DDJ High Yield Fund and CI Investments Inc. - ss. 118(2)(b), 121

Order

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- Exemption from the mutual fund conflict of interest provisions which prohibit certain related mutual funds from engaging in inter-fund trading, so as to permit a mutual fund to sell portfolio securities to another fund under common management in circumstances where the sale of portfolio securities arises upon the termination of one of the mutual funds.

Applicable Ontario Statutory Provisions

Securities Act, R.S.O. 1990 c. S.5, as am., ss. 118(2)(b), 121.

April 28, 2006

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S. 5, AS AMENDED

(the "Act")

AND

IN THE MATTER OF

DDJ HIGH YIELD FUND

("DDJ Fund")

AND

CI INVESTMENTS INC.

(the "Manager")

 

ORDER

Background

The Ontario Securities Commission (the "Commission") has received an application from the Manager under subsection 121(2) of the Act for an order exempting the Manager from paragraph 118(2)(b) of the Act in connection with the proposed purchase of portfolio securities (the "Proposed Transfer") by DDJ Fund from DDJ U.S. High Yield Trust ("DDJ U.S. Trust") in connection with the termination of DDJ U.S. High Yield Fund (the "Terminating Fund").

Representations

This Order is based on the following facts represented by the Manager:

1. Each of DDJ Fund and DDJ U.S. Trust (collectively, the "Funds") is a trust established under the laws of the Province of Ontario and is an "investment fund" as defined in National Instrument 81-106. DDJ Fund is a reporting issuer (or the equivalent) under the securities legislation of each province of Canada. DDJ U.S. Trust is a reporting issuer (or the equivalent) under the securities legislation of the province of Québec. Neither Fund is subject to the requirements of National Instrument 81-102 ("NI 81-102").

2. The Terminating Fund is a trust established under the laws of the Province of Ontario and is an "investment fund" as defined in National Instrument 81-106. It is a reporting issuer, but not subject to the requirements of National Instrument 81-102.

3. The outstanding units of DDJ Fund are listed and posted for trading on the Toronto Stock Exchange. To the knowledge of the Manager, no person beneficially owns more than 10% of the outstanding units of DDJ Fund.

4. All of the outstanding units of DDJ U.S. Trust are held by two Canadian chartered banks (or their nominees) (the "Counterparties") who deal at arm's length with the Manager. The Counterparties are holding such units in order to hedge their obligations under forward agreements (the "Forward Agreements") between the Counterparties and the Terminating Fund. The Manager may acquire and hold one unit of DDJ U.S. Trust in order to facilitate the eventual termination of DDJ U.S. Trust.

5. On February 10, 2006, the Terminating Fund announced that it had received requests to redeem a sufficient number of its outstanding units that it would seek the approval of its unitholders to terminate. On March 22, 2006, the Terminating Fund filed an information circular regarding the termination. A meeting of unitholders of the Terminating Fund was called for April 21, 2006. This meeting was adjourned for lack of quorum and will reconvene on May 2, 2006 at which time a quorum will exist. Based upon proxies received to date, the Manager expects that the termination of the Terminating Fund will be approved. Termination of the Terminating Fund will trigger the following sequence of events:

(a) in order to return its net asset value to its unitholders, the Terminating Fund will need to effect an early settlement of the Forward Agreements;

(b) in order to fund their obligations when the Forward Agreements are settled early, the Counterparties will need to redeem all the units they hold of DDJ U.S. Trust; and

(c) in order to fund the redemption of its units by the Counterparties, DDJ U.S. Trust will need to dispose of all of its portfolio securities for cash.

6. In order to:

(a) save trading costs that would be incurred by DDJ U.S. Trust if it liquidated the portfolio securities in the open market; and

(b) minimize the possibility of adversely affecting the market price of the portfolio securities,

the Manager proposes that DDJ U.S. Trust effect the Proposed Transfer to DDJ Fund for cash based on their prevailing market value, rather than disposing of DDJ U.S. Trust's portfolio securities in the open market.

7. The Manager is the "portfolio manager" and a "responsible person" of each Fund for purposes of Section 118(2). DDJ U.S. Trust is an "associate" of the Manager as defined in Section 1(1) because the Manager is the trustee of DDJ U.S. Trust. Accordingly, unless this Order is granted, the Proposed Transfer will be prohibited by Section 118(2)(b) because the Manager will knowingly cause an investment portfolio it manages to purchase portfolio securities from an associate of the Manager.

8. DDJ U.S. Trust will incur trading costs if DDJ U.S. Trust liquidates its portfolio securities in the open market. By utilizing the Proposed Transfer, these costs will be avoided and will be directly reflected in a higher net asset value to be returned to unitholders of the Terminating Fund.

9. Certain of DDJ U.S. Trust's portfolio securities are traded relatively thinly. If DDJ U.S. Trust attempts to dispose of such portfolio securities in the open market, it could adversely affect the trading price of such portfolio securities, resulting in a lower net asset value to be returned to unitholders of the Terminating Fund.

10. The Proposed Transfer will be consistent with the investment objectives and strategies of DDJ Fund.

11. The portfolio advisor to DDJ Fund (the Portfolio Advisor) has confirmed to the Manager that the Proposed Transfer is acceptable to the Portfolio Advisor as investments for DDJ Fund.

12. DDJ Fund will be able to complete the Proposed Transfer using its uninvested cash and proceeds from liquidating its cash equivalents.

13. The Proposed Transfer will not constitute a material change for DDJ Fund.

14. The Proposed Transfer will take place at the prevailing market price of the portfolio securities. The Manager anticipates no difficulty determining the prevailing market value of each portfolio security at the time the Proposed Transfer occurs because public quotations in common use are widely available for the market facilities though which the portfolio securities are traded.

15. No conflict of interest will arise with respect to the Proposed Transfer since:

(a) the Manager will have no economic interest in the price at which the Proposed Transfer occurs;

(b) the Proposed Transfer will not change the basis or amount of management fees paid by DDJ Fund to the Manager; and

(c) the Proposed Transfer will not increase the net asset value of DDJ Fund against which the Manager calculates its management fees since the Manager will pay for the Proposed Transfer using existing assets of DDJ Fund rather than issuing additional units.

Decision

The Commission is satisfied that there is adequate justification for the Order.

The Commission orders under subsection 121(2)(a)(ii) that the Manager is exempt from paragraph 118(2)(b) of the Act in connection with the Proposed Transfer.

"Robert L. Shirriff"

"Suresh Thakrar"