Investment Company Act of 1940 – Section 24(f)(2) and Rule 24f-2
Your letter dated June 16, 2015 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the "Commission" or "SEC") under Section 6(b) of the Securities Act of 1933 (the "1933 Act"), Section 24(f)(2) of the Investment Company Act of 1940 (the "1940 Act") or Rule 24f-2 thereunder, against Jackson National Life Insurance Company, Jackson National Life Insurance Company of New York (together, "Jackson") or certain sub-accounts of certain Jackson separate accounts and feeder funds in which they invest (described further below) in connection with variable insurance products sponsored by Jackson, if Rule 24f-2 registration fees are calculated and paid in the manner described in your letter and summarized below.
You state the following:
Jackson offers variable insurance products ("VIPs") through several of its separate accounts (the "Separate Accounts"). Selected sub-accounts of the Separate Accounts (the "Divisions") invest in underlying funds (the "Underlying Funds") that are separate series structured as feeder funds (the "Feeder Funds", and, together with Jackson and the Divisions, the "Requestors") of open-end management investment companies in a master-feeder arrangement. The Divisions invest substantially all of their assets in the Feeder Funds in reliance on Section 12(d)(1)(E) of the 1940 Act. The Feeder Funds are managed by SEC-registered investment advisers that are affiliates of Jackson. Each Feeder Fund, also in reliance on Section 12(d)(1)(E), invests substantially all of its assets in shares of a corresponding series of an unaffiliated registered management investment company (each a "Master Fund" and collectively, the "Master Funds").
The contract owners' interests in the Divisions are registered as securities under the 1933 Act. The shares of each Feeder Fund and the shares of each corresponding Master Fund also are registered under the 1933 Act. Each Division’s assets, other than cash, will consist solely of shares of its corresponding Underlying Fund, whose sole portfolio holding, other than cash, will be shares of the Master Fund in which it invests as a Feeder Fund. The Separate Accounts are unit investment trusts ("UITs") registered under the 1940 Act, and the Feeder Funds and the Master Funds are series of open-end management investment companies registered under the 1940 Act. The Separate Accounts, Feeder Funds and Master Funds are therefore subject to Section 24(f) of the 1940 Act.
You propose that each Division and Feeder Fund, in calculating its portion of annual share registration fees required by Section 24(f)(2) of the 1940 Act and Rule 24f-2 thereunder, should be permitted to exclude from the aggregate sales price of its securities the aggregate net sales price of Master Fund shares that are, in effect, sold through the Feeder Fund to the Division, under circumstances where registration fees have been paid on the aggregate net sales of Master Fund shares to the Feeder Fund in accordance with Rule 24f-2 and Form 24F-2. You assert that such calculation and payment would be consistent with the purposes of Section 24(f) of the 1940 Act and Rule 24f-2 thereunder.
Section 6(b) of the 1933 Act generally requires a registrant to pay to the Commission a fee to register the securities it proposes to offer. Section 24(f) of the 1940 Act and the rules thereunder modify the 1933 Act registration provisions for certain registered investment companies. Section 24(f) of the 1940 Act, in relevant part, provides that an open-end management company or UIT shall be deemed to have registered an indefinite amount of securities upon the effective date of its registration statement and shall pay a registration fee based on the aggregate sales price for which the company’s securities were sold pursuant to a registration of an indefinite amount of securities under Section 24(f)(2) during the previous fiscal year, which is then reduced by the aggregate redemption or repurchase price of the securities of the company during that year and by the aggregate redemption or repurchase price of any securities of the company that were not used in prior years. Rule 24f-2 requires an open-end management company to file a Form 24F-2 accompanied by a registration fee not later than 90 days after the end of any fiscal year during which it has publicly offered its securities.
The Commission and its staff have consistently taken the position that share registration fees under Section 24(f)(2) of the 1940 Act need only be paid once in certain circumstances where an investment vehicle is effectively limited to a single substantive share issuance, notwithstanding the fact that its structure may involve multiple share issuances. In adopting Form 24F-2 in 1995, the Commission codified interpretive advice previously given to the American Council of Life Insurance (the "ACLI Letter") that registered investment companies (such as the Underlying Funds) in which variable insurance contract premiums are invested through unmanaged insurance company separate accounts are not required to pay registration fees on securities they sell to the separate accounts. In its adopting release, the Commission stated that the ACLI Letter was intended ". . . to prevent payment of registration fees under the [1933 Act] for the same aggregate proceeds from investors in variable insurance products that results in ‘double counting’ of assets on which such fees are paid." To that end, Instructions B.5 and C.4 to Form 24F-2 make clear that an underlying fund that files a notice under Rule 24f-2 generally is not required to include securities sold to an unmanaged separate account (typically organized as a UIT) that issues interests that are registered under the 1933 Act and on which registration fees have been or will be paid. Therefore, the underlying fund generally is not required to pay a registration fee for those securities, provided that such an underlying fund relying on this exemption does not include shares redeemed or repurchased from such unmanaged separate accounts for purposes of netting sales under Rule 24f-2.
In a 2012 letter to GMO Trust (the "GMO Letter"), the staff stated that it would not recommend enforcement action to the Commission under Section 6(b) of the 1933 Act, Section 24 of the 1940 Act or Rule 24f-2 thereunder, against funds in a master-feeder structure if the funds excluded the net sales price of shares of each master fund sold to corresponding feeder funds when calculating aggregate sales proceeds for purposes of Form 24F-2. Among other things, the staff conditioned its no-action assurances on the representation that each feeder fund was a feeder fund in a master-feeder structure and would invest substantially all of its assets in a corresponding master fund. You assert that it would be consistent with our position in the GMO Letter and Section 24(f) and Rule 24f-2 if each Division and Feeder Fund, in calculating its respective portion of annual share registration fees, excluded from the aggregate sales price of its securities the aggregate net sales price of Master Fund shares that are, in effect, sold through the Feeder Fund to the Division, under circumstances where registration fees have been paid on the aggregate net sales of Master Fund shares to the Feeder Fund in accordance with Rule 24f-2 and Form 24F-2. In particular, you note that such treatment would avoid the payment, in effect, of triple Rule 24f-2 registration fees for the same aggregate proceeds from contract owners of VIPs that are invested in the Divisions that in turn purchase Feeder Fund (and, indirectly, Master Fund) shares. Your request is conditioned on representations that are designed to ensure that each Division and Feeder Fund is a conduit for investment in the corresponding Master Fund, and that appropriate share registration fees are in fact paid.
Based on the facts and representations in your letter, we would not recommend enforcement action to the Commission under Section 6(b) of the 1933 Act, Section 24(f)(2) of the 1940 Act, or Rule 24f-2 thereunder against any of the Requestors if Rule 24f-2 registration fees are calculated and paid in the manner described in your letter and summarized above. Our position is based particularly on your representations that:
This response expresses our view on enforcement action only and does not represent any legal or interpretive position on the issues presented. Because our position is based upon all of your facts and representations, any different facts or representations may require a different conclusion.
Kyle R. Ahlgren
 American Council of Life Insurance, SEC Staff Letter (June 20, 1995).
 Registration Fees for Certain Investment Companies, SEC Release No. IC-21332 (Sept. 1, 1995) ("1995 Release") at 17-19.
 1995 Release at 18.
 1995 Release at 18-19.
 GMO Trust, SEC Staff Letter (May 24, 2012).
 The Divisions may hold cash on a temporary basis as a result of receiving cash after the close of trading that cannot be invested in a Feeder Fund until the following trading day.