[Federal Register Volume 79, Number 41 (Monday, March 3, 2014)]
[Notices]
[Pages 11837-11840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-04555]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 30923; File No. 812-14127]


Legg Mason Partners Equity Trust, et al.; Notice of Application

February 24, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 15(a) of 
the Act and rule 18f-2 under the Act, as well as from certain 
disclosure requirements.

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SUMMARY: Summary of Application: Applicants request an order that would 
permit them to enter into, and amend, subadvisory agreements with 
Wholly-Owned Sub-Advisors (as defined below) and Non-Affiliated Sub-
Advisors (as defined below) without shareholder approval. The order 
would also grant relief from certain disclosure requirements.
    Applicants: Legg Mason Partners Equity Trust (``Equity Trust''), 
Legg Mason Partners Variable Equity Trust (``Variable Equity Trust,'' 
and, together with Equity Trust, the ``Trusts''), and Permal Asset 
Management LLC (``Permal'').
    DATES: Filing Dates: The application was filed on March 1, 2013, 
and amended on September 24, 2013, and February 6, 2014.
    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 March 21, 2014, 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: Trusts, 620 Eighth 
Avenue, New York, NY 10018; Permal, 900 3rd Avenue, New York, NY 10022.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or David P. Bartels, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm or by calling (202) 551-8090.

Applicants' Representations

    1. Each Trust is organized as a Maryland statutory trust and is 
registered with the Commission as an open-end management investment 
company under the Act. The Equity Trust currently consists of 39 series 
of shares (each a ``Series'' and collectively, ``Series''), each with 
its own distinct investment objectives, policies and restrictions. The 
Variable Equity Trust consists of 14 Series, each with its own distinct 
investment objectives, policies and restrictions. The Trusts may offer 
additional Series that in the future may operate under the multi-
manager structure described in the application and comply with the 
terms and conditions set forth therein.
    2. Permal is a limited liability company organized under the laws 
of the State of Delaware and is registered

[[Page 11838]]

with the Commission as an investment adviser under the Investment 
Advisers Act of 1940 (``Advisers Act'').
    3. Applicants request an order to permit the Advisor,\1\ subject to 
the approval of the applicable board of trustees (``Board''), including 
a majority of the members of the Board who are not ``interested 
persons'', as defined in section 2(a)(19) of the Act, of the Series or 
the Advisor (``Independent Board Members''), to, without obtaining 
shareholder approval: (i) select Sub-Advisors \2\ to manage all or a 
portion of the assets of a Series and enter into Sub-Advisory 
Agreements (as defined below) with the Sub-Advisors, and (ii) 
materially amend Sub-Advisory Agreements with the Sub-Advisors.\3\ 
Applicants request that the relief apply to the applicants, as well as 
to any future Series and any other existing or future registered open-
end management investment company or series thereof that is advised by 
an Advisor, uses the multi-manager structure described in the 
application, and complies with the terms and conditions of the 
application (each a ``Subadvised Series'').\4\ The requested relief 
will not extend to any sub-advisor, other than a Wholly-Owned Sub-
Advisor, who is an affiliated person, as defined in section 2(a)(3) of 
the Act, of the Subadvised Series or of the Advisor, other than by 
reason of serving as sub-advisor to one or more of the Subadvised 
Series (``Affiliated Sub-Advisor'').
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    \1\ The term ``Advisor'' includes (i) Permal and (ii) any entity 
controlling, controlled by or under common control with, the Permal 
or its successors. For purposes of the requested order, 
``successor'' is limited to an entity that results from a 
reorganization into another jurisdiction or a change in the type of 
business organization. Each Advisor will be registered with the 
Commission under the Advisers Act.
    \2\ As used herein, a ``Sub-Advisor'' is (1) an indirect or 
direct ``wholly-owned subsidiary'' (as such term is defined in the 
Act) of the Advisor for that Series, or (2) a sister company of the 
Advisor for that Series that is an indirect or direct wholly-owned 
subsidiary of the same company that, indirectly or directly, wholly 
owns the Advisor (each of (1) and (2) a ``Wholly-Owned Sub-
Advisor''), or (3) not an ``affiliated person'' (as defined in 
section 2(a)(3) of the Act) of the Series, the applicable Trust, or 
the Advisor, except to the extent that an affiliation arises solely 
because the Sub-Advisor serves as a Sub-Advisor to a Subadvised 
Series (each a ``Non-Affiliated Sub-Advisor). Each Sub-Advisor will 
be registered under Advisers Act or exempt from registration.
    \3\ Shareholder approval will continue to be required for any 
other Sub-Advisor change not otherwise permitted by rule or other 
action of the Commission or staff and material amendments to an 
existing Sub-Advisory Agreement with any sub-advisor other than a 
Non-Affiliated Sub-Advisor or a Wholly-Owned Sub-Advisor (all such 
changes referred to as ``Ineligible Sub-Advisor Changes'').
    \4\ All registered open-end investment companies that currently 
intend to rely on the requested order are named as applicants. All 
Series that currently are, or that currently intend to be, 
Subadvised Series are identified in the application. Any entity that 
relies on the requested order will do so only in accordance with the 
terms and conditions contained the application. The Series that 
currently intend to rely on the requested order, and to be 
Subadvised Series are Permal Alternative Select Fund (``Alternative 
Select Fund''), a Series of the Equity Trust, and Permal Alternative 
Select VIT Portfolio (``Alternative Select Portfolio''), a Series of 
Variable Equity Trust. The Alternative Select Portfolio is newly 
organized and the Board meeting at which the Advisor will be 
appointed as investment adviser has not yet occurred. If the name of 
any Subadvised Series contains the name of a Sub-Advisor, the name 
of the Advisor or a trademark or trade name that is owned by or 
publicly used to identify the Advisor, will precede the name of the 
Sub-Advisor.
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    4. The Advisor serves or will serve as the investment adviser to 
each Subadvised Series pursuant to an investment advisory agreement 
with each Trust (``Investment Management Agreement''). The Investment 
Management Agreement for each Subadvised Series has been or will be 
approved by the applicable Board, including a majority of the 
Independent Board Members and by the shareholders of the applicable 
Series as required by sections 15(a) and 15(c) of the Act and rule 18f-
2 thereunder. The terms of the Investment Management Agreements will 
comply with section 15(a) of the Act.
    5. Under the terms of each Investment Management Agreement, the 
Advisor, subject to the supervision of the Board, will provide 
continuous investment management of the assets of the Subadvised 
Series. The Advisor will periodically review the Subadvised Series' 
investment policies and strategies and may recommend changes to the 
investment policies and strategies of the Subadvised Series for 
consideration by the Board. For its services to the Subadvised Series 
under the Investment Management Agreement, the Advisor will receive an 
investment management fee from the Subadvised Series based on the 
average net assets of the Subadvised Series. The terms of the 
Investment Management Agreement will permit the Advisor, subject to the 
approval of the applicable Board, including a majority of the 
Independent Board Members, and the shareholders of the Subadvised 
Series, to delegate portfolio management responsibilities of all or a 
portion of the assets of the Subadvised Series to one or more Sub-
Advisors.
    6. Pursuant to each Investment Management Agreement, the Advisor 
will have overall responsibility for the management and investment of 
the assets of each Subadvised Series. These responsibilities include 
recommending the removal or replacement of Sub-Advisors, determining 
the portion of that Subadvised Series' assets to be managed by any 
given Sub-Advisor and reallocating those assets as necessary from time 
to time.\5\ In accordance with each Investment Management Agreement, 
the Advisor will supervise each Sub-Advisor in its performance of its 
duties.
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    \5\ Although the Advisor will not normally make day-to-day 
investment decisions, it may manage all or a portion of a Subadvised 
Series.
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    7. The Advisor will enter into sub-advisory agreements with Sub-
Advisors (``Sub-Advisory Agreements'') to provide investment management 
services to the Subadvised Series. The terms of each Sub-Advisory 
Agreement will comply fully with the requirements of section 15(a) of 
the Act and will be approved by the applicable Board, including a 
majority of the Independent Board Members, in accordance with sections 
15(a) and 15(c) of the Act and rule 18f-2 thereunder. The Sub-Advisors, 
subject to the supervision of the Advisor and oversight of the 
applicable Board, will determine the securities and other instruments 
or investments to be purchased, sold, or entered into by a Subadvised 
Series' portfolio or a portion thereof, and will place orders with 
brokers or dealers that they select. The Advisor will compensate each 
Sub-Advisor out of the fee paid to the Advisor under the relevant 
Investment Management Agreement.
    8. Each Subadvised Series will inform its shareholders of the 
hiring of a new Sub-Advisor pursuant to the following procedures 
(``Modified Notice and Access Procedures''): (a) within 90 days after a 
new Sub-Advisor is hired for any Subadvised Series, that Subadvised 
Series will send its shareholders either a Multi-manager Notice or a 
Multi-manager Notice and Multi-manager Information Statement; \6\ and 
(b) the

[[Page 11839]]

Subadvised Series will make the Multi-manager Information Statement 
available on the Web site identified in the Multi-manager Notice no 
later than when the Multi-manager Notice (or Multi-manager Notice and 
Multi-manager Information Statement) is first sent to shareholders, and 
will maintain it on that Web site for at least 90 days. In the 
circumstances described in the application, a proxy solicitation to 
approve the appointment of new Sub-Advisors provides no more meaningful 
information to shareholders than the proposed Multi-manager Information 
Statement. Applicants state that the Board would comply with the 
requirements of sections 15(a) and 15(c) of the Act before entering 
into or amending Sub-Advisory Agreements.
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    \6\ A ``Multi-manager Notice'' will be modeled on a Notice of 
Internet Availability as defined in rule 14a-16 under the Securities 
Exchange Act of 1934 (``Exchange Act''), and specifically will, 
among other things: (a) summarize the relevant information regarding 
the new Sub-Advisor; (b) inform shareholders that the Multi-manager 
Information Statement is available on a Web site; (c) provide the 
Web site address; (d) state the time period during which the Multi-
manager Information Statement will remain available on that Web 
site; (e) provide instructions for accessing and printing the Multi-
manager Information Statement; and (f) instruct the shareholder that 
a paper or email copy of the Multi-manager Information Statement may 
be obtained, without charge, by contacting the Subadvised Series.
    A ``Multi-manager Information Statement'' will meet the 
requirements of Regulation 14C, Schedule 14C and Item 22 of Schedule 
14A under the Exchange Act for an information statement, except as 
modified by the order to permit Aggregate Fee Disclosure, as defined 
below. Multi-manager Information Statements will be filed with the 
Commission via the EDGAR system.
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    9. Applicants also request an order exempting the Subadvised Series 
from certain disclosure obligations that may require the applicants to 
disclose fees paid by the Advisor to each Sub-Advisor. Applicants seek 
relief to permit each Subadvised Series to disclose (as a dollar amount 
and a percentage of the Subadvised Series' net assets): (a) The 
aggregate fees paid to the Advisor and any Wholly-Owned Sub-Advisors; 
(b) the aggregate fees paid to Non-Affiliated Sub-Advisors; and (c) the 
fee paid to each Affiliated Sub-Advisor (collectively, the ``Aggregate 
Fee Disclosure'').\7\ An exemption is requested to permit the Series to 
include only the Aggregate Fee Disclosure. All other items required by 
Sections 6-07(2)(a), (b) and (c) of Regulation S-X will be disclosed.
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    \7\ Applicants will only comply with conditions 8, 9, and 12 if 
they rely on the relief that would allow them to provide Aggregate 
Fee Disclosure.
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Applicants' Legal Analysis

    1. Section 15(a) of the Act states, in part, that it is unlawful 
for any person to act as an investment adviser to a registered 
investment company ``except pursuant to a written contract, which 
contract, whether with such registered company or with an investment 
adviser of such registered company, has been approved by the vote of a 
majority of the outstanding voting securities of such registered 
company.'' Rule 18f-2 under the Act states that any ``matter required 
to be submitted . . . to the holders of the outstanding voting 
securities of a series company shall not be deemed to have been 
effectively acted upon unless approved by the holders of a majority of 
the outstanding voting securities of each class or series of stock 
affected by such matter.'' Further, rule 18(f)-2(c)(1) under the Act 
provides that a vote to approve an investment advisory contract 
required by section 15(a) of the Act ``shall be deemed to be 
effectively acted upon with respect to any class or series of 
securities of such [registered investment] company if a majority of the 
outstanding voting securities of such class or series vote for the 
approval of such matter.''
    2. Form N-1A is the registration statement used by open-end 
investment companies. Item 19(a)(3) of Form N-1A requires a registered 
investment company to disclose in its statement of additional 
information the method of computing the ``advisory fee payable'' by the 
investment company, including the total dollar amounts that the 
investment company ``paid to the adviser (aggregated with amounts paid 
to affiliated advisers, if any), and any advisers who are not 
affiliated persons of the adviser, under the investment advisory 
contract for the last three fiscal years.''
    3. Rule 20a-1 under the Act requires proxies solicited with respect 
to a registered investment company to comply with Schedule 14A under 
the Exchange Act. Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 
22(c)(9) of Schedule 14A, taken together, require a proxy statement for 
a shareholder meeting at which the advisory contract will be voted upon 
to include the ``rate of compensation of the investment adviser,'' the 
``aggregate amount of the investment adviser's fee,'' a description of 
the ``terms of the contract to be acted upon,'' and, if a change in the 
advisory fee is proposed, the existing and proposed fees and the 
difference between the two fees.
    4. Regulation S-X sets forth the requirements for financial 
statements required to be included as part of a registered investment 
company's registration statement and shareholder reports filed with the 
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require 
a registered investment company to include in its financial statement 
information about the investment advisory fees.
    5. Section 6(c) of the Act provides that the Commission by order 
upon application may conditionally or unconditionally exempt any 
person, security, or transaction or any class or classes of persons, 
securities, or transactions from any provisions of the Act, or from any 
rule thereunder, 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. 
Applicants state that their requested relief meets this standard for 
the reasons discussed below.
    6. Applicants assert that the shareholders expect the Advisor, 
subject to review and approval of the applicable Board, to select the 
Sub-Advisors who are in the best position to achieve the Subadvised 
Series' investment objective. Applicants assert that, from the 
perspective of the shareholder, the role of the Sub-Advisors is 
substantially equivalent to the role of the individual portfolio 
managers employed by an investment adviser to a traditional investment 
company. Applicants believe that permitting the Advisor to perform the 
duties for which the shareholders of the Subadvised Series are paying 
the Advisor--the selection, supervision and evaluation of the Sub-
Advisors--without incurring unnecessary delays or expenses is 
appropriate in the interest of the Subadvised Series' shareholders and 
will allow such Subadvised Series to operate more efficiently. 
Applicants state that each Investment Management Agreement will 
continue to be fully subject to section 15(a) of the Act and rule 18f-2 
under the Act and approved by the applicable Board, including a 
majority of the Independent Board Members, in the manner required by 
sections 15(a) and 15(c) of the Act. Applicants are not seeking an 
exemption with respect to the Investment Management Agreements.
    7. Applicants assert that disclosure of the individual fees that 
the Advisor would pay to the Sub-Advisors of Subadvised Series that 
operate under the multi-manager structure described in the application 
would not serve any meaningful purpose. Applicants contend that the 
primary reasons for requiring disclosure of individual fees paid to 
Sub-Advisors are to inform shareholders of expenses to be charged by a 
particular Subadvised Series and to enable shareholders to compare the 
fees to those of other comparable investment companies. Applicants 
believe that the requested relief satisfies these objectives because 
the advisory fee paid to the Advisor will be fully disclosed and, 
therefore, shareholders will know what the Subadvised Series' fees and 
expenses are and will be able to compare the advisory fees a Subadvised 
Series is charged to those of other investment companies. Applicants 
assert that the requested disclosure relief would benefit shareholders 
of the Subadvised Series because it would improve the Advisor's ability 
to negotiate the fees paid to Sub-Advisors. Applicants state that the 
Advisor may be able to negotiate rates that are below a Sub-Advisor's 
``posted'' amounts if the Advisor is not required to disclose the

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Sub-Advisors' fees to the public. Applicants submit that the relief 
requested to use Aggregate Fee Disclosure will encourage Sub-Advisors 
to negotiate lower subadvisory fees with the Advisor if the lower fees 
are not required to be made public.
    8. For the reasons discussed above, Applicants submit that the 
requested relief meets the standards for relief under section 6(c) of 
the Act. Applicants state that the operation of the Subadvised Series 
in the manner described in the application must be approved by 
shareholders of a Subadvised Series before that Subadvised Series may 
rely on the requested relief. In addition, Applicants state that the 
proposed conditions to the requested relief are designed to address any 
potential conflicts of interest, including any posed by the use of 
Wholly-owned Sub-Advisors, and provide that shareholders are informed 
when new Sub-Advisors are hired. Applicants assert that conditions 6, 
7, 10 and 11 are designed to provide the applicable Board with 
sufficient independence and the resources and information it needs to 
monitor and address any conflicts of interest with affiliated person of 
the Advisor, including Wholly-Owned Sub-Advisors. Applicants state 
that, accordingly, they believe the requested relief 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.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Before a Subadvised Series may rely on the order requested in 
the application, the operation of the Subadvised Series in the manner 
described in the application, including the hiring of Wholly-Owned Sub-
Advisors, will be approved by a majority of the Subadvised Series' 
outstanding voting securities as defined in the Act, or, in the case of 
a new Subadvised Series whose public shareholders purchase shares on 
the basis of a prospectus containing the disclosure contemplated by 
condition 2 below, by the sole initial shareholder before offering the 
Subadvised Series' shares to the public.
    2. The prospectus for each Subadvised Series will disclose the 
existence, substance, and effect of any order granted pursuant to the 
application. Each Subadvised Series will hold itself out to the public 
as employing the multi-manager structure described in the application. 
Each prospectus will prominently disclose that the Advisor has the 
ultimate responsibility, subject to oversight by the applicable Board, 
to oversee the Sub-Advisors and recommend their hiring, termination and 
replacement.
    3. The Advisor will provide general management services to a 
Subadvised Series, including overall supervisory responsibility for the 
general management and investment of the Subadvised Series' assets. 
Subject to review and approval of the applicable Board, the Advisor 
will (a) set a Subadvised Series' overall investment strategies, (b) 
evaluate, select, and recommend Sub-Advisors to manage all or a portion 
of a Subadvised Series' assets, and (c) implement procedures reasonably 
designed to ensure that Sub-Advisors comply with a Subadvised Series' 
investment objective, policies and restrictions. Subject to review by 
the applicable Board, the Advisor will (a) when appropriate, allocate 
and reallocate a Subadvised Series' assets among multiple Sub-Advisors; 
and (b) monitor and evaluate the performance of Sub-Advisors.
    4. A Subadvised Series will not make any Ineligible Sub-Advisor 
Changes without such agreement, including the compensation to be paid 
thereunder, being approved by the shareholders of the applicable 
Subadvised Series.
    5. A Subadvised Series will inform shareholders of the hiring of a 
new Sub-Advisor within 90 days after the hiring of a new Sub-Advisor 
pursuant to the Modified Notice and Access Procedures.
    6. At all times, at least a majority of the applicable Board will 
be Independent Board Members, and the selection and nomination of new 
or additional Independent Board Members will be placed within the 
discretion of the then-existing Independent Board Members.
    7. Independent Legal Counsel, as defined in rule 0-1(a)(6) under 
the Act, will be engaged to represent the Independent Board Members. 
The selection of such counsel will be within the discretion of the 
then-existing Independent Board Members.
    8. The Advisor will provide the applicable Board, no less 
frequently than quarterly, with information about the profitability of 
the Advisor on a per Subadvised Series basis. The information will 
reflect the impact on profitability of the hiring or termination of any 
sub-advisor during the applicable quarter.
    9. Whenever a sub-advisor is hired or terminated, the Advisor will 
provide the applicable Board with information showing the expected 
impact on the profitability of the Advisor.
    10. Whenever a sub-advisor change is proposed for a Subadvised 
Series with an Affiliated Sub-Advisor or a Wholly-Owned Sub-Advisor, 
the applicable Board, including a majority of the Independent Board 
Members, will make a separate finding, reflected in the applicable 
Board minutes, that such change is in the best interests of the 
Subadvised Series and its shareholders and does not involve a conflict 
of interest from which the Advisor or the Affiliated Sub-Advisor or 
Wholly-Owned Sub-Advisor derives an inappropriate advantage.
    11. No Board member or officer of a Subadvised Series, or partner, 
director, manager, or officer of the Advisor, will own directly or 
indirectly (other than through a pooled investment vehicle that is not 
controlled by such person), any interest in a Sub-Advisor, except for 
(a) ownership of interests in the Advisor or any entity, except a 
Wholly-Owned Sub-Advisor, that controls, is controlled by, or is under 
common control with the Advisor, or (b) ownership of less than 1% of 
the outstanding securities of any class of equity or debt of a publicly 
traded company that is either a Sub-Advisor or an entity that controls, 
is controlled by, or is under common control with a Sub-Advisor.
    12. Each Subadvised Series will disclose the Aggregate Fee 
Disclosure in its registration statement.
    13. In the event the Commission adopts a rule under the Act 
providing substantially similar relief to that requested in the 
application, the requested order will expire on the effective date of 
that rule.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04555 Filed 2-28-14; 8:45 am]
BILLING CODE 8011-01-P