[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]


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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.

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    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\
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    \1\ The Replacement Fund is a series of BFT I and is advised by 
Brighthouse Investment Advisers (``BIA''), an affiliate of the 
Companies.
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    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\
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    \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.
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    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\
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    \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.''
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    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.
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    \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.
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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