[Federal Register Volume 86, Number 45 (Wednesday, March 10, 2021)]
[Notices]
[Pages 13772-13776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04934]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34220; File No. 812-15140]
Brighthouse Life Insurance Company, et al.
March 4, 2021.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an order approving the substitution of
certain securities pursuant to section 26(c) of the Investment Company
Act of 1940, as amended (the ``Act'') and an order of exemption
pursuant to section 17(b) of the Act from section 17(a) of the Act.
Applicants: Brighthouse Life Insurance Company (``BLIC''), Brighthouse
Life Insurance Company of NY (``BLIC NY'' and, together with BLIC, the
``Companies''), Brighthouse Fund UL for Variable Life Insurance (``Fund
UL''), Brighthouse Separate Account A (``Separate Account A''),
Brighthouse Separate Account Eleven for Variable Annuities (``Separate
Account Eleven''), and Brighthouse Variable Annuity Account B
(``Variable Account B,'' and together with Fund UL, Separate Account A,
and Separate Account Eleven, the ``Separate Accounts,'' and
[[Page 13773]]
collectively with the Companies, the ``Section 26 Applicants''); and
Brighthouse Funds Trust I (``BFT I,'' and collectively with the Section
26 Applicants, the ``Section 17 Applicants'' or ``Applicants'').
Summary of Application: The Section 26 Applicants seek an order
pursuant to section 26(c) of the Act, approving the proposed
substitution (``Substitution'') of Loomis Sayles Growth Portfolio (the
``Replacement Fund''), a series of BFT I, for shares of ClearBridge
Variable Aggressive Growth Portfolio (the ``Existing Fund''), a series
of Legg Mason Partners Variable Equity Trust, held by the Separate
Accounts to fund certain variable annuity insurance contracts and
variable life insurance contracts (collectively, the ``Contracts'').
The Section 17 Applicants seek an order pursuant to section 17(b) of
the Act exempting them from section 17(a) of the Act to the extent
necessary to permit them to engage in certain in-kind transactions in
connection with the Substitution (``In-Kind Transactions'').
Filing Dates: The application was filed on July 6, 2020 and amended on
November 19, 2020, February 10, 2021, and March 3, 2021.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request by email. Hearing requests should be received by
the Commission by 5:30 p.m. on March 29, 2021, and should be
accompanied by proof of service on applicants, in the form of an
affidavit or, for lawyers, a certificate of service. Pursuant to rule
0-5 under the Act, hearing requests should state the nature of the
writer's interest, any facts bearing upon the desirability of a hearing
on the matter, the reason for the request, and the issues contested.
Persons who wish to be notified of a hearing may request notification
by emailing the Commission's Secretary.
ADDRESSES: The Commission: [email protected]. Applicants: Ms.
Michele Abate, [email protected].
FOR FURTHER INFORMATION CONTACT: Harry Eisenstein, Senior Special
Counsel, at (202) 551-6764 or Kaitlin C. Bottock, Branch Chief at (202)
551-6825 (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 website 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. BLIC is a stock life insurance company organized under the laws
of the state of Delaware and is an indirect, wholly owned subsidiary of
Brighthouse Financial, Inc., a publicly owned company. BLIC is the
depositor and sponsor of Fund UL, Separate Account A and Separate
Account Eleven.
2. BLIC NY is a stock life insurance company organized under the
laws of the state of New York and is a wholly owned subsidiary of BLIC.
BLIC NY is the depositor and sponsor of Separate Account B.
3. The Separate Accounts are registered with the Commission under
the Act as unit investment trusts for the purpose of funding the
Contracts. Each Separate Account is divided into subaccounts that
reflect the investment performance of registered investment companies,
such as BFT I, or series of BFT I (``investment options'').
4. BFT I is a Delaware statutory trust registered under the 1940
Act as an open-end, management investment company with multiple series,
and its securities are registered under the 1933 Act.
5. The Contracts are individual variable annuity and variable life
insurance contracts. Each Contract is registered under the Securities
Act of 1933, as amended (the ``1933 Act''). The Contracts allow
Contract owners to allocate premium and Contract value among the
subaccounts investing in a number of investment options, which are
advised and/or sub-advised by investment managers that are affiliated
and unaffiliated with the Section 17 Applicants.
6. As set forth under each Contract, as well as in the prospectus
for each Contract, the Companies reserve the right to substitute shares
of the underlying fund for shares of another underlying fund.
7. The Companies, on their own behalf and on behalf of their
Separate Accounts, propose to exercise their contractual rights to
substitute Class A and Class B shares of the Replacement Fund for Class
I and Class II shares of the Existing Fund, respectively.\1\
---------------------------------------------------------------------------
\1\ The Replacement Fund is a series of BFT I and is advised by
Brighthouse Investment Advisers (``BIA''), an affiliate of the
Companies.
---------------------------------------------------------------------------
8. The Section 26 Applicants state that the Substitution is part of
an ongoing effort by the Companies to make their Contracts more
attractive to existing and prospective Contract owners. Additional
information for the Existing Fund and the Replacement Fund, including
investment objectives, principal investment strategies, principal
risks, and performance, as well as the fees and expenses of the
Existing Fund and the Replacement Fund, can be found in the
application.
9. The Section 26 Applicants state that the Substitution will be
described in supplements to the applicable prospectuses
(``Supplements'') for the Contracts filed with the Commission and
delivered to all affected Contract owners at least 30 days before the
Substitution Date. Each Supplement, among other things, will advise
Contract owners that, for a period beginning 30 days before the
Substitution Date through at least 30 days following the Substitution
Date, Contract owners are permitted to make at least one transfer of
Contract value from the subaccount investing in the Existing Fund or
the Replacement Fund to any other available investment option offered
under their Contracts without the transfer being counted as a transfer
for purposes of transfer limitations and fees that would otherwise be
applicable under the terms of the Contracts. In addition, each
Supplement will disclose the existence and effect of the Multi-Manager
Order (defined below) on which the Replacement Fund relies.\2\
---------------------------------------------------------------------------
\2\ Pursuant to exemptive orders issued to N ew England Funds
Trust I, et al., Investment Company Act Release. No. 22796 (Aug. 29,
1997) (notice); Investment Company Act Release. No.22824 (Sept. 17,
1997) (order); and Investment Company Act Release. No.23829 (May 10,
1999) (notice); Investment Company Act Release. No. (June 4, 1999)
(amended order) (the ``Multi-Manager Order''), BIA is authorized to
enter into and amend sub- advisory agreements with sub-advisers who
are not affiliated with BIA without shareholder approval under
certain conditions.
---------------------------------------------------------------------------
10. The Section 26 Applicants will send the Supplements to all
affected Contract owners. Prospective purchasers and new purchasers of
Contracts will be provided with a Contract prospectus and the
Supplement, as well as the prospectus and any supplements for the
Replacement Fund.
11. In addition to the Supplement distributed to Contract owners,
within five business days after the Substitution Date, affected
Contract owners will be sent a written confirmation of the completed
Substitution in accordance with Rule 10b-10 under the Securities
Exchange Act of 1934. The confirmation statement will include or be
accompanied by a statement that reiterates the free transfer rights
disclosed in the Supplement. The Companies also will send each Contract
[[Page 13774]]
owner a current prospectus for the Replacement Fund to the extent that
they have not previously received a copy.
12. The Substitution will be effected at the relative net asset
value (``NAV'') in conformity with section 22(c) of the Act and rule
22c-1 thereunder. The Substitution will be effected by having each
subaccount investing in the Existing Fund redeem its Existing Fund
shares in cash and/or in-kind (as described herein) on the Substitution
Date at NAV per share and purchase shares of the Replacement Fund at
NAV per share calculated on the same date.
13. The Companies or an affiliate will pay all expenses and
transaction costs reasonably related to the Substitution. No costs of
the Substitution will be borne directly or indirectly by Contract
owners. Contract owners will not incur any fees or charges as a result
of the Substitution, nor will their rights or the obligations of the
Companies under the Contracts be altered in any way. The Substitution
will not cause the fees and charges under the Contracts currently being
paid by Contract owners to be greater after the Substitution than
before the Substitution. The charges for optional living benefit riders
may change from time to time and any such changes would be unrelated to
the Substitution. In addition, the Substitution will in no way alter
the tax treatment of affected Contract owners in connection with their
Contracts, and no tax liability will arise for Contract owners as a
result of the Substitution.
14. The Section 26 Applicants state that the Contract value for
each Contract owner impacted by the Substitution will not change as a
result of the Substitution. In addition, the Section 26 Applicants also
state that the benefits offered by the guarantees under the Contracts
will be the same immediately before and after the Substitution. The
Section 26 Applicants further state that the effect Substitution may
have on the value of the benefits offered by the Contract guarantees
would depend, among other things, on the relative future performance of
the Existing Fund and the Replacement Fund, which the Section 26
Applicants cannot predict. The Section 26 Applicants further note that,
at the time of the Substitution, the Contracts will offer a comparable
variety of investment options with as broad a range of risk/return
characteristics.
15. The Section 26 Applicants represent that, for a period of two
years following the date the Substitution is effected (the
``Substitution Date''), BLIC, BLIC NY or an affiliate (other than BFT
I) will reimburse, on the last day of each fiscal quarter, the Contract
owners whose subaccounts invest in the Replacement Fund to the extent
the annual net operating expenses (taking into account fee waivers and
expense reimbursements) of each share class of the Replacement Fund for
such period exceed, on an annualized basis, the annual net operating
expenses of the corresponding share class of the Existing Fund for
fiscal year 2019. Further, any amounts waived or reimbursed by BIA will
not be subject to recoupment rights. In addition, the Section 26
Applicants will not increase separate account charges for any Contract
owner on the Substitution Date at any time during the two-year period
following the Substitution Date.
Legal Analysis--Section 26(c) of the Act
1. The Section 26 Applicants request that the Commission issue an
order pursuant to section 26(c) of the Act approving the Substitution.
Section 26(c) prohibits any depositor or trustee of a unit investment
trust that invests exclusively in the securities of a single issuer
from substituting the securities of another issuer without the approval
of the Commission. Section 26(c) provides that such approval shall be
granted by order from the Commission if the evidence establishes that
the substitution is consistent with the protection of investors and the
purposes of the Act.
2. The Section 26 Applicants submit that the Substitution is
consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. In particular, the
Section 26 Applicants point to the following: (a) The Contracts permit
the Substitution, subject to Commission approval and compliance with
applicable laws, upon appropriate notice; (b) the prospectuses or
statements of additional information for the Contracts contain
appropriate disclosure of these rights; (c) the Substitution will be
described in the Supplements delivered to all affected Contract owners
at least 30 days before the Substitution Date; (d) the Supplements also
will advise Contract owners that, for a period beginning at least 30
days before the Substitution Date through at least 30 days following
the Substitution Date, Contract owners are permitted to make at least
one transfer of Contract value from the subaccount investing in the
Existing Fund to any other available subaccounts offered under their
Contract without any transfer charge or limitation and without the
transfer being counted as a transfer for purposes of transfer
limitations and fees that would otherwise be applicable under the terms
of the Contracts; (e) the Replacement Fund and the Existing Fund have
similar or substantially similar investment objectives, principal
investment strategies, and principal risks; and (f) the total net
operating expenses of the Replacement Fund will be the same or lower
than those of the Existing Fund for at least two years following the
Substitution Date. The Section 26 Applicants assert that, based on the
terms noted above, and subject to the conditions set forth below, the
Substitution does not raise the concerns underlying section 26(c).
Legal Analysis--Section 17(a) of the Act
1. The Section 17 Applicants request an order under section 17(b)
exempting them from the provisions of section 17(a) to the extent
necessary to permit the Section 17 Applicants to carry out the
Substitution. The Section 17 Applicants state that because the
Substitution may be effected, in whole or in part, by means of in-kind
redemptions and purchases, the Substitution may be deemed to involve
one or more purchases or sales of securities or property between
affiliated persons.
2. Section 17(a)(1) of the Act, in relevant part, prohibits any
affiliated person of a registered investment company, or any affiliated
person of such person, acting as principal, from knowingly selling any
security or other property to that company. Section 17(a)(2) of the Act
generally prohibits the persons described above, acting as principals,
from knowingly purchasing any security or other property from the
registered investment company. ``Affiliated person'' is defined in
section 2(a)(3) of the Act.\3\
---------------------------------------------------------------------------
\3\ Section 2(a)(3) defines affiliated person as ``(A) any
person directly or indirectly owning, controlling, or holding with
power to vote, 5 per centum or more of the outstanding voting
securities of such other person; (B) any person 5 per centum or more
of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other person;
(C) any person directly or indirectly controlling, controlled by, or
under common control with, such other person; (D) any officer,
director, partner, copartner, or employee of such other person; (E)
if such other person is an investment company, any investment
adviser thereof or any member of an advisory board thereof; and (F)
if such other person is an unincorporated investment company not
having a board of directors, the depositor thereof.''
---------------------------------------------------------------------------
3. To effect the Substitution, the Companies will redeem shares of
the Existing Fund either in-kind or in cash, and use the proceeds of
such redemptions to purchase shares of the Replacement Fund. Thus, the
proposed transactions may involve a transfer of portfolio securities by
the Existing Fund to the Companies. Immediately
[[Page 13775]]
thereafter, the Companies would purchase shares of the Replacement Fund
with the portfolio securities and/or cash received from the Existing
Fund. This aspect of the Substitution may be considered to involve one
or more sales by the Companies of securities or other property to the
Replacement Fund. Based on the affiliations detailed in the
application, these In-Kind Transactions may be prohibited by section
17(a)(1) and (2) of the Act.
4. Section 17(b) of the Act, in relevant part, provides that,
notwithstanding subsection (a), any person may file with the Commission
an application for an order exempting a proposed transaction from one
or more provisions of section 17(a). Pursuant to section 17(b), the
Commission shall grant such application and issue such order of
exemption if evidence establishes that: 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; the proposed transaction is consistent with the
policy of each registered investment company concerned, as recited in
its registration statement and reports filed under the Act; and the
proposed transaction is consistent with the general purposes of the
Act.
5. Accordingly, the Section 17 Applicants seek relief under section
17(b) from section 17(a) for the In-Kind Transactions. The Section 17
Applicants submit that the In-Kind Transactions satisfy the standards
for an order under section 17(b) because: (i) The terms of the In-Kind
Transactions, including the consideration to be paid and received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned because the In-Kind Transactions will comply with rule
17a-7 under the Act, other than the requirement relating to cash
consideration; \4\ (ii) the In-Kind Transactions will be consistent
with the policies of the Existing Fund and Replacement Fund as stated
in their respective registration statements and reports filed with the
Commission; and (iii) the In-Kind Transactions are consistent with the
general purposes of the Act because they do not raise any investor
protection concerns.
---------------------------------------------------------------------------
\4\ Rule 17a-7 is a conditional exemption from section 17(a) of
the Act that permits purchase and sale transactions among affiliated
investment companies, or between an investment company and a person
that is affiliated solely by reason of having a common (or
affiliated) investment adviser, common directors, and/or common
officers. In the adopting release to the original Rule 17a-7, the
Commission stated that the purpose of the rule was to ``eliminate
filing and processing applications under circumstances where there
appears to be no likelihood that the statutory finding for a
specific exemption under Section 17(b) of the Act could not be
made'' and that the conditions of the rule ``are designed to limit
the exemption to those situations where the Commission, upon the
basis of its experience, considers that there is no likelihood of
overreaching of the investment companies participating in the
transaction.'' Inv. Co. Act Rel. No. 4697 (Sep. 8, 1966) at 2-4.
---------------------------------------------------------------------------
Applicants' Conditions
The Section 26 Applicants agree that any order granting the
requested relief will be subject to the following conditions:
1. The Substitution will not be effected unless the Companies
determine that: (i) The Contracts allow the substitution of shares of
registered open-end investment companies in the manner contemplated by
the application; (ii) the Substitution can be consummated as described
in the application under applicable insurance laws; and (iii) any
regulatory requirements in each jurisdiction where the Contracts are
qualified for sale have been complied with to the extent necessary to
complete the Substitution.
2. The Companies or their affiliates will pay all expenses and
transaction costs of the Substitution, including legal and accounting
expenses, any applicable brokerage expenses and other fees and
expenses. No fees or charges will be assessed to the Contract owners to
effect the Substitution. The Substitution will not cause the fees and
charges under the Contracts currently being paid by the Contract owners
to be greater after the Substitution than before the Substitution. The
combined current management fee and Rule 12b-1 fee of each share class
of the Replacement Fund involved in the Substitution at all asset
levels will be no higher than that of the corresponding share class of
the Existing Fund at corresponding asset levels.
3. The Substitution will be effected at the relative NAVs of the
respective shares in conformity with section 22(c) of the Act and Rule
22c-1 thereunder without the imposition of any transfer or similar
charges by the Section 26 Applicants. The Substitution will be effected
without change in the amount or value of any Contracts held by affected
Contract owners.
4. The Substitution will in no way alter the tax treatment of
affected Contract owners in connection with their Contracts, and no tax
liability will arise for affected Contract owners as a result of the
Substitution.
5. The obligations of the Companies and the rights of affected
Contract owners under the Contracts will not be altered in any way.
6. Affected Contract owners will be permitted to make at least one
transfer of Contract value from the subaccount investing in the
Existing Fund (before the Substitution Date) or the Replacement Fund
(after the Substitution Date) to any other available investment option
under the Contract without charge for a period beginning at least 30
days before the Substitution Date through at least 30 days following
the Substitution Date. Except as described in any market timing/short-
term trading provisions of the relevant prospectus, the Companies will
not exercise any right they may have under the Contracts to impose
restrictions on transfers between the subaccounts under the Contracts,
including limitations on the future number of transfers, for a period
beginning at least 30 days before the Substitution Date through at
least 30 days following the Substitution Date.
7. All affected Contract owners will be notified at least 30 days
before the Substitution Date about: (i) The intended Substitution of
the Existing Fund with the Replacement Fund; (ii) the intended
Substitution Date; and (iii) information with respect to transfers as
set forth in Condition 6 above. In addition, the Companies will deliver
to all affected Contract owners, at least 30 days before the
Substitution Date, a prospectus for the Replacement Fund.
8. The Companies will deliver to each affected Contract owner
within five business days of the Substitution Date, a written
confirmation which will include: (i) A confirmation that the
Substitution was carried out as previously notified; (ii) a restatement
of the information set forth in the Supplement; and (iii) before and
after account values.
9. For a period of two years following the Substitution Date, for
Contract owners who were Contract owners as of the Substitution Date,
BLIC, BLIC NY or an affiliate thereof (other than BFT I) will
reimburse, on the last day of each fiscal quarter, the Contract owners
whose subaccounts invest in the Replacement Fund to the extent the
annual net operating expenses (taking into account fee waivers and
expense reimbursements) of each share class of the Replacement Fund for
such period exceed, on an annualized basis, the annual net operating
expenses of the corresponding share class of the Existing Fund for
fiscal year 2019. Further, separate account charges for any Contract
owner on the Substitution Date will not be increased at any time during
the two-year period following the Substitution Date. Any amounts waived
or reimbursed by BIA will not be subject to recoupment rights.
[[Page 13776]]
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-04934 Filed 3-9-21; 8:45 am]
BILLING CODE 8011-01-P