[Federal Register Volume 71, Number 220 (Wednesday, November 15, 2006)]
[Notices]
[Pages 66568-66571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-19207]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27548; 812-12869]


Putnam Diversified Income Trust, et al.; Notice of Application

November 7, 2006.
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, and under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act.

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    Summary of Application: The order would permit certain registered 
open- and closed-end management investment companies to acquire shares 
of other registered open-end management investment companies that are 
within the same group of investment companies and to invest in other 
securities and financial instruments.
    Applicants: Putnam Diversified Income Trust (``DIT''), Putnam High 
Income Securities Fund (``HIS''), Putnam High Yield Advantage Fund 
(``HYA''), Putnam High Yield Trust (``HYT''), Putnam Income Fund 
(``PIF''), Putnam Managed High Yield Trust (``MHYT''), Putnam Master 
Intermediate Income Trust (``MIIT''), Putnam Premier Income Trust 
(``PIT''), Putnam Funds Trust (``PFT''), and Putnam Variable Trust 
(``PVT'' and together with the above named entities, the ``Putnam 
Funds''), Putman Investment

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Management, LLC (``Adviser''), and Putnam Retail Management Limited 
Partnership (``Putnam Retail Management'').
    Filing Dates: The application was filed on August 16, 2002 and 
amended on October 29, 2003, March 4, 2005 and November 3, 2006.
    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 December 1, 2006 and should be accompanied by proof of 
service on 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, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington DC 20549-1090; Applicants, c/o Beth S. Mazor, 
Vice President, The Putnam Funds, One Post Office Square, Boston, MA 
02109.

FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at 
(202) 551-6873 or Stacy L. Fuller, Branch Chief, at (202) 551-6821 
(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, 100 F Street NE., Washington, DC 
20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. Each Putnam Fund is organized as a Massachusetts business trust. 
DIT, HYA, HYT, PIF, PFT and PVT are registered under the Act as open-
end management investment companies (``open-end Putnam Funds''). PFT 
and PVT currently consist of multiple series. A series of PFT, Putnam 
Floating Rate Income Fund (``Floating Rate Fund'') seeks high current 
income and preservation of capital by investing, under normal 
circumstances, at least 80% of its net assets in income-producing 
floating rate loans and other floating rate debt securities (``Senior 
Loans''). Each series of PVT is available for purchase by separate 
accounts of insurance companies, including separate accounts registered 
under the Act (``Registered Separate Accounts'').\1\ HIS, MHYT, MIIT, 
and PIT are registered under the Act as closed-end management 
investment companies (``closed-end Putnam Funds''). Shares of the 
closed-end Putnam Funds are listed and traded on a national securities 
exchange, as defined in section 2(a)(26) of the Act. DIT, HYA, HYT, 
PIF, PVT, HIS, MHYT, MIIT, and PIT, or certain of their series, 
generally seek high current income by investing in, among other things, 
high yield securities such as Senior Loans.
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    \1\ All of the insurance companies that sponsor the Registered 
Separate Accounts are and will be unaffiliated with the Adviser.
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    2. The Adviser, a Delaware limited liability company, is registered 
as an investment adviser under the Investment Advisers Act of 1940, and 
serves as the investment adviser to each Putnam Fund. Putnam Retail 
Management, a broker-dealer registered under the Securities Exchange 
Act of 1934 (``Exchange Act''), acts as principal underwriter for the 
open-end Putnam Funds. The Adviser and Putnam Retail Management are 
wholly owned subsidiaries of Putnam, LLC, which is a wholly owned 
subsidiary of Putnam Investments Trust, a holding company that is a 
majority-owned subsidiary of Marsh & McLennan Companies, Inc.
    3. Applicants request relief to permit: (a) The closed-end Putnam 
Funds and certain of the open-end Putnam Funds or their series (and 
together with any existing or future registered open-or closed-end 
management investment company or series thereof advised by the Adviser 
or any entity controlling, controlled by, or under common control with 
the Adviser, ``Funds of Funds'') to purchase shares of one or more of 
the open-end Putnam Funds or their series (together with any existing 
or future registered open-end management investment company, or series 
thereof, advised by the Adviser or any entity controlling, controlled 
by or under common control with the Adviser, and part of the same 
``group of investment companies,'' as defined in section 
12(d)(1)(G)(ii) of the Act, as the Funds of Funds, ``Underlying 
Funds'') and the Underlying Funds to sell their shares to, and redeem 
their shares from, the Funds of Funds in excess of the limits set forth 
in sections 12(d)(1)(A) and (B) of the Act; and (b) the Funds of Funds 
also to invest in a variety of debt and/or equity securities or other 
financial instruments (``Other Securities'') in accordance with their 
respective investment objectives and policies.\2\ Applicants also seek 
relief to permit the Underlying Funds that are or become affiliated 
persons of a Fund of Funds to sell shares to, and redeem shares from, 
the Fund of Funds. The Funds of Funds and the Underlying Funds are 
referred to together as the ``Funds''.\3\
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    \2\ Other Securities do not and will not include shares of any 
registered investment companies that are not part of the same group 
of investment companies as the Funds of Funds.
    \3\ The Adviser currently intends that the open-end and closed-
end Putman Funds, including two series of PVT but excluding PFT, 
will operate as Funds of Funds, and that the Floating Rate Fund will 
operate as an Underlying Fund under the requested order. Each Fund 
that currently intends to rely on the requested order is named as an 
applicant. Any Fund that relies on the order in the future will do 
so only in accordance with the terms and conditions contained in the 
application, as amended.
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    4. Applicants believe that it may be more efficient for Funds of 
Funds to gain exposure to particular investment styles and/or asset 
classes by investing in one or more Underlying Funds. Applicants state 
that an investment by a Fund of Funds in an Underlying Fund may enable 
the Fund of Funds to obtain exposure to the investment style or asset 
class on a significantly more diversified basis than would be possible 
through a direct investment in such securities. For example, applicants 
note that Senior Loans often have significant investment minimums and, 
therefore, Funds of Funds that invest in Senior Loans through the 
Floating Rate Fund may diversify their investments in Senior Loans to a 
greater extent than would be possible if each Fund of Funds invested 
directly in such Senior Loans. Applicants expect that smaller Funds of 
Funds, in particular, will benefit from the requested relief because of 
the greater administrative ease, reduced transaction costs, and more 
efficient portfolio construction and risk management associated with 
investments in Underlying Funds, including the Floating Rate Fund.

Applicants' Legal Analysis

A. Section 12(d)(1) of the Act

    1. Section 12(d)(1)(A) provides that no registered investment 
company may acquire securities of another 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 investment 
companies, represent more than 10% of the acquiring company's total 
assets. Section 12(d)(1)(B) provides that no registered open-end 
investment company, its principal underwriter or any broker or dealer 
may sell the company's securities to another investment company if the

[[Page 66570]]

sale will cause the acquiring company to own more than 3% of the 
acquired company's voting stock or cause more than 10% of the acquired 
company's voting stock to be owned by investment companies.
    2. Section 12(d)(1)(G) of the Act provides, in relevant part, that 
section 12(d)(1) will not apply to the securities of a registered open-
end investment company purchased by another registered open-end 
investment company, if: (a) The acquiring company and the acquired 
company are part of the same group of investment companies; (b) the 
acquiring company holds only securities of acquired companies that are 
part of the same group of investment companies, government securities 
and short-term paper; (c) the aggregate sales loads and distribution-
related fees of the acquiring company and the acquired company are not 
excessive under rules adopted pursuant to section 22(b) or section 
22(c) of the Act by a securities association registered under section 
15A of the Exchange Act or by the Commission; and (d) the acquired 
company has a policy that prohibits it from acquiring securities of 
registered open-end management investment companies or registered unit 
investment trusts in reliance on section 12(d)(1)(F) or (G) of the Act. 
Section 12(d)(1)(G)(ii) defines a ``group of investment companies'' as 
``any 2 or more registered investment companies that hold themselves 
out to investors as related for purposes of investment and investor 
services.'' Applicants state that they may not rely on section 
12(d)(1)(G) because certain of the Funds of Funds are closed-end 
management investment companies (``closed-end Funds of Funds'') and 
because all of the Funds of Funds may invest in Other Securities as 
well as in the Underlying Funds.
    3. 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 the exemption is consistent with the public 
interest and the protection of investors. Applicants seek an exemption 
under section 12(d)(1)(J) to permit (a) The Funds of Funds to acquire 
shares of Underlying Funds, and Underlying Funds to sell their shares 
to Funds of Funds, beyond the limits in sections 12(d)(1)(A) and (B) 
and (b) the Funds of Funds to invest in Other Securities.
    4. Applicants state that the proposed arrangement will not raise 
the policy concerns underlying sections 12(d)(1)(A) and (B), including 
undue influence by a fund of funds over underlying funds, excessive 
layering of fees, and overly complex fund structures. Accordingly, 
applicants believe that the requested exemption is consistent with the 
public interest and the protection of investors.
    5. Applicants contend that the proposed arrangement will not result 
in undue influence by a Fund of Funds over an Underlying Fund because 
the Fund of Funds and the Underlying Fund will be advised by the 
Adviser or an entity controlling, controlled by, or under common 
control with the Adviser, and will be part of the same group of 
investment companies. Applicants state that the Commission, and 
Congress in the enactment of section 12(d)(1)(G), have recognized that 
fund of funds arrangements that involve funds in the same group of 
investment companies may not present the same concerns regarding 
control of one fund by another.\4\
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    \4\ Applicants state, among other things, that the closed-end 
Funds of Funds and the Floating Rate Fund have the same board of 
trustees, transfer agent, and custodian; that each Fund has Putnam 
in its name; and that the Floating Rate Fund includes information on 
the closed-end Funds of Funds in its Form N-1A disclosure concerning 
its family of investment companies.
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    6. Applicants do not believe that the proposed arrangement will 
involve excessive layering of fees. With respect to investment advisory 
fees, applicants state that, before approving any investment advisory 
contract under section 15 of the Act, the board of trustees of each 
Fund of Funds, including a majority of the trustees who are not 
``interested persons'' (as defined in section 2(a)(19) of the Act) of 
the Fund of Funds, will find that advisory fees, if any, charged under 
the advisory contract are based on services provided that are in 
addition to, rather than duplicative of, services provided pursuant to 
any Underlying Fund's advisory contract.
    7. With respect to Registered Separate Accounts that invest in a 
Fund of Funds, applicants represent that no sales load will be charged 
at the Fund of Funds level or at the Underlying Fund level. Other sales 
charges and services fees, as defined in rule 2830 of the Conduct Rules 
of the National Association of Securities Dealers, Inc. (``NASD Conduct 
Rule 2830'') will only be charged at the Fund of Funds level or at the 
Underlying Fund level, not both. With respect to other investments in a 
Fund of Funds, any sales charges and/or service fees charged with 
respect to shares of a Fund of Funds will not exceed the limits 
applicable to a fund of funds set forth in NASD Conduct Rule 2830. 
Applicants state that, although investors may incur brokerage 
commissions in connection with market purchases of the closed-end Funds 
of Funds' shares, these commissions will not differ from commissions 
otherwise incurred in connection with the purchase or sale of 
comparable securities.
    8. Applicants contend that the proposed arrangement will not create 
an overly complex fund structure. Applicants state that no Underlying 
Fund will acquire securities of any investment company or company 
relying on section 3(c)(1) or 3(c)(7) of the Act in excess of the 
limits of section 12(d)(1)(A), except to the extent that such 
Underlying Fund acquires, or is deemed to have acquired, the securities 
pursuant to exemptive relief from the Commission permitting such 
Underlying Fund to (a) Acquire securities of one or more affiliated 
investment companies or companies relying on section 3(c)(1) or 3(c)(7) 
for short-term cash management purposes, or (b) engage in interfund 
borrowing and lending transactions.

B. Section 17(a) of the Act

    1. Section 17(a) of the Act generally prohibits purchases and sales 
of securities, on a principal basis, between a registered investment 
company and any affiliated person of the company, and affiliated 
persons of such persons. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include, among other things, 
any person directly or indirectly owning, controlling or holding with 
power to vote 5% or more of the other's outstanding voting securities; 
any person 5% or more of whose outstanding voting 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 an investment company. Applicants state that an 
Underlying Fund might be deemed to be an affiliated person of a Fund of 
Funds if the Fund of Funds acquires 5% or more of the Underlying Fund's 
outstanding voting securities. Applicants also state that, because the 
Funds of Funds and Underlying Funds will be advised by the Adviser, or 
a control affiliate of the Adviser, and may have the same officers and/
or board of trustees, they may be deemed to be under common control 
and, therefore, affiliated persons of each other. Accordingly, section 
17(a) could prevent an Underlying Fund from selling shares to, and 
redeeming shares from, a Fund of Funds.

[[Page 66571]]

    2. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that (a) The terms of the proposed transaction, including the 
consideration to be paid or received, are fair and reasonable and do 
not involve overreaching on the part of any person concerned, (b) the 
proposed transaction is consistent with the policies of each registered 
investment company involved, and (c) the proposed transaction is 
consistent with the general purposes of the Act. Section 6(c) of the 
Act permits the Commission to exempt any person or transaction, or any 
class or classes of persons or transactions from any provision of the 
Act if such 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 seek an exemption under sections 6(c) and 17(b) to 
allow the proposed transactions. Applicants state that the transactions 
satisfy the standards for relief under sections 6(c) and 17(b). 
Specifically, applicants state that the terms of the transactions are 
fair and reasonable and do not involve overreaching. Applicants note 
that sales and redemptions of shares of the Underlying Funds will be at 
the net asset values of such Underlying Funds. In addition, applicants 
represent that the proposed transactions will be consistent with the 
policies of each Fund involved, and the general purposes of the Act.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. With respect to Registered Separate Accounts that invest in a 
Fund of Funds, no sales load will be charged at the Fund of Funds level 
or at the Underlying Fund level. Other sales charges and service fees, 
as defined in NASD Conduct Rule 2830, if any, will only be charged at 
the Fund of Funds level or at the Underlying Fund level, not both. With 
respect to other investments in a Fund of Funds, any sales charges and/
or service fees charged with respect to shares of a Fund of Funds will 
not exceed the limits applicable to a fund of funds set forth in NASD 
Conduct Rule 2830.
    2. Before approving any advisory contract under section 15 of the 
Act, the board of trustees of a Fund of Funds, including a majority of 
the trustees who are not interested persons, as defined in section 
2(a)(19) of the Act, of the Fund of Funds, will find that advisory 
fees, if any, charged under the contract are based on services provided 
that are in addition to, rather than duplicative of, services provided 
pursuant to any Underlying Fund's advisory contract. Such finding, and 
the basis upon which it was made, will be recorded fully in the minute 
books of the Fund of Funds.
    3. Each Fund of Funds and each Underlying Fund will be part of the 
same ``group of investment companies,'' as defined in section 
12(d)(1)(G)(ii) of the Act.
    4. No Underlying Fund will acquire securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A) of the Act, 
except to the extent that such Underlying Fund acquires, or is deemed 
to have acquired, the securities pursuant to exemptive relief from the 
Commission permitting such Underlying Fund to (a) Acquire securities of 
one or more affiliated investment companies or companies relying on 
section 3(c)(1) or 3(c)(7) of the Act for short-term cash management 
purposes, or (b) engage in interfund borrowing and lending 
transactions.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6-19207 Filed 11-14-06; 8:45 am]
BILLING CODE 8011-01-P