


 


Investment Strategy


 


The Trust intends to achieve its objective by investing primarily in
long-term holdings of unencumbered, fully allocated, Gold Bullion and will not
speculate with regard to short-term changes in gold prices.


 


Investment and Operating Restrictions


 


The investment activities of the Trust are intended to be conducted in
accordance with, among other things, the following investment and operating
restrictions, and they provide that the Trust:


 


(a)                       will invest in
and hold a minimum of 90% of the total net assets of the Trust in physical gold
bullion in London Good Delivery bar form and hold no more than 10% of the total
net assets of the Trust, at the discretion of the Manager, in physical gold
bullion (in London Good Delivery bar form or otherwise), gold coins, debt
obligations of or guaranteed by the Government of Canada or a province thereof,
or by the Government of the United States of America or a state thereof,
short-term commercial paper obligations of a corporation or other person whose
short-term commercial paper is rated R-1 (or its equivalent, or higher) by
Dominion Bond Rating Service Limited or its successors or assigns or F1 (or its
equivalent, or higher) by Fitch Ratings or its successors or assigns or A-1 (or
its equivalent, or higher) by Standard & Poor’s or its successors or
assigns or P-1 (or its equivalent, or higher) by Moody’s Investor Service or
its successors or assigns, interest-bearing accounts and short-term
certificates of deposit issued or guaranteed by a Canadian chartered bank or
trust company, money market mutual funds, short-term government debt
or short-term investment grade corporate debt, or other short-term debt
obligations approved by the Manager from time to time (for the purpose of this
paragraph, the term “short-term” means having a date of maturity or call for
payment not more than 182 days from the date on which the investment is made), except
during the 60-day period following the closing of the Trust’s initial public
offering or additional offerings or prior to the distribution of the assets of
the Trust;


 


(b)                      will store all
Gold Bullion owned by the Trust at the Gold Custodian or in the treasury vaults
of a Schedule I Canadian chartered bank or an affiliate or division thereof in
Canada on a fully allocated basis, provided that the Gold Bullion held in
London Good Delivery bar form may be stored with a custodian only if the Gold
Bullion will remain London Good Delivery while with that custodian;


 


(c)                       will not hold
any “taxable Canadian Property” within the meaning of the Tax Act;


 


(d)                      will not
purchase, sell or hold derivatives;


 


(e)                       will not issue
Units following the completion of the Trust’s initial public offering except (i) if
the gross proceeds per Unit to be received by the Trust are not less than 100%
of the most recently


 

















 


calculated Net Asset Value per Unit 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;


 


(f)                         will ensure
that no part of the stored Gold Bullion may be delivered out of safekeeping by
the Gold Custodian or, if the Gold Bullion is held by another custodian, that
custodian, without receipt of an instruction from the Manager in the form
specified by the Gold Custodian or such other custodian indicating the purpose
of the delivery and giving direction with respect to the specific amount;


 


(g)                      will ensure
that no director or officer of the Manager or the Manager’s general partner, or
representative of the Trust or the Manager will be authorized to enter into the
Gold Bullion storage vaults without being accompanied by at least one
representative of the Gold Custodian or, if the Gold Bullion is held by another
custodian, that custodian, as the case may be;


 


(h)                      will ensure
that the Gold Bullion remains unencumbered;


 


(i)                          will inspect or
cause to be inspected the stored Gold Bullion periodically on a spot inspection
basis and, together with a representative of the Trust’s external auditor,
physically audit each bar annually to confirm the bar number;


 


(j)                          will not
guarantee the securities or obligations of any person other than the Manager,
and then only in respect of the activities of the Trust;


 


(k)                       in connection
with requirements of the Tax Act, will not make or hold any investment that
would result in the Trust failing to qualify as a “mutual fund trust” within
the meaning of the Tax Act;


 


(l)                          in connection
with requirements of the Tax Act, will not invest in any security that would be
a tax shelter investment within the meaning of section 143.2 of the Tax Act;


 


(m)                    in connection
with requirements of the Tax Act, will not invest in the securities of any
non-resident corporation, trust or other non-resident entity (or of any
partnership that holds such securities) if the Trust (or the partnership) would
be required to mark its investment in such securities to market in accordance
with the proposed section 94.2 of the Tax Act or to include any significant
amounts in income pursuant to proposed sections 94.1 or 94.3 of the Tax Act or
invest in any non-resident trust other than an “exempt foreign trust” as set
forth in Bill C-10, which was previously before the Canadian Parliament (or
amendments to such proposals or provisions as enacted into the law or successor
provisions thereto);


 


(n)                      in connection
with requirements of the Tax Act, will not invest in any security of an issuer
that would be a foreign affiliate of the Trust for purposes of the Tax Act; and


 


(o)                      in connection
with requirements of the Tax Act, will not carry on any business and make or
hold any investments that would result in the Trust itself being subject to the
tax for specified investment flow-through trusts (SIFT) as provided for in
section 122 of the Tax Act.


 


Primary Portfolio Manager


 


Eric
Sprott is the primary portfolio manager authorized to trade and carry out the
foregoing investment objective and strategy in respect of the Trust Property.


 


A2

















 


SCHEDULE “B”


 


FEES


 


Management Fee


 


As compensation for providing management, administrative and investment
management services to the Trust pursuant to this Agreement and the Trust
Agreement, the Trust shall pay the Manager a monthly Management Fee equal to
1/12 of 0.35% of the Net Asset Value of the Trust (determined in accordance
with the Trust Agreement), plus any applicable federal and provincial
taxes.  The Management Fee shall be calculated
and accrued daily and payable monthly in arrears on the last day of each
month.  The Management Fee payable to the
Manager by the Trust shall be subject to the Expense Cap as set forth in Section 8
of this Agreement.


 














 


SCHEDULE “C”


 





 


SPROTT ASSET MANAGEMENT LP


STATEMENT OF POLICIES


 


IMPORTANT - The securities laws of certain
jurisdictions of Canada require securities dealers and advisers, when they
trade in or advise with respect to their own securities or securities of
certain other issuers to which they, or certain other parties related to them,
are related or connected, to do so only in accordance with particular
disclosure and other rules.  These rules require
dealers and advisers, prior to trading with or advising their customers or
clients, to inform them of the relevant relationships and connections with the
issuer of the securities. Clients and customers should refer to the applicable
provisions of these securities laws for the particulars of these rules and
their rights or consult with a legal advisor.


 


General


 


Sprott Asset Management LP (herein referred
to as “SAM” or “we”)
is registered under the securities laws of British Columbia, Alberta,
Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, and Newfoundland
and Labrador as an adviser in the registration category of portfolio manager
and in Ontario as a dealer in the registration category of exempt market
dealer.


 


Under certain circumstances, SAM may advise
you, deal with or for you in securities transactions where the issuer of the
securities or the other party involved in the transaction is this firm or a
party having an ownership or business relationship with us, including affiliates
of SAM that are registered under securities laws (a “Sprott
Registrant”).


 


Since these transactions may create a
conflict between our interests and yours, we are required by securities laws to
disclose to you certain relevant matters relating to these transactions.  This statement contains a general description
of our policies and the required disclosures.


 


Compliance
with Law and Regulatory Requirements


 


SAM, its officers and employees are required
to fully observe, in letter and spirit, all laws governing their business and
securities activities.  SAM, its officers
and employees must deal fairly, honestly and in good faith with its clients.


 


SAM will only engage in
activities where it is confident that such activities are in compliance with
all requirements imposed by applicable law. 
In particular, it is SAM’s policy to ensure that the engagement of other
Sprott Registrants on behalf of SAM’s clients would only be done when it has
been determined that such other Sprott Registrant is an appropriate selection
in the circumstances.


 

















 


In addition to applicable securities regulatory provisions and
contractual provisions respecting any business arrangements that may exist
between SAM and other dealers and advisers, the directors, officers and
employees of each are subject to guidelines or codes of conduct governing their
actions.  Our internal compliance process
supplements these policies and procedures.


 


Related
and Connected Issuers


 


National Instrument 31-103 Registration Requirements and Exemptions requires SAM to
disclose to investors whether any securities it recommends to investors to buy,
sell or hold are securities issued by SAM, a related issuer or, during the
distribution of the securities, a connected issuer of SAM.  An issuer is related to SAM if, through the
ownership of, or control over, voting securities or otherwise, the issuer is an
influential securityholder of SAM, SAM is an influential securityholder of the
issuer or if each of them is a related issuer of the same third party.  An issuer is connected to SAM if it has a
business relationship with SAM that, in connection with a distribution of
securities of that issuer, may lead a reasonable prospective purchaser to
question if the issuer and SAM are independent of each other.


 


In addition, SAM must disclose the name of
any related issuer that is a reporting issuer in Ontario or that has
distributed securities outside Ontario on a basis that, if it had done so in
Ontario, would have made such issuer a reporting issuer.  Set out below are the names of such related
issuers:


 


·                  Sprott Inc. (“SI”),
a reporting issuer that is a related issuer of SAM because SI is an indirect
100% shareholder of Sprott Asset Management GP Inc., the general partner of
SAM, and is the sole limited partner of SAM.


 


·                  Sprott Resource Corp. (“SRC”),
a reporting issuer that is a related issuer of SAM because the professional
group (as such term is defined under National Instrument 33-105 Underwriting Conflicts) of SAM exercises control or
direction over, or beneficially owns, directly or indirectly, 10% or more of
the voting securities of SRC, and SAM has officers, directors or employees who
constitute at least 20% of the directors of SRC.  In addition, an affiliate of SAM has entered
into an agreement to provide management services to SRC.


 


We may, from time to time, be deemed to be
related or connected to one or more other issuers for purposes of the
disclosure and other rules of the securities laws referred to above.  We are prepared to act as an adviser and
dealer in the ordinary course of our business to, and in respect of securities
of, any such related or connected issuer and, in connection therewith to
provide the full range of services customarily provided by us to, and in
respect of securities of, other issuers.  In any such case, such adviser or dealer and
other services shall be carried on by us in the ordinary course of our business
as an adviser or dealer in accordance with our usual practices and procedures
and in accordance with all applicable disclosure and other regulatory
requirements.


 


SAM, or its directors,
officers, partners, salespeople or other employees may, from time to time,
recommend that you trade in, or provide to you advice about, a security issued
by these listed persons or companies.  If
you wish further information concerning the relationship between SAM and these
listed persons or companies, or if you have any questions, please contact us.


 


Related Registrants


 


Where SAM has a principal
shareholder, director or officer that is a principal shareholder, director or
officer of another registrant, SAM shall adopt policies and procedures to
minimize the potential for conflict of interest resulting from such
relationship(s).  SAM is also required to
disclose to clients in writing, initially before making a trade for or
providing advice to the client, and in a timely manner 


 


C2

















 


thereafter and, if possible,
before making the next trade for or providing advice to the client, if there
are any significant changes to this disclosure, the details of the relationship(s) and
the policies and procedures adopted to minimize the potential for conflicts of
interest resulting from such relationships. 
Sprott Private  Wealth LP
(“SPW”), a registrant, is related to SAM,
by virtue of each of SAM and SPW having SI as a direct or indirect holder of
100% of the voting securities of each general partner of SAM and SPW.


 


Conflicts of Interest


 


SAM as Adviser and Dealer


 


The principal business
activity of SAM is to act as a portfolio manager for separately managed
investment accounts of its clients (a “SAM Managed Account”)
and investment funds it manages (a “SAM Investment Fund”).  SAM’s activities as a dealer are primarily
the marketing of SAM Investment Funds to clients of SAM or to investment
dealers or mutual fund dealers.  In
providing trading and advisory services to our clients it is important that our
clients understand our interests in the service or transaction.


 


We must make certain
disclosures where we (a) act as your dealer/broker; (b) advise
you; or (c) exercise discretion on your behalf, with respect to securities
issued by us, by a related issuer or, in the course of a distribution, by a
connected issuer (collectively, “Related Securities”).


 


In these situations, we must
disclose our relationship with the issuer of the securities.  We must also make disclosure to you where we
know or should know that, as a result of our acting as your dealer/broker or
adviser, or of our exercising discretion on your behalf, Related Securities
will be purchased or sold by you through us.


 


The following is a list of the time and
manner in which these disclosures must be made:


 


·                               Where
we purchase or sell securities for your account, the required disclosure will
be contained in the confirmation of trade and monthly statement, which we
prepare and send to you.


 


·                               Where
we advise you with respect to the purchase, sale or holding of securities, the
disclosure must be made prior to our giving the advice.


 


·                               If
there is a significant change to the information previously disclosed to you,
SAM will notify you of the change in a timely manner and, if possible, before
making the next purchase or sale of the securities for you or providing advice
to you to purchase, sell or hold the securities.


 


·                               Where
we use our discretion as an adviser to trade securities in a SAM Managed
Account neither we nor another Sprott Registrant will charge a trade commission
without your consent, or otherwise in compliance with applicable law.


 


·                               Where we exercise
discretion over a SAM Managed Account, SAM will refrain from causing you to
purchase Related Securities unless, to the extent required by law, prior to
exercising discretionary authority and at least once within each twelve-month
period thereafter, SAM provides you with a copy of this Statement of Policies
and secures your specific and informed written consent to allow SAM to exercise
its discretion to acquire the Related Securities on your behalf.


 


Potential for Conflict


 


To the extent that one Sprott Registrant
determines it to be in the interests of its clients to engage the services of,
or invest in financial products offered by, another Sprott Registrant, it could
be subject to a 


 


C3

















 


potential conflict of interest, given its
indirect relationship with the other Sprott Registrants.  SAM and its officers and employees must
ensure that if they select another Sprott Registrant to assist a SAM client it
is based on the determination that such other Sprott Registrant is an
appropriate selection having regard to the client’s circumstances.


 


Representatives of SAM and other Sprott
Registrants may from time to time act as officers of SAM and may also be
officers of other Sprott Registrants. All Sprott Registrants have adopted
policies and procedures that minimize the potential for conflicts of interest
resulting from the relationships of the officers and the Sprott Registrants,
and all officers are required to observe such policies in carrying out their
duties.


 


There will be three individuals who will be
dually licensed with both SPW and SAM, namely:


 


	
  Name

  	
   

  	
  Position at SPW

  	
   

  	
  Position at SAM

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eric
  S. Sprott

  	
   

  	
  Chief
  Executive Officer and Ultimate Designated Person

  	
   

  	
  Chief
  Executive Officer, Senior Portfolio Manager and Ultimate Designated Person

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  James
  R. Fox

  	
   

  	
  Vice-President,
  Sales and Marketing

  	
   

  	
  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Kirstin
  H. McTaggart

  	
   

  	
  Chief
  Compliance Officer and Alternate Designated Person

  	
   

  	
  Chief
  Compliance Officer and Operations

  



 


SAM and SPW propose to manage potential
conflicts associated with the dual registration of the individuals in the
following manner:


 


·                               Each
dually registered individual will have sufficient time in their work week to
fully and properly discharge their responsibilities at SPW and SAM.


 


·                               In
order to protect client confidentiality, each dually registered individual
shall be prohibited from disclosing any confidential client information to any
person other than the staff of the relevant entity or for the purpose of
performing the relevant services for the client.


 


Fair Allocation of Investment Opportunities and
Fair Treatment of SAM Investment Funds and SAM Managed Accounts


 


We must ensure the fair treatment of our
clients through the highest standards of integrity and ethical business conduct.  The principle of fair treatment must be
recognized by all employees, officers and directors of SAM in order to provide
a true benefit to our clients.  Our
clients have the right to be assured that their interests will always take
precedence over the personal trading activities of SAM portfolio managers and
other SAM access persons.


 


Fairness Policy


 


In order to ensure fairness in the allocation
of investment opportunities among the SAM Managed Accounts and the SAM
Investment Funds (each a “SAM Client”),
SAM will allocate investment opportunities with consideration to the
suitability of such investments to each SAM Client’s investment objectives and
strategies, portfolio composition, restrictions and cash availability (even
though the investment objectives and strategies are substantially the same for
some of the SAM Clients and cash flows of each SAM Client can be substantially
different given daily/monthly subscriptions and 


 


C4

















 


redemptions/withdrawals).  As well, cash flows (subscription inflows and
redemptions/withdrawals) and investment strategies can influence the allocation
process in order to maintain property weightings in each SAM Client account.  If an investment opportunity is suitable for
more than one SAM Client, SAM will allocate such investment opportunities
equitably in order to ensure that each SAM Client has equal access to the same
quality and quantity of investment opportunities.


 


To ensure fairness in the allocation of investment opportunities as
between each SAM Client, SAM will ensure:


 


(a)                       where orders are entered
simultaneously for execution at the same price, fills are allocated on a pro rata basis;


 


(b)                      when transactions are
executed at different prices for a group of SAM Clients, fills are allocated on
an average price basis;


 


(c)                       in the case of a block trade
or a new or secondary securities issue, if all SAM Client orders can be
accommodated (demand is smaller than supply), allocation is made on a pro rata basis based on the order size of each SAM
Client.  Where the allotment received is
insufficient to meet the full requirements of all SAM Clients on whose behalf
orders have been placed (demand exceeds supply), allocation is made on a pro rata basis based on the size of the SAM Client account
or the existing position size in a SAM Client account.  However, if such prorating should result in
an inappropriately small position for a SAM Client, the allotment would be
reallocated to another SAM Client. 
Depending on the number of block trades or new or secondary issues, over
a period of time, every effort will be made to ensure that these prorating and
reallocation policies result in fair and equal treatment to all SAM Clients,
and


 


(d)                      when orders for more than
one SAM Client are bunched or blocked and the transactions are executed at
varying prices, an average price will be determined and allocated to each SAM
Client on a pro rata basis.  As well, all commissions will be totalled and
allocated to all SAM Clients on a pro rata
basis.  If different prices and
commissions are executed, then an average price as well as total average
commission will be calculated and allocated on a pro rata
basis.  For a normal secondary purchase
order executed through a broker, the average price and commission will be
calculated and allocated evenly among our SAM Clients.  There will be no differentiation on price
towards our SAM Clients.


 


In addition, SAM will always seek to obtain
the best order execution for each SAM Client and to minimize transaction costs.  SAM employee trading accounts (i.e. “PRO”
accounts), retail and inventory trades are never commingled with trades
involving SAM Investment Funds.


 


Proxy Voting Guidelines


 


SAM, in its capacity as
portfolio adviser to the SAM Clients, is sometimes responsible for
establishing, monitoring and amending (if necessary) the policies and
procedures relating to the voting of proxies received in connection with each
SAM Client’s investment portfolio.


 


Generally speaking, SAM will vote in favour
of the following proxy proposals:


 


	
  ·      electing and
  fixing number of directors

  	
   

  	
  ·      authorizing
  directors to fix remuneration of auditors

  
	
   

  	
   

  	
   

  
	
  ·      appointing
  auditors

  	
   

  	
  ·      approving
  private placements exceeding 25% 

  



 


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  threshold

  
	
   

  	
   

  	
   

  
	
  ·      ratifying
  director actions

  	
   

  	
  ·      approving
  private placements to insiders exceeding 10% threshold

  
	
   

  	
   

  	
   

  
	
  ·      changing
  registered address

  	
   

  	
  ·      approving
  special resolutions to change the authorized capital of the company to an
  unlimited number of common shares without par value

  



 


SAM will vote against any proposal relating
to stock option plans that: (i) exceed 5% of the common shares issued and
outstanding at the time of grant over a three year period (on a non-diluted
basis); (ii) provide that the maximum number of common shares issuable
pursuant to such plan be a “rolling” maximum equal to 5% of the outstanding
common shares at the date of the grant of applicable options; and (iii) reprices
the stock option.


 


In certain cases, proxy votes may not be cast
when the portfolio adviser determines that it is not in the best interests of
the SAM Client to vote such proxies.  In
the event a proxy raises a potential material conflict of interest between the
interests of a SAM Client and SAM, the conflict will be resolved by SAM in
favour of that SAM Client.


 


SAM retains the discretion to depart from
these polices on any particular proxy vote depending upon the facts and
circumstances.


 


The proxy voting guidelines of SAM are
available on request, free of charge, by contacting SAM at 1-866-299-9906.  SAM will maintain and prepare an annual proxy
voting record for each SAM Investment Fund. 
The proxy voting record for the annual period beginning July 1 for
each SAM Investment Fund will be available free of charge to any investor upon
request at any time after June 30 of the following year.


 


Misuse of Confidential and Insider Information


 


The misuse of confidential information or
misuse of any insider information not generally disclosed, for personal gain or
for the benefit of anyone else, is prohibited and grounds for serious sanction.


 


Confidentiality and Privacy


 


In addition, SAM has adopted a privacy policy
in accordance with the Personal Information
Protection and Electronic Documents Act (Canada) with respect to
personal information of SAM Clients. 
This policy states that SAM will only disclose this information to third
parties or its affiliates in limited specific circumstances on a strictly
confidential basis.


 


Money Laundering and
Terrorist Financing


 


As outlined by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act,
SAM is obligated to implement specific measures to detect and deter money
laundering and the financing of terrorist activity.  As such, all investments into our SAM Managed
Accounts and SAM Investment Funds require completed documentation to be
submitted by investors.  It is our duty
to report to the Financial Transactions and Reports Analysis Centre of Canada
confirmation of any investors engaged in money laundering.  This reporting requirement will not be deemed
to be a breach of any information disclosure restrictions imposed by applicable
law or otherwise.


 


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Please do not hesitate to contact us should you have any questions with
regards to SAM’s Statement of Policies or should you require further details on
any SAM policies and practices.


 


Revised
October 2009.


 


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