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

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Start Preamble 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.

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 Start Printed Page 57938by 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.

Start Further Info

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).

End Further Info End Preamble Start Supplemental Information

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]

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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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 Start Printed Page 57939imposition 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 Start Printed Page 57940Funds 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 Start Printed Page 57941determines 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.

Start Signature

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

Jill M. Peterson,

Assistant Secretary.

End Signature End Supplemental Information

Footnotes

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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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.

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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.

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[FR Doc. 03-25337 Filed 10-6-03; 8:45 am]

BILLING CODE 8010-01-P