Securities Law & Instruments

Headnote

Order pursuant to section 78(1) of the Commodity Futures Act (Ontario) (the CFA) to vary a previous order providing relief from the adviser registration requirements of subsection 22(1)(b) of the CFA, granted to an investment adviser under the U.S. securities law in connection with the proposed advisory services to be provided to a registered commodity trading manager under the CFA for a term of 3 years, subject to certain terms and conditions, pursuant to subsection 38(1) of the CFA.

Statutes Cited

Commodity Futures Act, R.S.O. 1990. c. C.20., as am., ss. 22(1)(b), 38(1), 78(1).

Securities Act, R.S.O. 1990, c. S.5, as am. - Rule 35-502 -- Non-Resident Advisers (the Rule), s. 7.3:

July 12, 2005

IN THE MATTER OF

THE COMMODITY FUTURES ACT,

R.S.O. 1990, CHAPTER C.20 (THE CFA)

AND

IN THE MATTER OF

THE PUTNAM ADVISORY COMPANY, LLC

 

ORDER

(Section 38(1) and 78(1) of the CFA)

UPON the application of The Putnam Advisory Company, LLC (the Applicant) to the Ontario Securities Commission (the Commission) for an order pursuant to section 78(1) of the CFA to vary the decision of the Commission dated February 28, 2003 which, pursuant to subsection 38(1) of the CFA, exempted the Applicant and its directors, officers and employees from the requirements of paragraph 22(1)(b) of the CFA in respect of advising certain mutual funds in Ontario regarding trades in commodity futures contracts and related products traded on commodity futures exchanges outside of Canada and cleared through clearing corporations outside of Canada;

AND UPON considering the application and the recommendation of the staff of the Commission;

AND UPON the Applicant having represented to the Commission that:

1. The Applicant is a limited liability company organized under the laws of the state of Delaware, with its principal place of business located in Boston, Massachusetts in the United States. The Applicant is currently registered in Ontario as an international adviser. The Applicant is also registered with the U.S. Securities and Exchange Commission (the SEC) as an investment adviser. Although the Applicant advises on derivative products to clients in the U.S., the Applicant is expressly exempt from registration under the U.S. Commodity Exchange Act as a commodity trading adviser with the U.S. Commodity Futures Trading Commission (the CFTC).

2. The Applicant is an affiliate of Putnam Investments Inc. (PII).

3. PII is a corporation incorporated under the Business Corporations Act (Ontario), and is registered with the Commission as an adviser in the categories of investment counsel and portfolio manager and under the CFA as an adviser in the category of commodity trading manager. PII acts as trustee, manager and portfolio adviser of Putnam Canadian Balanced Fund, Putnam Canadian Bond Fund, Putnam Canadian Equity Fund, Putnam Canadian Money Market Fund, Putnam Global Equity Fund, Putnam U.S. Value Fund, Putnam U.S. Voyager Fund, Putnam International Equity Fund (collectively, the Putnam Retail Funds) and Putnam U.S. Equity Fund, Putnam Non-North American Equity Fund, Putnam U.S. Midcap Equity Fund, Putnam Emerging Markets Fund, Putnam Global Core Equity Fund, Putnam U.S. Midcap Equity Fund, Putnam International Bond Fund (collectively, the Putnam Pooled Funds, and together with the Putnam Retail Funds, the Funds). The Funds may in the future include other mutual funds (Future Putnam Funds), provided the Applicant executes and submits to the Commission a verification certificate referencing this Application and confirming the truth and accuracy of the information set out in this Application with respect to that particular Future Putnam Fund. The Applicant currently acts as sub-adviser to PII in respect of a number of the Funds.

4. The Funds may invest in futures and options on futures traded on organized exchanges outside of Canada and cleared through clearing corporations, located outside of Canada and in other derivative instruments traded over the counter (the Derivatives Strategy). In no case will the Derivatives Strategy constitute the primary focus or investment objectives of any of the Funds.

5. The Applicant is proposing to enter into an investment sub-advisory agreement with PII whereby PII would act as the portfolio adviser to the Funds in respect of the Derivatives Strategy, and the Applicant would act as sub-adviser to PII (the Proposed Advisory Services).

6. In connection with the Proposed Advisory Services, the Applicant would comply with the requirements of section 7.3 of Ontario Securities Commission Rule 35-502 and accordingly:

(a) would enter into a written agreement with PII outlining the duties and obligations of the Applicant;

(b) PII will contractually agree with the Funds to be responsible for any loss that arises out of the failure of the Applicant to (i) exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of PII and the Funds and (ii) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances; and

(c) PII cannot be relieved by the Funds from its responsibility for loss under paragraph 6(b) above.

7. The offering documents for the Funds will disclose that PII is responsible for the investment advice given or portfolio management services provided by the Applicant, that there may be difficulty in enforcing any legal rights against the Applicant because the Applicant is resident outside of Canada and all or a substantial portion of the Applicant's assets are situated outside of Canada, and where applicable, the sub-adviser advising the relevant Funds is not, or will not be registered with the Commission under the CFA, and accordingly, the protections available to clients of a registered adviser under the CFA will not be available to purchasers of units of the Funds.

AND UPON being satisfied that it would not be prejudicial to public interest for the Commission to grant the exemption requested on the basis of the terms and conditions proposed,

IT IS ORDERED pursuant to subsection 38(1) of the CFA that the Applicant and its directors, officers and employees be exempt from paragraph 22(1)(b) of the CFA in respect of the Proposed Advisory Services provided that:

(a) The obligations and duties of the Applicant are set out in a written agreement with PII;

(b) PII contractually agrees with the Funds to be responsible for any loss that arises out of the failure of the Applicant to (i) exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of PII and the Funds and (ii) exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances;

(c) PII cannot be relieved by the Funds from its responsibility for loss under paragraph (b) above;

(d) The offering documents for the Funds disclose that PII is responsible for the investment advice given or portfolio management services provided by the Applicant, that there may be difficulty in enforcing any legal rights against the Applicant because the Applicant is resident outside of Canada and all or a substantial portion of the Applicant's assets are situated outside of Canada, and where applicable, the sub-adviser advising the relevant Funds is not, or will not be registered with the Commission under the CFA, and accordingly, the protections available to clients of a registered adviser under the CFA will not be available to purchasers of units of the Funds;

(e) PII will remain registered as a commodity trading manager under the CFA so long as the Proposed Advisory Services are provided by the Applicant;

(f) The Applicant will continue to be registered under the Securities Act (Ontario) as an international adviser and as an investment adviser with the SEC, or is, or will be entitled to rely on appropriate exemptions from such registration or licence and from registration as a commodity trading adviser with the CFTC, pursuant to the applicable legislation of its principal jurisdiction; and

(g) This Order shall terminate three years from the date hereof.

"Paul M. Moore"
Commissioner
 
"David L. Knight"
Commissioner