Exhibit 10.2


 


MANAGEMENT
AGREEMENT


 


THIS AGREEMENT made and entered into as of the · day of ·, 2010


 


B E T W E E N:


 


SPROTT PHYSICAL SILVER
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 June 30,
2010 (the “Trust Agreement”);


 


AND WHEREAS the Trust was created to invest and hold substantially all of its assets
in physical silver 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 silver bullion without the
inconvenience that is typical of a direct investment in physical silver
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 is open for trading;


 


(d)           “Custodian”  means the Trustee, acting as the custodian of the
Trust Property other than the Silver 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 Silver 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)            “Investment Policy”
shall have the meaning set forth in Section 3 hereof;


 


(g)           “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 


 


2

















 


settlement against
transactions between each other and other acceptable counterparts, which is
referred to as the LBMA Good Delivery List;


 


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


 


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


 


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


 


(k)           “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;


 


(l)            “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;


 


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


 


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


 


(o)           “Storage Agreement”
means the silver storage agreement
between the Manager, on behalf of the Trust, and the Silver Custodian dated as
of ·, as the same may be
amended, restated or supplemented from time to time;


 


(p)           “Sub-Custodian”
means The Brink’s Company, acting through its Canadian subsidiary, Brink’s
Canada Limited, as the sub-custodian of the Silver Bullion, appointed by the
Silver Custodian pursuant to a written custodial agreement between the Silver
Custodian and the Sub-Custodian;


 


(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 Silver 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 June 30, 2010, as the
same may be 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)           Silver 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 Silver 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 Silver 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 Silver 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 Silver 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 Silver Bullion, at the best available prices
available over a prudent period of time;


 


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


 


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


 


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


 


(i)            monitor relationships with the Silver Custodian and
any other custodian that has been appointed by the Trust to hold and store the
Silver 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 


 


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meetings of securityholders or executing
proxies or other instruments on behalf 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 Silver Bullion will be held
by the Silver Custodian appointed by the Manager, on behalf of the Trust, and
the Trust Property other than the Silver 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 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.


 


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 


 


8

















 


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


 


(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 


 


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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 Silver Custodian, the
Custodian or any sub-custodian, including the 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 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


 


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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
·, 2015  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
upon which the parties may mutually agree in writing) 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 (i) the Manager 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) the
Manager 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.


 


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,


 


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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 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:


 


12

















 


(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.


 


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.


 


13

















 


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.


 


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.]


 


14

















 


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 SILVER 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:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  We
  have the authority to bind the Manager.

  



 


15

















 


SCHEDULE “A”


 


INVESTMENT
POLICY


 


Investment Objective


 


The Trust was created to invest and hold
substantially all of its assets in Silver Bullion. The Trust seeks to provide a
secure, convenient and exchange-traded investment alternative for investors
interested in holding Silver Bullion without the inconvenience that is typical
of a direct investment in Silver 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,
Silver Bullion and will not speculate with regard to short-term changes in
silver 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 silver 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 silver
bullion (in London Good Delivery bar form or otherwise), 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 DBRS 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 Silver
Bullion owned by the Trust at the Silver Custodian (including at a facility
located in Canada leased by the Silver Custodian for this purpose) 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 Silver
Bullion held in London Good Delivery bar form may be stored with a custodian
only if the Silver 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 net 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 Silver Bullion may be delivered out of safekeeping by the Silver
Custodian (except to an authorized sub-custodian) or, if the Silver Bullion is
held by another custodian, that custodian, without receipt of an instruction
from the Manager in the form specified by the Silver 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 Silver Bullion
storage vaults without being accompanied by at least one representative of the
Silver Custodian or, if the Silver Bullion is held by another custodian, that
custodian, as the case may be;


 


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


 


(i)         will inspect or cause to be
inspected on an annual basis, the stored Silver Bullion together with a
representative of the Trust’s external auditor, and periodically on a spot
inspection basis;


 


(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 include any significant amount in income under sections 94 or
94.1 of the Tax Act;


 


(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 0.45% 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.


 














 


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

  	
   

  	
  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 


 


C4

















 


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
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.


 


C5

















 


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% 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.


 


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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.


 


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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