Putnam Investments Inc. et al. -- s. 80 of the CFA

Order

Headnote

Section 80 of the Commodity Futures Act (Ontario) -- Relief from the adviser registration requirements of subsection 22(1)(b) of the CFA granted to sub-advisers not ordinarily resident in Ontario in respect of advice regarding trades in commodity futures contracts and commodity futures options, subject to certain terms and conditions -- Relief mirrors exemption available in section 7.3 of OSC Rule 35-502 Non-Resident Advisers made under the Securities Act (Ontario).

Applicable Legislative Provisions

Commodity Futures Act, R.S.O. 1990, c. C.20, as am., ss. 22(1)(b), 80.

Securities Act, R.S.O. 1990, c. S.5, as am.

OSC Rule 35-502 Non-Resident Advisers

IN THE MATTER OF

THE COMMODITY FUTURES ACT

R.S.O. 1990, CHAPTER C.20, AS AMENDED

(the CFA)

AND

IN THE MATTER OF

PUTNAM INVESTMENTS INC.

AND

THE PUTNAM ADVISORY COMPANY, LLC

AND

PUTNAM INVESTMENTS LIMITED

ORDER

(Section 80 of the CFA)

UPON the application (the Application) of Putnam Investments Inc. (the Principal Adviser), The Putnam Advisory Company, LLC (PAC) and Putnam Investments Limited (PIL) (collectively, the Applicants) to the Ontario Securities Commission (the Commission) for an order pursuant to section 80 of the CFA, that each of PAC and PIL (each, a Sub-Adviser, and collectively, the Sub-Advisers) and any individuals engaging in, or holding themselves out as engaging in, the business of advising others as to trading in Contracts (as defined below) on the relevant Sub-Adviser's behalf (the Representatives) be exempt, for a period of five years, from the adviser registration requirement in paragraph 22(1)(b) of the CFA, subject to certain terms and conditions;

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

AND WHEREAS for the purposes of this order (the Order):

"CFTC" means the United States Commodity Futures Trading Commission;

"Contract" has the meaning ascribed to that term in subsection 1(1) of the CFA;

"FSA" means the Financial Services Authority in the United Kingdom;

"OSA" means the Securities Act (Ontario);

"OSA Adviser Registration Requirement" means subsection 25(3) of the OSA that prohibits a person or company from engaging in the business of, or holding himself, herself or itself out as engaging in the business of, advising anyone with respect to investing in, buying or selling securities in Ontario unless the person or company is registered in the appropriate category of registration under the OSA;

"OSA Sub-Adviser Exemption" means the exemption from the OSA Adviser Registration Requirement set out in section 7.3 of OSC Rule 35-502 Non-Resident Advisers;

"SEC" means the United States Securities and Exchange Commission; and

"U.S. Advisers Act" means the United States Investment Advisers Act of 1940.

AND UPON the Applicants having represented to the Commission that:

PAC

1. PAC is a limited liability company organized under the laws of the State of Delaware, with its principal place of business located in Boston, State of Massachusetts in the United States. PAC is registered with the SEC as an investment adviser under the U.S. Advisers Act. Although PAC advises on derivative products to clients in the United States, it is currently exempt from registration under the United States Commodity Exchange Act as a commodity trading adviser with the CFTC.

PIL

2. PIL is a company organized under the laws of England and Wales with its principal place of business located in London, United Kingdom. PIL is registered with the FSA as an adviser. PIL's permitted activities pursuant to its registration with the FSA include advising on Contracts.

3. Neither Sub-Adviser is registered in any capacity under the CFA or the OSA and neither Sub-Adviser is a resident of any province or territory of Canada.

The Principal Adviser

4. The Principal Adviser is a corporation incorporated under the Business Corporations Act (Ontario), and is registered in Ontario:

(a) under the OSA as a portfolio manager, exempt market dealer and investment fund manager; and

(b) under the CFA as a commodity trading counsel and commodity trading manager.

General

5. To the best of the knowledge of the Principal Adviser and the Sub-Advisers, none of the Principal Adviser or the Sub-Advisers, as the case may be, is in default of securities legislation of Ontario.

6. The Sub-Advisers and the Principal Adviser are affiliates, as defined in the OSA.

7. The Principal Adviser previously acted as trustee, investment fund manager and portfolio adviser of certain investment funds, the securities of which were qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (collectively, the Putnam Retail Funds) and currently acts as trustee, investment fund manager and portfolio adviser of certain pooled funds, the securities of which are sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions (collectively, the Putnam Pooled Funds).

8. PAC currently acts as sub-adviser to the Principal Adviser in respect of Putnam Canadian Fixed Income Long Fund, the sole remaining Putnam Pooled Fund. The Putnam Retail Funds have ceased to be reporting issuers in any jurisdiction of Canada.

9. In addition to the sole remaining Putnam Pooled Fund, the Principal Adviser also provides, or may provide, discretionary and/or non-discretionary portfolio management services in Ontario to (i) investment funds, the securities of which are qualified by prospectus for distribution to the public in Ontario and the other provinces and territories of Canada (such funds, together with the Putnam Retail Funds, Retail Funds); (ii) other pooled funds, the securities of which are sold on a private placement basis in Ontario and certain other provinces and territories of Canada pursuant to prospectus exemptions contained in National Instrument 45-106 Prospectus and Registration Exemptions (such funds, together with the Putnam Pooled Funds, Pooled Funds); (iii) managed accounts of clients who have entered into investment management agreements with the Principal Adviser (Managed Accounts); and (iv) Retail Funds, Pooled Funds and Managed Accounts that may be established in the future in respect of which the Principal Adviser engages one or both of the Sub-Advisers to provide portfolio advisory services (the Future Clients) (each of the Retail Funds, Pooled Funds, Managed Accounts and Future Clients being referred to individually as a Client and, collectively as the Clients).

10. Each Client may, as a part of its investment program, seek to invest in Contracts.

11. In connection with the Principal Adviser acting as an adviser to a Client in respect of the purchase or sale of Contracts, the Principal Adviser has retained, or will retain, one or both of the Sub-Advisers pursuant to a written agreement made between the Principal Adviser and the relevant Sub-Adviser (each, a Sub-Advisory Agreement), the Sub-Adviser to act as sub-adviser to the Principal Adviser by exercising discretionary and/or non-discretionary authority on behalf of the Principal Adviser, which may include discretionary and/or non-discretionary authority to buy or sell Contracts for the Client (the Proposed Sub-Advisory Services).

12. In connection with the Proposed Sub-Advisory Services, the relevant Sub-Adviser will exercise discretionary and/or non-discretionary authority on behalf of the Principal Adviser in respect of all or a portion of the assets of the investment portfolios of the Clients. The relevant Sub-Adviser will ensure that its exercise of discretionary and/or non-discretionary authority is consistent with the investment objectives and strategies of each Client.

13. In connection with the Proposed Sub-Advisory Services, the relationship among the Principal Adviser, the relevant Sub-Adviser and any Client shall satisfy the applicable requirements of the OSA Sub-Adviser Exemption, namely that:

(a) the obligations and duties of the relevant Sub-Adviser will be set out in a written agreement with the Principal Adviser;

(b) the Principal Adviser will contractually agree with the Client to be responsible for any loss that arises out of the failure of the relevant Sub-Adviser:

(i) to exercise the powers and discharge the duties of its office honestly, in good faith and in the best interests of the Principal Adviser and the Client; or

(ii) to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances (together with (i), the Assumed Obligations); and

(c) the Principal Adviser cannot be relieved by the Client from its responsibility for any loss that arises out of the failure of the relevant Sub-Adviser to meet the Assumed Obligations.

14. The relevant Sub-Adviser and its Representatives shall only provide the Proposed Sub-Advisory Services as long as the Principal Adviser is, and remains, registered under the CFA as an adviser in the category of commodity trading manager or commodity trading counsel or both.

15. The Principal Adviser will deliver to the Clients all applicable reports and statements under applicable securities, commodity futures and derivatives legislation.

16. Paragraph 22(1)(b) of the CFA prohibits a person or company from acting as an adviser unless the person or company is registered as an adviser under the CFA, or is registered as a representative or as a partner or an officer of a registered adviser and is acting on behalf of a registered adviser (the CFA Adviser Registration Requirement). Under the CFA, "adviser" means a person or company engaging in or holding himself, herself or itself out as engaging in the business of advising others as to trading in Contracts.

17. By providing the Proposed Sub-Advisory Services, each Sub-Adviser and its Representatives will be engaging in, or holding himself, herself or itself out as engaging in, the business of advising others in respect of Contracts and, in the absence of being granted the requested relief, would be required to register as an adviser, or a representative of an adviser, as the case may be, under the CFA.

18. There is currently no exemption from the CFA Adviser Registration Requirement that is equivalent to the OSA Sub-Adviser Exemption. Consequently, in the absence of the Order, each Sub-Adviser would be required to satisfy the CFA Adviser Registration Requirement in order to carry out the Proposed Sub-Advisory Services.

19. The Applicants submit that it would not be prejudicial to the public interest for the Commission to make the Order because:

(a) the Principal Adviser seeks to access certain specialized portfolio management services provided by the Sub-Advisers, including advice as to trading in Contracts; and

(b) each Sub-Adviser would act as a sub-adviser to the Principal Adviser in respect of trading in Contracts on terms and conditions that are analogous to the prescribed terms and conditions of the OSA Sub-Adviser Exemption.

20. On April 13, 2007, the Commission granted PAC an exemption from the CFA Adviser Registration Requirement in respect of the Proposed Sub-Advisory Services (as such term was defined in that order) (the Previous Order). However, the definition of "Proposed Advisory Services" in the Previous Order was more limited than what is being sought in the Order under the defined term of "Proposed Sub-Advisory Services". The Previous Order expired on April 13, 2012.

AND UPON being satisfied that it would not be prejudicial to the public interest for the Commission to make the Order;

IT IS ORDERED pursuant to section 80 of the CFA that each Sub-Adviser and its Representatives are exempt from the CFA Adviser Registration Requirement in respect of acting as a sub-adviser to the Principal Adviser in respect of trading in Contracts provided that:

(a) each Sub-Adviser's head office or principal place of business remains in the United States or the United Kingdom, as applicable;

(b) each Sub-Adviser and its Representatives are appropriately registered or licensed to provide the Proposed Sub-Advisory Services to the Clients pursuant to the applicable legislation of their principal jurisdiction, or are entitled to rely on appropriate exemptions from such registrations or licenses;

(c) the Principal Adviser is registered under the CFA as an adviser in the category of commodity trading manager or commodity trading counsel or both;

(d) the obligations and duties of each Sub-Adviser are set out in a written agreement with the Principal Adviser;

(e) neither Sub-Adviser shall act as a sub-adviser to the Principal Adviser unless the Principal Adviser has contractually agreed with each Client to be responsible for any loss that arises out of any failure of the relevant Sub-Adviser to meet the Assumed Obligations and cannot be relieved by any of its Clients from its responsibility for any loss that arises out of any failure of the relevant Sub-Adviser to meet the Assumed Obligations;

(f) where a Client prepares a prospectus or similar offering document for delivery to prospective purchasers, any such document shall include the following disclosure:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the relevant Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the relevant Sub-Adviser (or any of its Representatives) because the relevant Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada;

(g) where a Client does not prepare a prospectus or similar offering document for delivery to prospective purchasers, all investors of the Client who are Ontario residents shall receive, prior to the purchase of any Contracts, written disclosure that includes:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the relevant Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the relevant Sub-Adviser (or any of its Representatives) because the relevant Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada;

(h) where a Client enters into an investment management agreement for the Proposed Sub-Advisory Services in respect of Contracts, all applicable Clients or investors of the Clients who are Ontario residents shall receive, prior to the purchase of any Contracts, written disclosure that includes:

(i) a statement that the Principal Adviser is responsible for any loss that arises out of the failure of the relevant Sub-Adviser to meet the Assumed Obligations; and

(ii) a statement that there may be difficulty in enforcing any legal rights against the relevant Sub-Adviser (or any of its Representatives) because the relevant Sub-Adviser is resident outside of Canada and all or substantially all of its assets are situated outside of Canada; and

(i) this Order shall expire five years after the date hereof.

November 9, 2012

"Christopher Portner"
Commissioner
Ontario Securities Commission
 
"Paulette Kennedy"
Commissioner
Ontario Securities Commission