[Federal Register Volume 68, Number 194 (Tuesday, October 7, 2003)]
[Notices]
[Pages 57937-57941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25337]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26200; 812-12863]


Putnam American Government Income Fund, et al., Notice of 
Application

October 1, 2003.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under section 12(d)(1)(J) of 
the Investment Company Act of 1940 (``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from section 17(a) of the Act, and under 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint transactions.

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Summary of Application: The applicants request an order that would 
permit (a) certain registered management investment companies to invest 
uninvested cash and cash collateral in (i) affiliated money market 
funds and/or short-term bond funds or (ii) one or more affiliated 
entities that operate as cash management investment vehicles and that 
rely on section 3(c)(1) or 3(c)(7) of the Act, and (b) the registered 
investment companies and the affiliated entities to continue to engage 
in purchase and sale transactions involving portfolio securities in 
reliance on rule 17a-7 under the Act.

Applicants:  Putnam American Government Income Fund, Putnam Arizona Tax 
Exempt Income Fund, Putnam Asset Allocation Funds, Putnam California 
Tax Exempt Income Fund, Putnam Capital Appreciation Fund, Putnam 
Classic Equity Fund, Putnam Convertible Income-Growth Trust, Putnam 
Discovery Growth Fund, Putnam Diversified Growth Fund, Putnam 
Diversified Income Trust, Putnam Equity Income Fund, Putnam Europe 
Equity Fund, Putnam Florida Tax Exempt Income Fund, Putnam Funds Trust, 
The George Putnam Fund Of Boston, Putnam Global Equity Fund, Putnam 
Global Income Trust, Putnam Global Natural Resources Fund, The Putnam 
Fund For Growth And Income, Putnam Health Sciences Trust, Putnam High 
Yield Advantage Fund, Putnam High Yield Trust, Putnam Income Fund, 
Putnam Intermediate U.S. Government Income Fund, Putnam International 
Equity Fund, Putnam Investment Funds, Putnam Investors Fund, Putnam 
Massachusetts Tax Exempt Income Fund, Putnam Michigan Tax Exempt Income 
Fund, Putnam Minnesota Tax Exempt Income Fund, Putnam Money Market 
Fund, Putnam Municipal Income Fund, Putnam New Jersey Tax Exempt Income 
Fund, Putnam New Opportunities Fund, Putnam New York Tax Exempt Income 
Fund, Putnam New York Tax Exempt Opportunities Fund, Putnam Ohio Tax 
Exempt Income Fund, Putnam OTC & Emerging Growth Fund, Putnam 
Pennsylvania Tax Exempt Income Fund, Putnam Tax Exempt Income Fund, 
Putnam Tax Exempt Money Market Fund, Putnam Tax-Free Income Trust, 
Putnam Tax Smart Funds Trust, Putnam U.S. Government Income Trust, 
Putnam Utilities Growth And Income Fund, Putnam Variable Trust, Putnam 
Vista Fund, Putnam Voyager Fund, Putnam California Investment Grade 
Municipal Trust, Putnam High Income Opportunities Trust, Putnam High 
Income Bond Fund, Putnam High Yield Municipal Trust, Putnam Investment 
Grade Municipal Trust, Putnam Managed High Yield Trust, Putnam Managed 
Municipal Income Trust, Putnam Master Income Trust, Putnam Master 
Intermediate Income Trust, Putnam Municipal Bond Fund, Putnam Municipal 
Opportunities Trust, Putnam New York Investment Grade Municipal Trust, 
Putnam Premier Income Trust, and Putnam Tax-Free Health Care Fund (each 
a ``Fund,'' collectively the ``Funds''), and Putnam Investment 
Management, LLC (together with any entity controlling, controlled

[[Page 57938]]

by or under common control with Putnam Investment Management, LLC, the 
``Adviser'').
    Filing Dates: The application was filed on July 26, 2002, and 
amended on September 25, 2003.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on October 24, 2003, and should be accompanied by proof of 
service on the applicants, in the form of an affidavit, or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the writer's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 Fifth Street, NW., Washington, DC 
20549-0609; Applicants, One Post Office Square, Boston, MA 02109.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634 or Todd Kuehl, Branch Chief, at (202) 942-0564 (Division 
of Investment Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 Fifth Street, NW., 
Washington, DC 20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. The Funds are Massachusetts business trusts and are registered 
under the Act as open-end or closed-end management investment 
companies. The Adviser is an investment adviser registered under the 
Investment Advisers Act of 1940 and serves as investment adviser to 
each Fund.
    2. Certain Funds, including money market Funds that comply with 
rule 2a-7 under the Act, (each, a ``Participating Fund'') have or may 
be expected to have cash that has not been invested in portfolio 
securities (``Uninvested Cash''). Uninvested Cash may result from a 
variety of sources, including dividends or interest received on 
portfolio securities, unsettled securities transactions, strategic 
reserves, matured investments, proceeds from liquidation of investment 
securities, dividend payments or money from investors. Certain 
Participating Funds also may participate in a securities lending 
program (``Securities Lending Program'') under which a Fund may lend 
its portfolio securities to registered broker-dealers or other 
institutional investors. The loans are secured by collateral, including 
cash collateral (``Cash Collateral'' and together with Uninvested Cash, 
``Cash Balances''), equal at all times to at least the market value of 
the securities loaned. Currently, the Adviser can invest Cash Balances 
directly in money market instruments or other short-term debt 
obligations. All or a portion of certain Funds' Cash Balances may be 
managed by a sub-adviser to a Fund (``Sub-Adviser'').
    3. Applicants request an order to permit: (i) The Participating 
Funds to use their Cash Balances to purchase shares of one or more of 
the open-end Funds that are money market funds or short-term bond funds 
(the ``Registered Central Funds'') or private investment companies that 
serve as cash management vehicles, are advised by the Adviser, and rely 
on section 3(c)(1) or 3(c)(7) of the Act (the ``Private Central 
Funds'') (the Registered Central Funds and the Private Central Funds, 
collectively, the ``Central Funds''); (ii) the Central Funds to sell 
their shares to and redeem such shares from the Participating Funds; 
(iii) the Participating Funds and the Private Central Funds to engage 
in interfund purchase and sale transactions in securities (``Interfund 
Transactions''); and (iv) the Adviser or a Sub-Adviser to effect the 
above transactions.\1\
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    \1\ Applicants request that any relief granted also apply to any 
other registered management investment company or series thereof now 
existing or established in the future, for which the Adviser serves 
as investment adviser (included in the term ``Funds''). All Funds 
that currently intend to rely on the requested order are named as 
applicants. Any future Fund will rely on the order only in 
accordance with the terms and conditions of the application.
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    4. The investment by each Participating Fund in shares of the 
Central Funds will be in accordance with that Participating Fund's 
investment policies and restrictions as set forth in its registration 
statement.\2\ The Registered Central Funds are or will be taxable or 
tax-exempt money market funds that comply with rule 2a-7 under the Act 
or short-term bond funds that maintain a dollar-weighted average 
portfolio maturity of three years or less. Certain Private Central 
Funds will comply with rule 2a-7 under the Act. Other Private Central 
Funds will invest in high quality securities with relatively short 
maturities.\3\
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    \2\ A Participating Fund that is a money market Fund will not 
invest in a Central Fund that does not comply with rule 2a-7 under 
the Act.
    \3\ A Private Central Fund that does not comply with rule 2a-7 
may accept investments of Cash Collateral from Participating Funds 
(other than money market Funds), but will not accept investments 
from Participating Funds investing Uninvested Cash. x
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Applicants' Legal Analysis

I. Investment of Cash Balances by the Participating Funds in the 
Central Funds

A. Section 12(d)(1)
    1. Section 12(d)(1)(A) of the Act provides that no investment 
company may acquire securities of a registered investment company if 
such securities represent more than 3% of the acquired company's 
outstanding voting stock, more than 5% of the acquiring company's total 
assets, or if such securities, together with the securities of other 
acquired investment companies, represent more than 10% of the acquiring 
company's assets. Section 12(d)(1)(B) of the Act provides that no 
registered open-end investment company may sell its securities to 
another investment company if the sale will cause the acquiring company 
to own more than 3% of the acquired company's voting stock, or if the 
sale will cause more than 10% of the acquired company's voting stock to 
be owned by investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if and to the extent that such exemption is consistent 
with the public interest and the protection of investors. Applicants 
request relief under section 12(d)(1)(J) to permit the Participating 
Funds to use their Cash Balances to acquire shares of the Registered 
Central Funds in excess of the percentage limitations in section 
12(d)(1)(A), provided however, that in all cases a Participating Fund's 
aggregate investment of Uninvested Cash in shares of the Central Funds 
will not exceed the greater of 25% of the Participating Fund's total 
assets or $10 million. Applicants also request relief to permit the 
Registered Central Funds to sell their securities to the Participating 
Funds in excess of the percentage limitations in section 12(d)(1)(B).
    3. Applicants state that the proposed arrangement will not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that the proposed arrangement will not result 
in inappropriate layering of fees and that a Participating Fund's 
shareholders will not be subject to the

[[Page 57939]]

imposition of double investment advisory fees. If a Central Fund offers 
more than one class of shares in which a Participating Fund may invest, 
the Participating Fund will invest its Cash Balances only in the class 
with the lowest expense ratio at the time of investment. Applicants 
also state that no front-end sales charge, contingent deferred sales 
charge, distribution fee under a plan adopted in accordance with rule 
12b-1 under the Act (``Rule 12b-1 Fee'') or service fee will be charged 
in connection with the purchase and sale of shares of the Central 
Funds. In addition, if the Adviser collects a fee from a Central Fund 
for acting as its investment adviser with respect to assets invested by 
a Participating Fund, when approving an investment advisory or sub-
advisory contract under section 15 of the Act for the Participating 
Fund, the board of trustees of each Participating Fund (``Board''), 
including a majority of trustees who are not ``interested persons,'' as 
defined in section 2(a)(19) of the Act (``Independent Trustees''), will 
consider to what extent, if any, the advisory fees charged to the 
Participating Fund by the Adviser or Sub-Adviser should be reduced to 
account for reduced services provided to the Participating Fund as a 
result of the investment of Uninvested Cash in the Central Fund. 
Applicants represent that no Central Fund will acquire securities of 
any other investment company in excess of the limitations contained in 
section 12(d)(1)(A) of the Act.
B. Section 17(a) of the Act
    1. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, acting as principal, to sell 
or purchase any security to or from the investment company. Section 
2(a)(3) of the Act defines an affiliated person of an investment 
company to include any person directly or indirectly owning, 
controlling, or holding with power to vote 5% or more of the 
outstanding voting securities of the other person, any person 5% or 
more of whose outstanding securities are directly or indirectly owned, 
controlled, or held with power to vote by the other person, any person 
directly or indirectly controlling, controlled by, or under common 
control with the other person, and any investment adviser to the 
investment company. Because the Funds have the Adviser as investment 
adviser, they may be deemed to be under common control and thus 
affiliated persons of each other. In addition, if a Participating Fund 
purchases more than 5% of the voting securities of a Central Fund, the 
Central Fund and the Participating Fund may be affiliated persons of 
each other. As a result, section 17(a) would prohibit the sale of the 
shares of Central Funds to the Participating Funds, and the redemption 
of the shares by the Participating Funds.
    2. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and the proposed transaction is consistent with the 
policy of each registered investment company concerned and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt persons or transactions from any provision of the 
Act, if the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act.
    3. Applicants submit that their request for relief to permit the 
purchase and redemption of shares of the Central Funds by the 
Participating Funds satisfies the standards in sections 6(c) and 17(b) 
of the Act. Applicants note that shares of the Central Funds will be 
purchased and redeemed at their net asset value, the same consideration 
paid and received for these shares by any other shareholder. Applicants 
state that the Participating Funds will retain their ability to invest 
Cash Balances directly in money market instruments as authorized by 
their respective investment objectives and policies if they can achieve 
a higher return or for any other reason. Applicants state that a 
Registered Central Fund has the right to discontinue selling shares to 
any of the Participating Funds if the Registered Central Fund's Board 
or the Adviser determines that such sale would adversely affect the 
Registered Central Fund's portfolio management and operations.
C. Section 17(d) of the Act and Rule 17d-1 under the Act
    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates, unless the Commission has approved the 
joint arrangement. Applicants state that the Participating Funds, by 
purchasing shares of the Central Funds, the Adviser, and any Sub-
Adviser, by managing the assets of the Participating Funds invested in 
the Central Funds, and each of the Central Funds, by selling Shares to 
and redeeming them from the Participating Funds could be deemed to be 
participating in a joint arrangement within the meaning of section 
17(d) and rule 17d-1.
    2. In considering whether to approve a joint transaction under rule 
17d-1, the Commission considers whether the registered investment 
company's participation in the joint transaction is consistent with the 
provisions, policies and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants state that the investment 
by the Participating Funds in shares of the Central Funds would be on 
the same basis and no different from or less advantageous than that of 
other participants. Applicants submit that the proposed transactions 
meet the standards for an order under rule 17d-1.

II. Interfund Transactions

    1. Applicants state that certain Funds and Private Central Funds 
currently rely on rule 17a-7 under the Act to conduct Interfund 
Transactions. Rule 17a-7 under the Act provides an exemption from 
section 17(a) for a purchase or sale of certain securities between a 
registered investment company and an affiliated person (or an 
affiliated person of an affiliated person), provided that certain 
conditions are met, including that the affiliation between the 
registered investment company and the affiliated person (or an 
affiliated person of the affiliated person) must exist solely by reason 
of having a common investment adviser, common directors and/or common 
officers. Applicants state that the Participating Funds and Private 
Central Funds may not be able to rely on rule 17a-7 when purchasing or 
selling portfolio securities to each other, because some of the 
Participating Funds may own 5% or more of the outstanding voting 
securities of a Private Central Fund and, therefore, an affiliation 
would not exist solely by reason of such Participating Fund and such 
Private Central Fund having a common investment adviser, common 
directors and/or common officers.
    2. Applicants request relief under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. Applicants submit that the 
requested relief satisfies the standards for relief in sections 6(c) 
and 17(b). Applicants state that the Funds and the Private Central

[[Page 57940]]

Funds will comply with rule 17a-7(a) through (g) under the Act. 
Applicants state that the additional affiliation created under sections 
2(a)(3)(A) and (B) does not affect the other protections provided by 
rule 17a-7, including the integrity of the pricing mechanism employed 
and oversight by each Fund's Board.

Applicants' Conditions

    Applicants agree that the order granting the requested relief shall 
be subject to the following conditions:
    1. The shares of the Central Funds sold to and redeemed from the 
Participating Funds will not be subject to a sales load, redemption 
fee, Rule 12b-1 Fee, or service fee (as defined in rule 2830(b)(9) of 
the NASD Conduct Rules).
    2. If the Adviser collects a fee from a Central Fund for acting as 
investment adviser with respect to assets invested by a Participating 
Fund, the Adviser or Sub-Adviser to a Participating Fund will provide 
the Board of the Participating Fund, before its next meeting that is 
held for the purpose of voting on an advisory or sub-advisory contract 
under section 15 of the Act, with specific information regarding the 
approximate cost to the Adviser or Sub-Adviser for, or portion of the 
advisory or sub-advisory fee under the existing advisory or sub-
advisory fee attributable to, managing the Uninvested Cash of the 
Participating Fund that can be expected to be invested in the Central 
Funds. Before approving any advisory or sub-advisory contract under 
section 15 for a Participating Fund, the Board of the Participating 
Fund, including a majority of the Independent Trustees, shall consider 
to what extent, if any, the advisory or sub-advisory fees charged to 
the Participating Fund by the Adviser or Sub-Adviser should be reduced 
to account for reduced services provided to the Participating Fund by 
the Adviser or Sub-Adviser as a result of investment of Uninvested Cash 
in the Central Funds. The minute books of the Participating Fund will 
record fully the Board's consideration in approving the investment 
advisory or sub-advisory contact, including the consideration relating 
to fees referred to above.
    3. Each of the Participating Funds may invest Uninvested Cash in, 
and hold shares of, the Central Funds only to the extent that the 
Participating Fund's aggregate investment of Uninvested Cash in the 
Central Funds does not exceed the greater of 25% of the Participating 
Fund's total assets or $10 million. For purposes of this limitation, 
each Participating Fund or series thereof will be treated as a separate 
investment company.
    4. Investments by a Participating Fund in shares of the Central 
Funds will be in accordance with each Participating Fund's respective 
investment restrictions and will be consistent with such Participating 
Fund's investment objectives and policies as set forth in its 
prospectus and statement of additional information. A Participating 
Fund that complies with rule 2a-7 under the Act will not invest its 
Cash Balances in a Central Fund that does not comply with rule 2a-7. A 
Participating Fund's Cash Collateral will be invested in a particular 
Central Fund only if that Central Fund has been approved for investment 
by the Participating Fund and if that Central Fund invests in the types 
of instruments that the Participating Fund has authorized for the 
investment of its Cash Collateral.
    5. Each Participating Fund and Central Fund that may rely on the 
order shall be advised by the Adviser.
    6. No Central Fund will acquire securities of any other investment 
company in excess of the limits contained in section 12(d)(1)(A) of the 
Act, except as permitted by a Commission order governing interfund 
loans.
    7. Before a Participating Fund may participate in a Securities 
Lending Program, a majority of the Board, including a majority of the 
Independent Trustees, will approve the Participating Fund's 
participation in the Securities Lending Program. The Board will 
evaluate the securities lending arrangement and its results no less 
frequently than annually and determine that any investment of Cash 
Collateral in the Central Funds is in the best interest of the 
Participating Fund.
    8. The Securities Lending Program of each Participating Fund will 
comply with all present and future applicable Commission and staff 
positions regarding securities lending arrangements.
    9. To engage in Interfund Transactions, the Participating Funds and 
the Private Central Funds will comply with rule 17a-7 under the Act in 
all respects other than the requirement that the parties to the 
transaction be affiliated persons (or affiliated persons of affiliated 
persons) of each other solely by reason of having a common investment 
adviser or investment advisers which are affiliated persons of each 
other, common officers and/or common trustees, solely because a 
Participating Fund and a Private Central Fund might become affiliated 
persons of each other within the meaning of sections 2(a)(3)(A) and (B) 
of the Act.

Operation of the Private Central Funds

    10. Each Private Central Fund will comply with the requirements of 
sections 17(a), (d), and (e), and 18 of the Act as if the Private 
Central Fund were a registered open-end investment company. With 
respect to all redemption requests made by a Participating Fund, a 
Private Central Fund will comply with section 22(e) of the Act. The 
Adviser will adopt procedures designed to ensure that each Private 
Central Fund complies with sections 17(a), (d), and (e), 18 and 22(e) 
of the Act. The Adviser will also periodically review and update, as 
appropriate, the procedures, and will maintain books and records 
describing the procedures, and maintain the records required by rules 
31a-1(b)(1), 31a-1(b)(2)(ii), and 31a-1(b)(9) under the Act. All books 
and records required to be made pursuant to this condition will be 
maintained and preserved for a period of not less than six years from 
the end of the fiscal year in which any transaction occurred, the first 
two years in an easily accessible place, and will be subject to 
examination by the Commission and its staff.
    11. The net asset value per share with respect to shares of the 
Private Central Funds will be determined separately for each Private 
Central Fund by dividing the value of the assets belonging to that 
Private Central Fund, less the liabilities of that Private Central 
Fund, by the number of shares outstanding with respect to that Private 
Central Fund.
    12. Each Participating Fund will purchase and redeem shares of a 
Private Central Fund as of the same time and at the same price, and 
will receive dividends and bear its proportionate share of expenses on 
the same basis, as other shareholders of the Private Central Fund. A 
separate account will be established in the shareholder records of each 
Private Central Fund for the account of each Participating Fund that 
invests in such Private Central Fund.
    13. Each Private Central Fund that operates as a money market fund 
and uses the amortized cost method valuation, as defined in rule 2a-7 
under the Act, will comply with rule 2a-7 as though it were a 
registered investment company. Each such Private Central Fund will 
adopt the procedures described in rule 2a-7(c)(7) and the Adviser will 
comply with these procedures and take any other actions as are required 
to be taken pursuant to these procedures. A Participating Fund may only 
purchase shares of such a Private Central Fund if the Adviser

[[Page 57941]]

determines on an ongoing basis that the Private Central Fund is 
operating as a money market fund and is in compliance with rule 2a-7. 
The Adviser will preserve for a period not less than six years from the 
date of determination, the first two years in an easily accessible 
place, a record of such determination and the basis upon which the 
determination was made. This record will be subject to examination by 
the Commission and the staff.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-25337 Filed 10-6-03; 8:45 am]
BILLING CODE 8010-01-P