Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices 54493

1Prudential Insurance Company of America, File

No. 812–8536, Rel. No. IC–19826 (Nov. 8, 1993)

(Notice), Rel. No. IC–19918 (Dec. 2, 1993) (Order).

to the extent necessary to permit the

deduction of the Surrender Charge on

surrender, partial surrender, face

amount reduction or lapse of a Policy.

8. Although Section 2(a)(32) does not

specifically contemplate the imposition

of a charge at the time of redemption,

Applicants assert that such charges are

not necessarily inconsistent with the

definition of ‘‘redeemable security.’’

9. Applicants submit that although

the deferred imposition of the Surrender

Charge (upon surrender or lapse) may

not fall within the historical pattern of

all the provisions described in this

Application, that does not change the

charge’s essential nature. Moreover, the

proposed amendments to Rule 6e–2

would permit a sales charge to be

imposed on a contingent deferred basis.

Contingent deferred charges are also

authorized by Rule 6e–3(T) for policies

able to rely on that rule. Therefore,

Applicants submit that the Surrender

Charge is consistent with the principles

and policies underlying the limitations

in Section 2(a)(32), 22(c) and 27(i)(2)(A)

of the Act and Rules 6e–2(b)(12) and

22c–1 thereunder.

Class Exemption for Future

Underwriters

10. Applicants seek to have the relief

they request extend to underwriters that

may, in the future, act as principal

underwriters of the Policies (‘‘Future

Underwriters’’). Future Underwriters

will be members of the NASD.

11. Applicants represent that the

terms of the relief requested with

respect to any Future Underwriters are

consistent with the standards set forth

in Section 6(c) of the Act. Further,

Applicants state that, without the

requested class relief, exemptive relief

for any Future Underwriter would have

to be requested and obtained separately.

Applicants assert that such additional

requests for exemptive relief would

present no issues under the Act not

already addressed herein. Applicants

submit that their request for class

exemptions 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, and that an

order of the Commission including such

class relief, should, therefore, be

granted.

Conclusion

For the reasons summarized above,

Applicants assert that the requested

exemptions are appropriate in the

public interest and consistent with the

protection of investors and purposes

fairly intended by the policy and

provisions of the Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27655 Filed 10–17–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IC–22854: File No. 812–10288]

The Prudential Insurance Company of

America, et al.

October 10, 1997.

AGENCY: The Securities and Exchange

Commission (the ‘‘Commission’’).

ACTION: Notice of application for an

order under section 11(a) of the

Investment Company Act of 1940 (the

‘‘1940 Act’’) permitting certain exchange

offers between certain unit investment

trusts and certain open-end

management investment companies.

SUMMARY OF APPLICATION: Applicants

seek an order amending a previous

order 1 (the ‘‘Prior Order’’), which

approved the terms of certain offers of

exchange from interests in certain unit

investment trusts to certain open-end

management investment companies.

Applicants seek an amended order: (1)

To extend relief to open-end

management investment companies that

have succeeded to the assets of those

open-end management investment

companies granted relief in the Prior

Order; (2) to permit exchanges both

ways between the unit investment trusts

and the successor management

investment companies; and (3) to permit

exchanges between the unit investment

trusts and certain other similar current

and future funds.

APPLICANTS: The Prudential Insurance

Company of America (‘‘Prudential’’),

Prudential Dryden Fund (‘‘Dryden

Fund,’’ formerly The Prudential

Institutional Fund (‘‘PIF’’)), The

Prudential Variable Contract Account–

10 (‘‘VCA–10’’), The Prudential Variable

Contract Account–11 (‘‘VCA–11’’), The

Prudential Variable Contract Account–

24 (‘‘VCA–24,’’ collectively with VCA–

10 and VCA–11, the ‘‘Medley separate

accounts’’), Prudential Investment

Management Services LLC (‘‘PIMS’’),

Prudential Jennison Series Fund, Inc.

(‘‘Jennison Fund’’), Prudential

Allocation Fund (‘‘Allocation Fund’’),

Prudential World Fund, Inc. (‘‘World

Fund’’), Prudential Government Income

Fund, Inc. (‘‘Government Income

Fund’’), Prudential MoneyMart Assets,

Inc. (‘‘MoneyMart Fund’’), and

Prudential Securities Incorporated

(‘‘PSI’’).

FILING DATES: The application was filed

on June 20, 1996 and was amended and

restated on July 8, 1997 and September

17, 1997.

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 Secretary of

the Commission 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 November 4, 1997, and should

be accompanied by proof of service on

Applicants in the from of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the requester’s interest, the reason for

the request, and the issues contested.

Persons may request notification of a

hearing by writing to the Secretary of

the Commission.

ADDRESSES: Secretary, SEC. 450 Fifth

Street, N.W. Washington, D.C. 20549.

Applicants, c/o Christopher E. Palmer,

Shea & Gardner, 1800 Massachusetts

Ave., N.W., Washington, D.C. 20036.

FOR FURTHER INFORMATION CONTACT:

Ethan D. Corey, Attorney, or Kevin M.

Kirchoff, Branch Chief, Office of

Insurance Products, Division of

Investment Management, at (202) 942–

0670.

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application; the complete application is

available for a fee from the

Commission’s Public Reference Branch,

450 5th Street, N.W., Washington, D.C.

20549 (tel. (202) 942–8090).

Applicants’ Representations

1. Prudential is a mutual life

insurance company organized under

New Jersey Law.

2. The Dryden Fund, formerly PIF, is

an open-end, no-load, registered

management investment company. Prior

to the reorganization described below,

PIF was a series mutual fund with the

following seven series, each of which is

referred to as a ‘‘PIF Fund’’: PIF Growth

Stock Fund, PIF Balanced Fund, PIF

International Stock Fund, PIF Income

Fund, PIF Money Market Fund, PIF

Active Balanced Fund, and PIF Stock

Index Fund. PIF was generally available

only as an investment vehicle to certain

retirement programs and other

institutional investors.

3. The Jennison Fund, the World

Fund, the Government Income Fund,
54494 Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices

and the MoneyMart Fund are organized

as Maryland corporations and each is

registered under the 1940 Act as a

diversified open-end management

investment company. The Jennison

Fund consists of two series: The

Jennison Growth Stock Fund and the

Jennison Growth and Income Fund.

Currently, the World Fund consist of

two series: the International Stock

Series and the Global Series. The

Allocation Fund is organized as a

Massachusetts business trust and is

registered under the Act as a diversified

open-end management investment

company. The Allocation Fund consists

of two series: the Balanced Portfolio and

the Strategy Portfolio. The Jennison

Growth Stock Fund of the Jennison

Fund, the International Stock Series of

the World Fund, the Government

Income Fund, the MoneyMart Fund,

and the Balanced Portfolio of the

Allocation Fund are referred to

individually as a ‘‘PMF Fund’’ and

collectively as the ‘‘PMF Funds.’’ Each

PMF Fund offers Class Z shares to

certain institutional investors and other

investors meeting specified criteria

without a sales charge or a Rule 12b–1

fee.

4. VCA–10 and VCA–11 are separate

accounts of Prudential that are

registered as open-end management

investment companies under the 1940

Act. Prudential is the investment

manager of VCA–10 and VCA–11. VCA–

24 is a separate account of Prudential

that is registered as a unit investment

trust under the 1940 Act. VCA–24 has

seven separate subaccounts, each of

which invests exclusively in a single

corresponding portfolio of The

Prudential Series Fund, Inc. (the ‘‘Series

Fund’’), an open-end management

investment company.

5. PIMS is a direct wholly-owned

subsidiary of Prudential and is

registered as a broker-dealer under the

Securities Exchange Act of 1934 (the

‘‘1934 Act’’). It is the principal

underwriter of the group variable

annuity contracts funded through the

Medley separate accounts.

6. The Medley program consists of

Prudential group annuity contracts

issued to employers (‘‘Contractholders’’)

who make contributions under them on

behalf of their employees

(‘‘Participants’’). The contracts are

offered for use in connection with

retirement arrangements that qualify for

federal tax benefits under Sections 401,

403(b), 408 or 457 of the Internal

Revenue Code of 1986, as amended, and

with certain non-qualified annuity

arrangements. Under the Medley

program, a Contractholder may hold a

fixed-dollar group annuity contract (the

‘‘Companion Contract’’) and up to three

group variable annuity contracts,

funded by VCA–10, VCA–11 and VCA–

24, respectively. Typically, a Participant

may choose to have contributions

invested in any one or more of the

Companion Contract, VCA–10, VCA–11

and the subaccounts of VCA–24. Subject

to certain limitations, Participants may

transfer amounts credited to their

accumulation accounts during the

accumulation period.

7. The Prior Order approved an

exchange program referred to as

‘‘Medley Plus’’ under which

Participants could transfer amounts

from any of the Medley separate

accounts to PIF. No fee of any kind was

imposed at the time of the exchange and

PIF shares acquired in an exchange were

not subject to any deferred sales load or

redemption fee. Although these

exchanges were effected at relative net

asset value, the Prior Order was

obtained because of the involvement of

VCA–24, which is a unit investment

trust. Section 11(c) of the 1940 Act

requires the Commission’s approval of

exchange offers involving registered

unit investment trusts unless the

exchange can be effected pursuant to an

exemptive rule.

8. The PMF Funds (Jennison Growth

Stock Fund, Balanced Portfolio of the

Allocation Fund, International Stock

Series of World Fund, Government

Income Fund and MoneyMart Fund)

have acquired all or substantially all of

the assets of five of the seven PIF Funds

(PIF Growth Stock Fund, PIF Balanced

Fund, PIF International Stock Fund, PIF

Income Fund and PIF Money Market

Fund, respectively) in exchange for

Class Z shares of the relevant PMF

Fund, and have distributed such Class

Z shares to the shareholders of the PIF

Funds (the ‘‘Reorganization’’). The two

remaining PIF Funds did not merge into

a different fund, but entered into new

investment advisory and distribution

contracts with Prudential Mutual Fund

Management LLC (‘‘PMF’’) and related

entities, and thereby became part of the

same ‘‘group of investment companies’’

as the PMF Funds, as that term is

defined in Rule 11a–3 under the 1940

Act. PIF’s name was changed to

‘‘Prudential Dryden Fund,’’ and its two

remaining series (the Prudential Active

Balanced Fund and the Prudential Stock

Index Fund) now each issue Class Z

shares with no sales load or Rule 12b–

1 fees. The five PMF Funds and the two

Dryden Funds are referred to together as

the ‘‘PMF/Dryden Funds.’’

9. PSI is an indirect, wholly-owned

subsidiary of Prudential and is

registered as a broker-dealer under the

1934 Act. PSI distributes the shares of

each class of the PMF/Dryden Funds.

10. Applicants request that the

Commission amend the Prior Order to

allow Participants to exchange any or all

of their units of the Medley separate

accounts for Class Z shares of any or all

of the PMF/Dryden Funds, the successor

funds to PIF (the ‘‘Medley-to-PMF/

Dryden Exchanges’’). Any Medley-toPMF/Dryden Exchange will be effected

at the relative net asset values of the

securities exchanged, and will be priced

in accordance with Rule 22c–1 under

the 1940 Act. No sales load,

administrative fee, redemption fee, or

other transaction charge will be

imposed at the time of a Medley-toPMF/Dryden Exchange. Moreover, all

PMF/Dryden Fund Class Z shares,

including those acquired in a Medleyto-PMF/Dryden Exchange, are not

subject to any deferred sales load upon

their subsequent redemption because

Class Z shares are completely no-load.

11. Applicants also request that the

Commission amend the Prior Order to

permit holders of Class Z shares of any

PMF/Dryden Fund to exchange any or

all such shares for units of any or all of

the Medley separate accounts (the

‘‘PMF/Dryden-to-Medley Exchanges’’).

Any PMF/Dryden-to-Medley Exchange

will be effected at the relative net asset

values of the securities to be exchanged,

and will be priced in accordance with

Rule 22c–1 under the 1940 Act. No sales

load, administrative fee, redemption fee,

or other transaction charge will be

imposed at the time of a PMF/Drydento-Medley Exchange. No sales load will

be imposed on the subsequent surrender

of any interests in the Medley separate

accounts acquired in a PMF/Dryden-toMedley Exchange.

12. With respect to both Medley-toPMF/Dryden Exchanges and PMF/

Dryden-to-Medley Exchanges,

Prudential will, in its sole discretion,

determine to whom an exchange offer

will be made, the time period during

which the exchange offer will be in

effect, and when an exchange offer is

terminated. Prudential may, for

example, establish fixed periods of time

for exchanges under a particular

contract (a ‘‘window’’) of at least 60

days in length. No open-ended exchange

offer will be terminated or its terms

amended materially without prominent

notice to any Contractholder subject to

that offer of the impending termination

or amendment at least 60 days prior to

the date of termination or the effective

date of the amendment; provided,

however, that no such notice will be

required if, under extraordinary

circumstances, either: (a) There is a

suspension in redemption of the
Federal Register / Vol. 62, No. 202 / Monday, October 20, 1997 / Notices 54495

exchanged security under Section 22(e)

of the 1940 Act or rules thereunder; or

(b) the offering company temporarily

delays or ceases the sale of the security

because it is unable to invest amounts

effectively in accordance with

applicable investment objectives,

policies and restrictions.

13. Applicants represent that at the

commencement of the exchange offer,

and at all times thereafter, the Medley

prospectus will: (a) Disclose that no

administrative or redemption fee will be

imposed in connection with the

exchange program; (b) disclose that the

exchange offer is subject to termination

and that its terms are subject to change;

and (c) describe the tax implications of

the exchanges including, if appropriate,

a description of any adverse tax

consequences of an exchange.

Applicants anticipate that the exchange

offers will be extended only to persons

that have been provided a copy of the

current Medley prospectus. As long as

that is the case and the disclosure about

the exchange offer is in the Medley

prospectus, no additional disclosure

about the exchange offers will be

included in the PMF/Dryden

prospectuses because those funds are

offered to a significant number of

persons who will not be given the

exchange offer. Applicants represent

that if the exchange offer is extended to

persons that have not been provided

copies of the current Medley

prospectus, the PMF/Dryden

prospectuses also will: (a) Disclose that

no administrative or redemption fee will

be imposed in connection with the

exchange program; (b) disclose that the

exchange offer is subject to termination

and its terms are subject to change; and

(c) describe the tax implications of the

exchanges including, where

appropriate, a description of any

adverse tax consequences of an

exchange.

14. Applicants request that the

Commission amend the Prior Order to

allow exchanges not only with the PMF/

Dryden Funds, but also with all other

current and future classes of registered

open-end management investment

companies for which Prudential or an

affiliate serves as investment adviser or

principal underwriter for which there is

no front-end sales charge, no Rule 12b–

1 fee, and no contingent deferred sales

charge (each a ‘‘Prudential Class Z

Fund’’). Specifically, Applicants request

that the Commission amend the Prior

Order to allow Participants to exchange

any or all of their units in the Medley

separate accounts for shares of any or all

of the Prudential Class Z Funds (the

‘‘Medley-to-Prudential Class Z

Exchanges’’). In addition, Applicants

request that the Commission amend the

Prior Order to permit holders of

Prudential Class Z Fund shares to

exchange any or all such shares for units

of any or all of the Medley separate

accounts (the ‘‘Prudential Class Z-toMedley Exchanges’’). Applicants

represent that all Medley-to-Prudential

Class Z Exchanges will be subject to the

same conditions as those set forth in the

application that is the subject of this

notice (the ‘‘Application’’) as applicable

to the Medley-to-PMF/Dryden

Exchanges. Applicants further represent

that all Prudential Class Z-to-Medley

Exchanges will be subject to the same

conditions as those set forth in the

Application as applicable to the PMF/

Dryden-to-Medley Exchanges.

Applicants’ Legal Analysis

1. Section 11(a) of the 1940 Act

provides, in pertinent part, that it shall

be unlawful for any registered open-end

company or any principal underwriter

for such a company to make or cause to

be made an offer to the holder of a

security of such company, or of any

other open-end investment company, to

exchange his or her security for a

security in the same or another such

company on any basis other than the

relative net asset values of the

respective securities to be exchanged,

unless the terms of the offer have first

been submitted to and approved by the

Commission. Section 11(c) of the 1940

Act provides that, irrespective of the

basis of exchange, Commission approval

is required for any offer of exchange of

any security of a registered open-end

company for a security of a registered

unit investment trust, or any offer of

exchange of any security of a registered

unit investment trust for the securities

of any other investment company.

Accordingly, although Applicants

believe that the proposed exchanges

will be at net asset value, Commission

approval is required for the proposed

exchanges because of the involvement

of VCA–24, a registered unit investment

trust. Applicants state that they cannot

rely on existing exemptive rules because

neither Rule 11a–2 nor Rule 11a–3

permits exchanges between a unit

investment trust separate account and

an open-end investment company that

is not a separate account.

2. The legislative history of Section 11

of the 1940 Act indicates that its

purpose is to provide the Commission

with an opportunity to review the terms

of certain offers of exchange to ensure

that a proposed offer is not being made

‘‘solely for the purpose of exacting

additional selling charges.’’ H. Rep. No.

2639, 76th Cong., 2d Sess. 8 (1940). One

of the practices Congress sought to

prevent through Section 11 was the

practice of inducing investors to switch

securities so that the promoter could

charge investors another sales load.

Applicants assert that the proposed

offers of exchange involve no possibility

of such abuse. On a Medley-to-PMF/

Dryden Exchange, there is no sales load

or transaction fee, and the acquired

PMF/Dryden shares are completely noload. On a PMF/Dryden-to-Medley

Exchange, there is not sales load or

transaction fee, and so sales load will be

imposed on the subsequent surrender of

any interests in the Medley separate

accounts acquired in such an exchange.

3. Applicants submit that providing

class relief is appropriate. Applicants

request that the order extend to all

Prudential Class Z Funds which, like

the PMF/Dryden Funds, offer shares

that are subject to no front-end sales

charge, no Rule 12b–1 fee, and no

contingent deferred sales charge. Those

exchanges would be on the same terms

as the exchanges with the PMF/Dryden

Funds, and therefore there would be no

possibility of the abuses Congress

sought to prevent through Section 11.

Furthermore, without such exemptive

relief, before Medley Participants could

be given any additional exchange

options, Applicants would have to

apply for and obtain additional approval

orders. Applicants believe that such

additional applications would present

no new issues under the 1940 Act not

already addressed in the Application.

4. Applicants submit that the

proposed offers of exchange meet all the

requirements of Section 11, and provide

a benefit to Contractholders and

Participants by providing new

investment options and an attractive

way to exchange existing securities for

interests in those options.

Conclusion

For the reasons summarized above,

Applicants assert that the requested

exemptions are appropriate in the

public interest and consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–27654 Filed 10–17–97; 8:45 am]

BILLING CODE 8010–01–M