Jarislowsky, Fraser Limited

Decision

Headnote

National Policy 11-203 -- Process for Exemptive Relief Applications in Multiple Jurisdictions -- Relief granted from paragraph 13.5(2)(b) of NI 31-103 to permit inter-fund trades between pooled funds and managed accounts -- inter-fund trades will comply with conditions in subsection 6.1(2) of NI 81-107 including IRC approval or client consent -- trades involving exchange-traded securities are permitted to occur at last sale price as defined in the Universal Market Integrity Rules -- relief also subject to pricing and transparency conditions. Exemption also granted from conflict of interest trading prohibition in paragraph 13.5(2)(b) of NI 31-103 to permit in-specie subscriptions and redemptions by separately managed accounts and pooled funds in pooled funds -- Portfolio manager of managed accounts is also portfolio manager of pooled funds and is therefore a "responsible person" -- Relief subject to certain conditions.

Applicable Legislative Provisions

National Instrument 31-103 Registration Requirements and Exemptions, s. 13.5(2)(b)(iii).

National Instrument 81-107 Independent Review Committee for Investment Funds, ss. 6.1(2), 6.1(4).

September 19, 2012

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

QUÉBEC AND ONTARIO

(the "Jurisdictions")

AND

IN THE MATTER OF

THE PROCESS FOR EXEMPTIVE RELIEF

APPLICATIONS IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF

JARISLOWSKY, FRASER LIMITED

(the "Filer" or "JFL")

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions ("Decision Maker") has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") for exemptive relief from the prohibition in section 13.5(2)(b)(iii) of National Instrument 31-103 -- Registration Requirements and Exemptions ("NI 31-103") against an adviser knowingly causing an investment portfolio managed by it (including an investment fund for which it acts as an adviser) to purchase or sell the securities of any issuer from or to the investment portfolio of any investment fund for which a responsible person acts as an adviser, such that the following transactions are permitted:

(i) the purchase and sale of portfolio securities of any issuer (each purchase and sale, an "Inter-Fund Trade"):

(A) between a Pooled Fund (as defined below) and another Pooled Fund or a Managed Account (as defined below); and

(B) between a Managed Account and a Pooled Fund;

(ii) to occur at the last sale price, as defined in the Market Integrity Rules of the Investment Industry Regulatory Organization of Canada, prior to the execution of the trade (the "Last Sale Price") or at the closing sale price (the "Closing Sale Price") contemplated by the definition of current market price referred to in paragraph (e) of section 6.1(2) of National Instrument 81-107Independent Review Committee for Investment Funds ("NI 81-107"), as determined by the Filer in its discretion;

(iii) the purchase and redemption by a Managed Account of units of a Pooled Fund, and the payment:

(A) for such purchase, in whole or in part, by the Managed Account making good delivery of portfolio securities to the Pooled Fund; and

(B) for such redemption, in whole or in part, by the Managed Account receiving good delivery of portfolio securities from the Pooled Fund; and

(iv) the purchase or redemption by a Pooled Fund of units of another Pooled Fund, and the payment:

(A) for such purchase, in whole or in part, by the Pooled Fund making good delivery of portfolio securities to the other Pooled Fund; and

(B) for such redemption, in whole or in part, by the Pooled Fund receiving good delivery of portfolio securities from the other Pooled Fund;

(each purchase and redemption in (iii) and (iv) above is an In Specie Transaction);

((i) to (iv) are collectively the "Exemption Sought").

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):

(a) L'Autorité des marchés financiers is the principal regulator (the "Principal Regulator") for this application;

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-102") is intended to be relied upon in each of the jurisdictions of Canada, other than the provinces of Quebec and Ontario.

(c) the decision is the decision of the Principal Regulator and evidences the decision of each Decision Maker; and

Interpretation

Terms defined in MI 11-102 and National Instrument 14-101 -- Definitions have the same meaning if used in this decision, unless otherwise defined.

Managed Account means an account over which JFL has discretionary authority, other than an account of a Responsible Person.

Pooled Fund means an investment fund created under a Trust Agreement (as defined below) and managed by JFL or managed in the future by JFL, whose units are sold pursuant to prospectus exemptions under applicable securities legislation, to which National Instrument 81-102 -- Mutual Funds does not apply.

Responsible Person has the meaning given to this term in section 13.5(1) of NI 31-103 and includes each officer and director of JFL who has access to, or participates in formulating, an investment decision or advice in respect of an Inter-Fund Trade.

Representations

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

The Filer

1. JFL is a corporation incorporated under the Canada Business Corporations Act. Its head office is in Montréal, Québec.

2. JFL is registered as an investment fund manager and a portfolio manager in every province and territory of Canada.

3. JFL is not in default of securities legislation in any jurisdiction of Canada.

The Pooled Funds

4. Each Pooled Fund is, or will be, constituted as an open-ended mutual fund trust under a trust agreement governed by the Civil Code of Québec.

5. JFL is, or will be, the manager and portfolio advisor of the Pooled Funds.

6. Two Pooled Funds -- the Jarislowsky Special Equity Fund and the Jarislowsky International Pooled Fund -- were established under trust agreements dated March 7, 1995, as amended (respectively, the "Special Equity Trust Agreement" and the "International Pooled Trust Agreement") between Royal Trust Company ("RTC"), as trustee, and JFL, as manager.

7. Three Pooled Funds -- the Jarislowsky, Fraser Balanced Fund, the Jarislowsky, Fraser Equity Fund and the Jarislowsky, Fraser Bond Fund -- were established under a trust agreement dated October 16, 1996, under which RTC served as trustee. The October 16, 1996 agreement was amended and restated on March 31, 1998, as amended (the "Master Trust Agreement"). Subsequent amendments to the Master Trust Agreement established the Jarislowsky, Fraser U.S. Equity Fund and changed the name of the Jarislowsky, Fraser Equity Fund to the Jarislowsky, Fraser Canadian Equity Fund as of October 30, 1998, established the Jarislowsky, Fraser Taxable Balanced Fund as of September 27, 2001, changed the name to the Jarislowsky, Fraser Global Balanced Fund as of December 9, 2002 and established the Jarislowsky, Fraser Global Equity Fund as of September 27, 2005.

8. On December 21, 2005, RTC assigned of all its right, title, benefit and interest in, to and under, the Special Equity Trust Agreement, International Pooled Trust Agreement and Master Trust Agreement (each a "Trust Agreement") to RBC Dexia Investor Services Trust ("RBC Dexia") which assumed the role of trustee and custodian of the Pooled Funds.

9. Seven additional Pooled Funds- , the Jarislowsky, Fraser Currency Neutral U.S. Equity Fund, the Jarislowsky, Fraser Currency Neutral Global Equity Fund, the Jarislowsky, Fraser Currency Neutral International Pooled Fund, the Jarislowsky, Fraser Tax Exempt Global Equity Fund, the Jarislowsky, Fraser Taxable U.S. Equity Fund, the Jarislowsky, Fraser U.S. Money Market Fund and the Jarislowsky, Fraser Money Market Fund -- were established on December 18, 2007 by an amendment to the Master Trust Agreement.

10. The name of the Jarislowsky, Fraser Tax Exempt Global Equity Fund was changed to the Jarislowsky, Fraser Special Bond Fund on August 26, 2009.

The name of the Jarislowsky, Fraser Currency Neutral U.S. Equity Fund was changed to the Jarislowsky, Fraser Dividend Growth Fund on March 30, 2012. The name of the Jarislowsky, Fraser Taxable U.S. Equity Fund was changed to the Jarislowsky, Fraser International Special Equity Fund on May 31, 2011. This last Pooled Fund, as well as the Jarislowsky, Fraser Currency Neutral Global Equity Fund and the Jarislowsky, Fraser Currency Neutral International Pooled Fund, have not and are not currently distributing any units to any third party.

11. RBC Dexia acts as both trustee and custodian to the Pooled Funds, and is not an affiliate of JFL.

12. The Pooled Funds are not, and will not be, reporting issuers in any jurisdiction of Canada.

13. Each Pooled Fund is not in default of securities legislation in any jurisdiction of Canada.

14. Units of the Pooled Funds are, and will be, distributed only to Managed Accounts in every jurisdiction of Canada pursuant to the accredited investor prospectus exemption in every jurisdiction other than Ontario, available under paragraphs (g) and (i) of section 1.1 and section 2.3 of National Instrument 45-106 -- Prospectus and Registration Exemptions ("NI 45-106"). In Ontario, distributions are, and will be, made pursuant to the minimum amount investment ($150,000) prospectus exemption under subsection 2.10 of NI 45-106, unless another type of accredited investor exemption under sections 1.1 and 2.3 other than the managed account exemption is available.

15. JFL, which is the investment fund manager and portfolio manager of the Pooled Funds, avails itself of the dealer registration exemption available under subsection 8.6 of NI 31-103 when distributing units of the Pooled Funds to Managed Accounts.

The Managed Accounts

16. JFL is the portfolio manager of each of the Managed Accounts.

17. The Managed Accounts are managed pursuant to discretionary portfolio management agreements, which are executed by each client who wishes to receive the portfolio management services of JFL.

18. JFL makes investment decisions for each Managed Account and has full discretionary authority to trade in securities for each Managed Account without obtaining the specific consent or instructions of the client, provided the securities respect the client's investment objectives.

The Inter-Fund Trades

19. JFL wishes to be able to enter into Inter-Fund Trades of portfolio securities between:

(a) a Pooled Fund and another Pooled Fund or a Managed Account; and

(b) a Managed Account and a Pooled Fund.

20. At the time of each Inter-Fund Trade, JFL will have policies and procedures in place to enable it to engage in the applicable Inter-Fund Trade.

21. When JFL engages in an Inter-Fund Trade of securities between two Pooled Funds or between a Managed Account and a Pooled Fund it will follow the following procedures:

(a) JFL, as portfolio manager, will request the approval of the chief compliance officer to execute a purchase or sale of a portfolio security by a Pooled Fund or a Managed Account as an Inter-Fund Trade;

(b) upon receipt of the required approval, JFL, as portfolio manager, will deliver the trading instructions to a trader on a trading desk of JFL;

(c) upon receipt of the trade instructions and the required approval, the trader on the trading desk will execute the trade as an Inter-Fund Trade in accordance with the requirements of paragraphs (c) to (g) of Subsection 6.1(2) of NI 81-107 provided that, for exchange-traded securities, the trader will have the discretion to execute the Inter-Fund Trade at the Last Sale Price of the security, determined at the time of the receipt of the required approval prior to the execution of the trade, or at the Closing Sale Price; and

(d) the policies applicable to the trading desk of JFL will require that all orders are to be executed on a timely basis.

22. JFL will establish an independent review committee ("IRC") in respect of each Pooled Fund that will be involved in Inter-Fund Trades. The IRC will be composed by JFL in accordance with section 3.7 of NI 81-107 and will be expected to comply with the standard of care set out in section 3.9 of NI 81-107. The mandate of the IRC will include approving purchases and sales of portfolio securities between a Pooled Fund and a Managed Account or between two Pooled Funds and the IRC will not approve an Inter-Fund Trade between a Pooled Fund and a Managed Account or between two Pooled Funds unless it has made the determination set out in section 5.2(2) of NI 81-107.

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

24. JFL cannot rely on the exemption from Section 13.5 of NI 31-103 contained in subsection 6.1(4) of NI 81-107, as the Pooled Funds and Managed Accounts are not reporting issuers and thus are not subject to NI 81-107.

The In Specie Transactions

25. In acting on behalf of a Pooled Fund, JFL wishes to be able, in accordance with the investment objectives and investment restrictions of the Pooled Fund, to cause the Pooled Fund to either invest in units of another Pooled Fund, or to redeem such units, pursuant to an In Specie Transaction.

26. Similarly, when acting for a Managed Account of a client, JFL wishes to be able, in accordance with the investment objectives and investment restrictions of the client, to cause the client's Managed Account to either invest in units of a Pooled Fund, or to redeem such units, pursuant to an In Specie Transaction.

27. At the time of each In-Specie Transaction, JFL will have in place policies and procedures governing such transactions, as applicable:

(a) prior to engaging in In Specie Transactions on behalf of a Managed Account, the investment management agreement or other documentation in respect of the Managed Accounts will contain the authorization of the client for JFL to engage in In Specie Transactions;

(b) JFL's chief compliance officer, will pre-approve each In Specie Transaction in connection with the purchase or redemption of units of a Pooled Fund by another Pooled Fund or by a Managed Account;

(c) the portfolio securities transferred in an In Specie Transaction will meet the investment objectives of the Pooled Fund or Managed Account, as the case may be, acquiring the portfolio securities;

(d) the portfolio securities transferred in In Species Transactions will be valued using the same valuation principles as are used to calculate the net asset value of the Pooled Funds;

(e) none of the portfolio securities which are the subject of each In Specie Transaction will be securities of related issuers of JFL; and

(f) a Pooled Fund will keep written records of each In Specie Transaction, including records of each purchase and redemption of portfolio securities and the terms thereof, in accordance with the form, accessibility and retention of record requirements as prescribed by section 11.6 of NI 31-103.

28. Effecting Inter-Fund Trades and In Specie Transactions between Pooled Funds or between a Pooled Fund and a Managed Account will be beneficial for both Pooled Funds or both the Pooled Fund and the Managed Account, as the case may be, in that it will reduce transaction costs and market disruption, and allow JFL to execute orders more quickly and manage each account more effectively.

29. The only costs which will be incurred by a Pooled Fund or a Managed Account for an In Specie Transaction are administrative charges levied by RBC Dexia as custodian of the Pooled Fund or the separate institutional custodian of the Managed Account in recording the trades.

30. Since JFL is the portfolio manager of the Managed Accounts and the Pooled Funds, JFL would be considered a "responsible person" with the meaning of the applicable securities legislation. Accordingly, absent the granting of the Exemption Sought, JFL would be prohibited from engaging in Inter-Funds Trades or In Specie Transactions.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted provided that:

(a) in connection with an Inter-Fund Trade:

(i) the Inter-Fund Trade is consistent with the investment objective of the Pooled Fund or the Managed Account, as applicable;

(ii) JFL refers the Inter-Fund Trade to the IRC of the Pooled Fund in the manner contemplated by section 5.1 of NI 81-107 and JFL and the Pooled Fund comply with section 5.4 of NI 81-107 in respect of any standing instructions the IRC provides in connection with the Inter-Fund Trade;

(iii) if the transaction is with a Pooled Fund or between two Pooled Funds, the IRC of each Pooled Fund has approved the Inter-Fund Trade in respect of that Pooled Fund in accordance with the terms of Subsection 5.2(2) of NI 81-107;

(iv) if the transaction is with a Managed Account, the investment management agreement or other documentation in respect of the Managed Account contains the authorization of the client for JFL to engage in Inter-Fund Trades; and

(v) the Inter-Fund Trade complies with paragraphs (c) to (g) of subsection 6.1(2) of NI 81-107, except that for purposes of paragraph (e) of subsection 6.1(2) in respect of exchange-traded securities, the trade is executed at the Last Sale Price or the Closing Sale Price of the security;

(b) in connection with an In Specie Transaction where a Managed Account acquires units of a Pooled Fund:

(i) JFL obtains the prior written consent of the client of the Managed Account before it engages in any In Specie Transaction and such consent has not been revoked;

(ii) the Pooled Fund would, at the time of the payment, be permitted to purchase the portfolio securities;

(iii) the portfolio securities are acceptable to JFL as portfolio manager of the Pooled Fund and meet the investment objectives of the Pooled Fund;

(iv) the value of the portfolio securities is equal to the issue price of the units of the Pooled Fund for which they are used as payment, valued as if the securities were portfolio assets of that Pooled Fund;

(v) none of the portfolio securities which are the subject of the In Specie Transaction will be securities of related issuers of JFL;

(vi) the account statement next prepared for the Managed Account will describe the portfolio securities delivered to the Pooled Fund and the value assigned to such portfolio securities; and

(vii) JFL will keep written records of each In Specie Transaction in a financial year of the Pooled Fund, reflecting details of the securities delivered to the Pooled Fund and the value assigned to such portfolio securities, in accordance with the form, accessibility and retention of record requirements as prescribed by section 11.6 of NI 31-103;

(c) in connection with an In Specie Transaction where a Managed Account redeems units of a Pooled Fund:

(i) JFL obtains the prior written consent of the client of the Managed Account before it engages in any In Specie Transaction and such consent has not been revoked;

(ii) the portfolio securities are acceptable to JFL as portfolio manager of the Managed Account and meet the investment objectives of the Managed Account;

(iii) the value of the portfolio securities is equal to the amount at which those securities were valued by the Pooled Fund in calculating the net asset value per security used to establish the redemption price;

(iv) none of the portfolio securities which are the subject of the In Specie Transaction will be portfolio securities of related issuers of the Filer;

(v) the account statement next prepared for the Managed Account will describe the portfolio securities received from the Pooled Fund and the value assigned to such portfolio securities; and

(vi) JFL will keep written records of each In Specie Transaction in a financial year of the Pooled Fund, reflecting details of the securities delivered by the Pooled Fund and the value assigned to such portfolio securities, in accordance with the form, accessibility and retention of record requirements as prescribed by section 11.6 of NI 31-103;

(d) in connection with an In Specie Transaction where a Pooled Fund purchases the units of another Pooled Fund:

(i) the Pooled Fund issuing the units would, at the time of payment, be permitted to purchase the portfolio securities;

(ii) the portfolio securities are acceptable to JFL as portfolio manager of the Pooled Fund issuing the units and meet the investment objectives of that Pooled Fund;

(iii) the value of the portfolio securities is equal to the issue price of the securities of the Pooled Fund issuing the units for which they are used as payment, valued as if the portfolio securities were portfolio assets of that Pooled Fund;

(iv) none of the portfolio securities which are the subject of the In Specie Transaction will be securities of related issuers of JFL; and

(v) JFL will keep written records of each In Specie Transaction in a financial year of the Pooled Fund, reflecting details of the securities delivered to the Pooled Fund and the value assigned to such portfolio securities, in accordance with the form, accessibility and retention of record requirements as prescribed by section 11.6 of NI 31-103;

(e) in connection with an In Specie Transaction where a Pooled Fund redeems the units of another Pooled Fund:

(i) the portfolio securities are acceptable to JFL as portfolio manager of the Pooled Fund acquiring the portfolio securities and meet the investment objectives of that Pooled Fund;

(ii) the value of the portfolio securities is equal to the amount at which those portfolio securities were valued in calculating the net asset value per security used to establish the redemption price;

(iii) none of the portfolio securities which are the subject of the In Specie Transaction will be securities of related issuers of JFL; and

(iv) JFL will keep written records of each In Specie Transaction in a financial year of the Pooled Fund, reflecting details of the securities delivered to the Pooled Fund and the value assigned to such portfolio securities, in accordance with the form, accessibility and retention of record requirements as prescribed by section 11.6 of NI 31-103; and

(f) JFL does not receive any compensation in respect of any In Specie Transaction and, in respect of any delivery of securities further to an In Specie Transaction, the only charges paid by the applicable Pooled Fund or Managed Account are administrative charges levied by the custodians of the Pooled Funds and Managed Accounts.

"Patrick Dery"
Superintendent,
Client Services, Compensation and Distribution