Relief from the adviser registration requirementsof subsection 22(1)(b) of the Commodity Futures Act (Ontario)(CFA) granted to an investment adviser under the U.S. securitieslaw in connection with the proposed advisory services to beprovided to a registered commodity trading manager under theCFA for a term of 3 years, subject to certain terms and conditions,pursuant subsection 38(1) of the CFA.
Commodity Futures Act, R.S.O. 1990. c. C.20,as am., ss. 22(1)(b), 38(1).
Securities Act, R.S.O. 1990, c. S.5 (as am.)- OSC Rule 35-502 - Non-Resident Advisers (the Rule), s. 7.3.
IN THE MATTER OF
THE COMMODITY FUTURES ACT,
R.S.O. 1990, CHAPTER C.20(the CFA)
IN THE MATTER OF
THE PUTNAM ADVISORY COMPANY,LLC
UPON the application of The Putnam AdvisoryCompany, LLC (the Applicant) to the Ontario Securities Commission(the Commission) for a ruling pursuant to subsection 38(1) ofthe CFA to exempt the Applicant and its directors, officersand employees from the requirements of paragraph 22(1)(b) ofthe CFA in respect of advising certain mutual funds in Ontarioregarding trades in commodity futures contracts and relatedproducts traded on commodity futures exchanges outside of Canadaand cleared through clearing corporations outside of Canada;
AND UPON considering the applicationand the recommendation of the staff of the Commission;
AND UPON the Applicant having representedto the Commission that:
1. The Applicant is a limited liability companyorganized under the laws of the state of Delaware, with itsprincipal place of business located in Boston, Massachusetts,United States. The Applicant is registered under the SecuritiesAct (Ontario) as an international adviser. The Applicantis also registered with the U.S. Securities and Exchange Commission(the SEC) as an investment adviser. Although the Applicantadvises on derivative products to clients in the U.S., theApplicant is expressly exempt from registration under theCommodity Exchange Act (U.S.) as a commodity tradingadviser with the U.S. Commodity Futures Trading Commission(the CFTC).
2. The Applicant is an affiliate of PutnamInvestments Inc. (PII).
3. PII is a corporation incorporated underthe Business Corporations Act (Ontario), and is registeredwith the Commission as an adviser in the categories of investmentcounsel and portfolio manager and under the CFA as an adviserin the category of commodity trading manager. PII acts astrustee, manager and portfolio adviser of the Putnam Funds(the Funds), a family of Canadian mutual funds which currentlyincludes the following: Putnam Canadian Balanced Fund; PutnamCanadian Bond Fund; Putnam Canadian Equity Fund; Putnam CanadianMoney Market Fund; Putnam Global Equity Fund; Putnam U.S.Value Fund; Putnam U.S. Voyager Fund; and Putnam InternationalEquity Fund. The Applicant currently acts as sub-adviser toPII in respect of the four non-Canadian funds which comprisepart of the Funds.
4. The Funds may invest in futures and optionson futures traded on organized exchanges outside of Canadaand cleared through clearing corporations located outsideof Canada and in other derivative instruments traded overthe counter (the Derivatives Strategy). In no case will theDerivatives Strategy constitute the primary focus or investmentobjectives of any of the Funds.
5. The Applicant is proposing to enter intoan investment sub-advisory agreement with PII whereby PIIwould act as the portfolio adviser to the Funds in respectof the Derivatives Strategy, and the Applicant would act assub-adviser to PII (the Proposed Advisory Services).
6. In connection with the Proposed AdvisoryServices, the Applicant would comply with the requirementsof section 7.3 of Ontario Securities Commission Rule 35-502and accordingly:
(a) would enter into a written agreementwith PII outlining the duties and obligations of the Applicant;
(b) PII will contractually agree with theFunds to be responsible for any loss that arises out ofthe failure of the Applicant to (i) exercise the powersand discharge the duties of its office honestly, in goodfaith and in the best interests of PII and the Funds and(ii) exercise the degree of care, diligence and skill thata reasonably prudent person would exercise in the circumstances;and
(c) PII cannot be relieved by the Fundsfrom its responsibility for loss under paragraph 6(b) above.
7. The offering documents for the Funds willdisclose that PII is responsible for the investment advicegiven or portfolio management services provided by the Applicant,that there may be difficulty in enforcing any legal rightsagainst the Applicant because the Applicant is resident outsideof Canada and all or a substantial portion of the Applicant'sassets are situated outside of Canada, and where applicable,the sub-adviser advising the relevant Funds is not, or willnot be registered with the Commission under the CFA, and accordingly,the protections available to clients of a registered adviserunder the CFA will not be available to purchasers of unitsof the Funds.
AND UPON being satisfied that it wouldnot be prejudicial to public interest for the Commission togrant the exemption requested on the basis of the terms andconditions proposed,
IT IS ORDERED pursuant to subsection38(1) of the CFA that the Applicant and its directors, officersand employees be exempt from paragraph 22(1)(b) of the CFA inrespect of the Proposed Advisory Services provided that:
(a) The obligations and duties of the Applicantare set out in a written agreement with PII;
(b) PII contractually agrees with the Fundsto be responsible for any loss that arises out of the failureof the Applicant to (i) exercise the powers and dischargethe duties of its office honestly, in good faith and inthe best interests of PII and the Funds and (ii) exercisethe degree of care, diligence and skill that a reasonablyprudent person would exercise in the circumstances;
(c) PII cannot be relieved by the Fundsfrom its responsibility for loss under paragraph (b) above;
(d) The offering documents for the Fundsdisclose that PII is responsible for the investment advicegiven or portfolio management services provided by the Applicant,that there may be difficulty in enforcing any legal rightsagainst the Applicant because the Applicant is residentoutside of Canada and all or a substantial portion of theApplicant's assets are situated outside of Canada, and whereapplicable, the sub-adviser advising the relevant Fundsis not, or will not be registered with the Commission underthe CFA, and accordingly, the protections available to clientsof a registered adviser under the CFA will not be availableto purchasers of units of the Funds;
(e) PII will remain registered as a commoditytrading manager under the CFA so long as the Proposed AdvisoryServices are provided by the Applicant;
(f) The Applicant will continue to be registeredunder the Securities Act (Ontario) as an internationaladviser and as an investment adviser with the SEC, or is,or will be entitled to rely on appropriate exemptions fromsuch registration or licence and from registration as acommodity trading adviser with the CFTC, pursuant to theapplicable legislation of its principal jurisdiction; and
(g) This Order shall terminate three yearsfrom the date hereof.
February 28, 2003.
"Paul M. Moore" "HowardI. Wetston"