Document ID: SEC-2008-0705-0001
Agency: sec
Document Type: Notice
Title: Prudential Retirement Insurance and Annuity Company, et al., Notice of Application
Posted Date: 2008-05-14T04:00Z

[Federal Register: May 14, 2008 (Volume 73, Number 94)]
[Notices]               
[Page 27865-27868]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my08-108]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28263; File No. 812-13455]

 
Prudential Retirement Insurance and Annuity Company, et al., 
Notice of Application

May 7, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order approving the terms of 
certain offers of exchange pursuant to Section 11 of the Investment 
Company Act of 1940 (the ``1940 Act'').

-----------------------------------------------------------------------

    Applicants: Prudential Retirement Insurance and Annuity Company 
(``PRIAC''), the PRIAC Variable Contract Account A (the ``PRIAC 
Account''), and Prudential Investment Management Services LLC 
(``PIMS'') (collectively, the ``Applicants'').
    Summary of Application: Applicants request an order on behalf of 
PRIAC and any current or future affiliated life insurance company (each 
an ``Insurance Company'' and collectively, the ``Insurance 
Companies''), the PRIAC Account and any current or future separate 
account of an Insurance Company (each a ``Separate Account'' and 
collectively, the ``Separate Accounts''), and PIMS and any current or 
future broker-dealer affiliated with an Insurance Company serving as 
principal underwriter of variable annuity contracts issued by an 
Insurance Company or registered open-end management investment 
companies advised by an affiliate of an Insurance Company (each a 
``Distributor'' and collectively, the ``Distributors'') pursuant to 
Section 11 of the 1940 Act approving the terms of certain offers of 
exchange between certain variable annuity contract subaccounts and 
certain registered open-end management investment companies.
    Filing Date: The application was filed on November 29, 2007, and an 
amended and restated application was filed on May 2, 2008.
    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 May 29, 2008, 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 Secretary of the Commission.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-1090. Applicants: John M. Ewing, Vice 
President and Corporate Counsel, The Prudential Insurance Company of 
America, 200 Wood Avenue South, Iselin, NJ 08830-2706, with a copy to 
Christopher E. Palmer, Goodwin Procter LLP, 901 New York Avenue, NW., 
Washington, DC 20001.

FOR FURTHER INFORMATION CONTACT: Mark A. Cowan, Senior Counsel, or 
Zandra Y. Bailes, Branch Chief, Office of Insurance Products, Division 
of Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application is available for a fee from the 
Public Reference Branch of the Commission, 100 F Street, NE., 
Washington, DC 20549, (202) 551-8090.

Applicants' Representations

    1. PRIAC is a stock life insurance company incorporated under the 
laws of Connecticut. PRIAC is an indirect wholly-owned subsidiary of 
Prudential Financial, Inc.
    2. The PRIAC Account was established by PRIAC as a separate account 
under Connecticut law and is registered under the 1940 Act as a unit 
investment trust for the purpose of funding certain variable annuity 
contracts issued by PRIAC (the ``Contracts''). Security interests under 
the Contracts have been registered under the Securities Act of 1933 
(the ``1933 Act''). The PRIAC Account currently has five subaccounts, 
each of which invests exclusively in a single corresponding portfolio 
of the Advanced Series Trust (``AST''). AST is a Massachusetts business 
trust and is registered under the 1940 Act as an open-end management 
investment company with multiple separate series or portfolios. Shares 
of the AST portfolios are sold to insurance company separate accounts, 
including

[[Page 27866]]

the PRIAC Account, and are registered under the 1933 Act. AST is 
advised by Prudential Investments LLC and AST Investment Services, 
Inc., both of which are indirect wholly-owned subsidiaries of 
Prudential Financial, Inc.
    3. PIMS is registered with the Commission as a broker-dealer and is 
a member of the Financial Industry Regulatory Authority. PIMS is an 
indirect wholly-owned subsidiary of Prudential Financial, Inc. PIMS 
serves as the distributor and principal underwriter of the Contracts. 
PIMS also serves as distributor and principal underwriter for the 
registered open-end management investment companies advised by 
Prudential Investments LLC and/or AST Investment Services, Inc. (any 
such current or future investment company advised by Prudential LLC, 
AST Investment Services, Inc. or an affiliate, or series thereof, 
hereinafter referred to as a ``Prudential Mutual Fund'' and 
collectively, the ``Prudential Mutual Funds'').
    4. Applicants and their affiliates propose to offer certain 
retirement programs, each of which is designed to provide participants 
(``Participants'') in a single coordinated program a selection of 
investment options, including both Contracts and mutual fund options, 
and the ability to periodically transfer their account values among the 
investment options without charge (each a ``Program'' and collectively, 
the ``Programs''). The Programs are designed to serve the retirement 
income needs of Participants by combining the benefits of direct 
investments in mutual funds with the insurance benefits available 
through variable annuity contracts, including benefits designed to 
provide guaranteed withdrawal benefits for the life of the Participant 
and/or his or her spouse. Applicants have designed two Programs, which 
are described below, and Applicants may in the future design additional 
similar Programs.
    5. The first Program (the ``IRA Program'') is an individual 
retirement account (``IRA'') that qualifies for federal tax benefits 
under Section 408 of the Internal Revenue Code of 1986, as amended (the 
``Code''). The IRA will be funded by a rollover transaction from 
certain employment based retirement plans or arrangements administered 
by PRIAC or its affiliates or from certain group annuity contracts 
issued by PRIAC.
    6. Participants in the IRA Program may allocate their investments 
to a Contract and/or to certain Prudential Mutual Funds.\1\
---------------------------------------------------------------------------

    \1\ Participants may also direct investments under the IRA 
Program to an annuity contract offering a fixed rate investment 
option (the ``Fixed Rate Annuity Contract''). Interests under the 
Fixed Rate Annuity Contract are exempt from registration under the 
1933 Act under Section 3(a)(8) of the 1933 Act. Because the 
interests under the Fixed Rate Annuity Contract are not securities 
issued by a registered investment company, Applicants are not 
seeking exemptive relief with respect to exchanges to and from the 
Fixed Rate Annuity Contract.
---------------------------------------------------------------------------

    7. The Contract permits Contract owners to allocate Contract value 
to and among four subaccounts of the PRIAC Account (each, a 
``Subaccount'' and collectively, the ``Subaccounts''). Each current 
Subaccount invests in an AST asset allocation portfolio. The Contract 
permits transfers of Contract value among the Subaccounts subject to 
certain restrictions set forth in the Contract prospectus. The Contract 
offers a guaranteed withdrawal benefit which guarantees certain minimum 
withdrawal amounts for the life of the Participant and/or his or her 
spouse subject to certain conditions (the ``Guaranteed Withdrawal 
Benefit'').
    8. PIMS currently makes available to the IRA Program shares of the 
following 16 Prudential Mutual Funds: Jennison 20/20 Focus Fund; Dryden 
Government Income Fund, Inc.; Dryden Index Series Fund; Jennison Small 
Company Fund, Inc.; The Prudential Investment Portfolios, Inc. 
(Jennison Growth Fund); Jennison Mid-Cap Growth Fund, Inc.; 
JennisonDryden Portfolios (Jennison Value Fund); The Target Portfolio 
Trust (Large Capitalization Growth, Small Capitalization Growth; 
International Equity; Total Return Bond, Large Capitalization Value, 
Small Capitalization Value); Jennison Natural Resources Fund, Inc.; 
Jennison Sector Funds, Inc. (Jennison Utility Fund); Dryden High Yield 
Fund, Inc.; and MoneyMart Assets, Inc.
    9. PIMS may make available shares of additional Prudential Mutual 
Funds in the future. Any class of shares of a Prudential Mutual Fund 
made available in the IRA Program are not subject to any sales charges 
on purchases or any sales charges or other withdrawal charges on 
redemption. No fee or charge applies to any exchange from one 
Prudential Mutual Fund to another Prudential Mutual Fund within the IRA 
Program. The Prudential Mutual Funds permit exchanges between multiple 
funds subject to certain conditions set forth in the prospectuses for 
the Prudential Mutual Funds. Therefore, Participants are permitted to 
transfer from one Prudential Mutual Fund to another Prudential Mutual 
Fund subject to the conditions set forth in the prospectuses.
    10. Participants in the IRA Program are charged an overall asset-
based account fee for the IRA account and also bear the expenses of the 
investment options available under the IRA Program. The IRA account fee 
varies by account size and ranges from an annual rate of 0.25% to 1.10% 
of assets in the IRA Program, subject to a minimum annual fee of $100 
and a maximum annual fee of $500. The Contract does not impose any 
sales charges on investments in the Contract or any sales charges or 
other withdrawal charges on withdrawals from or surrenders of the 
Contract. PRIAC reserves the right to charge a maximum transfer fee of 
$30 per transfer after the twelfth transfer among investment options in 
the Contract in any one Contract year, but it currently does not impose 
any transfer fee. PRIAC may also deduct the charge for premium taxes 
imposed on PRIAC by certain states or jurisdictions, which currently 
range from 0% to 3.5% of Contract value. No premium tax deduction will 
be applied to any exchange between a Subaccount and a Prudential Mutual 
Fund under the IRA Program. The Contract provides for the following 
periodic expenses. PRIAC reserves the right to charge an annual 
Contract fee of up to $150, but currently does not assess this charge. 
PRIAC assesses the following charges, expressed as an annual percentage 
of Contract value: insurance and administrative charge (maximum charge 
of 1.60% and current charge of 0.50%); base Guaranteed Withdrawal 
Benefit charge (maximum charge of 1.45% and current charge of 0.95%); 
and optional spousal Guaranteed Withdrawal Benefit charge (maximum 
charge of 0.60% and current charge of 0.50%). Investments in the 
Contract also bear indirectly the fees and expenses of the underlying 
AST portfolios. Investments in the shares of Prudential Mutual Funds 
available under the IRA Program are not subject to any sales charges on 
purchases or any sales charges or other withdrawal charges on 
redemption. No fee or charge applies to any exchange from one 
Prudential Mutual Fund to another Prudential Mutual Fund under the IRA 
Program. Investments in the Prudential Mutual Funds are subject to 
ongoing fees and expenses.
    11. The second Program (the ``Retirement Plan Program'') is 
designed for ongoing retirement arrangements that qualify for federal 
tax benefits under Section 401(a), 403 or 457 of the Code and certain 
non-qualified arrangements. The Retirement Plan Program permits 
Participants to allocate

[[Page 27867]]

program investments to a Contract and/or to certain Prudential Mutual 
Funds.\2\
---------------------------------------------------------------------------

    \2\ Participants may also direct investments to the Fixed Rate 
Annuity Contract. Participants may also direct investments to 
registered open-end investment companies for which Applicants or 
their affiliates do not serve as investment adviser or principal 
underwriter (the ``Unaffiliated Mutual Funds''). Because the 
Unaffiliated Mutual Funds and their principal underwriters are not 
affiliated with Applicants, Applicants are not seeking exemptive 
relief with respect to exchanges to and from the Unaffiliated Mutual 
Funds.
---------------------------------------------------------------------------

    12. The Contract used in the Retirement Plan Program is 
substantially identical to the Contract used in the IRA Program, with 
minor changes needed to reflect the existence of an employment based 
retirement plan and plan sponsor and related provisions required by tax 
law.
    13. PIMS currently makes available to the Retirement Plan Program 
shares of the following Prudential Mutual Funds: Dryden Total Return 
Bond Fund, Inc.; Jennison 20/20 Focus Fund; Dryden California Municipal 
Fund (California Income Series); Dryden Government Income Fund, Inc.; 
Cash Accumulation Trust (Liquid Assets Fund); Dryden Index Series Fund; 
Dryden Global Real Estate Fund; Jennison Small Company Fund, Inc.; 
Prudential Institutional Liquidity Portfolio, Inc. (Institutional Money 
Market Series); The Prudential Investment Portfolios, Inc. (Dryden 
Active Allocation Fund, Jennison Growth Fund, Jennison Equity 
Opportunity Fund, JennisonDryden Conservative Allocation Fund, 
JennisonDryden Moderate Allocation Fund, JennisonDryden Growth 
Allocation Fund); Dryden Municipal Bond Fund (Insured Series, High 
Income Series); Dryden Tax-Managed Funds (Dryden Large-Cap Core Equity 
Fund); Dryden Small-Cap Core Equity Fund, Inc.; Jennison Mid-Cap Growth 
Fund, Inc.; JennisonDryden Portfolios (Jennison Value Fund, Dryden U.S. 
Equity Active Extension Fund); Prudential World Fund, Inc. (Jennison 
Global Growth Fund, Dryden International Equity Fund, Dryden 
International Value Fund); The Target Portfolio Trust (Large 
Capitalization Growth, Small Capitalization Growth; International 
Equity; Total Return Bond, Mortgage Backed Securities, Large 
Capitalization Value, Small Capitalization Value, International Bond, 
Intermediate-Term Bond, U.S. Government Money Market); Target Asset 
Allocation Funds (Target Conservative Allocation Fund, Target Moderate 
Allocation Fund, Target Growth Allocation Fund); Strategic Partners 
Style Specific Funds (Jennison Conservative Growth Fund, Dryden Small 
Capitalization Value Fund); Strategic Partners Opportunity Funds 
(Jennison Select Growth, Dryden Strategic Value Fund); Strategic 
Partners Mutual Funds, Inc. (Dryden Mid-Cap Value Fund, Jennison Equity 
Income Fund, Dryden Money Market Fund); Dryden Government Securities 
Trust (Money Market Series); Jennison Blend Fund, Inc.; Jennison 
Natural Resources Fund, Inc.; Jennison Sector Funds, Inc. (Jennison 
Financial Services Fund, Jennison Health Sciences Fund, Jennison 
Utility Fund); Nicholas-Applegate Fund, Inc.; Dryden Global Total 
Return Fund, Inc.; Dryden High Yield Fund, Inc.; MoneyMart Assets, 
Inc.; Prudential Tax-Free Money Fund, Inc. (Dryden Tax-Free Money 
Fund); Dryden National Municipals Fund, Inc.; and Dryden Short-Term 
Bond Fund, Inc.
    14. PIMS may make available shares of additional Prudential Mutual 
Funds in the future. Any class of shares of a Prudential Mutual Fund 
made available in the Retirement Plan Program are not subject to any 
sales charges on purchases or any sales charges or other withdrawal 
charges on redemption. No fee or charge applies to any exchange from 
one Prudential Mutual Fund to another Prudential Mutual Fund. 
Investments in the Prudential Mutual Funds are subject to ongoing fees 
and expenses.
    15. Unlike the IRA Program, there is no set account fee under the 
Retirement Plan Program. Instead, each plan sponsor negotiates an 
administrative services agreement with PRIAC or an affiliate under 
which PRIAC or the affiliate provides recordkeeping and other services 
to the Plan. Although the terms of these administrative services 
agreements vary from plan to plan, in all cases no transaction fees are 
charged for exchanges from one investment option to another investment 
option under the Program.
    16. The Programs are designed to provide flexibility to transfer 
value among the investment options available under the Program. 
Applicants state that under existing procedures and Rules 11a-2 and 
11a-3 under the 1940 Act, exchanges may be made among the Variable 
Annuity Subaccounts and exchanges may be made among the Prudential 
Mutual Funds.
    17. Applicants propose to add an additional exchange feature under 
the Programs. In particular, Applicants propose that Participants be 
permitted to transfer value: (1) From a Separate Account to a 
Prudential Mutual Fund; and (2) from a Prudential Mutual Fund to a 
Separate Account. Applicants seek a Commission Order under Section 11 
of the 1940 Act to permit this additional exchange feature.
    18. Applicants represent that the exchange feature under any 
Program will meet the following conditions:
    (a) No sales charge or other charge will be assessed in connection 
with a withdrawal from a Separate Account to be transferred to a 
Prudential Mutual Fund;
    (b) No sales charge or other charge will be assessed in connection 
with an allocation to a Separate Account from a transfer from a 
Prudential Mutual Fund;
    (c) The Distributor will offer in the Program only classes of 
Prudential Mutual Funds that do not charge any sales or other charges 
on purchases or redemption;
    (d) The exchange will not be a taxable event or have adverse tax 
consequences for the Participant; and
    (e) the Separate Account prospectus will disclose the terms of the 
exchange feature, including (i) the fact that Applicants reserve the 
right to terminate or modify the Program upon notice, (ii) any 
limitations on exchanges, and (iii) the effect of an exchange on any 
Contract benefits, including the Guaranteed Withdrawal Benefit.
    19. Applicants state that exchanges will be subject to any rules or 
procedures established under the Contract or established by the 
Prudential Mutual Funds with respect to transfers and redemptions 
generally, including minimum transfer amounts and policies and 
procedures relating to frequent transfers and abusive trading 
practices. Applicants also reserve the right to implement exchange 
limitations for the Programs generally. No fees or charges will be 
assessed in connection with any exchange from a Separate Account to a 
Prudential Mutual Fund or from a Prudential Mutual Fund to a Separate 
Account.
    20. Applicants intend to make this exchange feature available on an 
ongoing basis to all Participants, but reserve the right to terminate 
the offer with respect to all or any of the investment options with 
advance notice to affected Participants.

Applicants' Legal Analysis

    1. Section 11(a) of the 1940 Act provides, in pertinent part, that 
``[i]t 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 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

[[Page 27868]]

been submitted to and approved by the Commission or are in accordance 
with such rules and regulations as the Commission may have prescribed 
in respect of such offers which are in effect at the time such offer is 
made.'' Section 11(c) provides that, irrespective of the basis of 
exchange, subsection (a) shall be applicable to any offer of exchange 
of any security of a registered open-end company for a security of a 
registered unit investment trust, or to any offer of exchange of any 
security of a registered unit investment trust for the securities of 
any other investment company. Although all the proposed exchanges would 
be at net asset value, the involvement of any registered unit 
investment trust (such as a Separate Account) requires a prior order of 
approval of the Commission.
    2. The legislative history of Section 11 indicates that the purpose 
of the provision 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.
    3. Applicants assert that, because the proposed exchange offers for 
which approval is sought will be based on the relative net asset values 
or unit values of the interests being exchanged, there is no 
possibility of the abuse to which Section 11 was directed. 
Nevertheless, because each of the proposed exchange offers involves a 
unit investment trust, Section 11(c) makes Section 11(a) inapplicable 
irrespective of the basis of the exchange. Applicants state that 
exemptive relief is necessary for Applicants to offer the proposed 
exchange feature.
    4. Applicants note that previous applications under Section 11(a) 
and orders granting those applications appropriately have focused on 
sales loads or sales load differentials and administrative fees to be 
imposed for effecting a proposed exchange. Rule 11a-2, adopted under 
Section 11 of the 1940 Act, provides blanket Commission approval of 
certain types of offers of exchange of one variable annuity contract 
for another, or of one variable life insurance contract for another. 
Applicants state that adoption of Rule 11a-3 represents the most recent 
Commission action under Section 11 of the 1940 Act. As with Rule 11a-2, 
the focus of the Rule is primarily on sales and administrative charges 
that would be incurred by investors for effecting exchanges. Applicants 
submit that the terms of the proposed offer are consistent with Rule 
11a-3 because no sales or administrative charge will be incurred as a 
result of the exchange. Because one investment company involved in the 
proposed exchange offer is organized as a unit investment trust rather 
than as a management investment company, Applicants believe that they 
may not rely upon Rule 11a-3.

Class Relief

    1. Applicants request that the Order extend to all similarly 
situated current and affiliated entities, defined previously as 
Insurance Companies, Separate Accounts and Distributors. Applicants 
also request that the Order extend to all variable annuity contracts 
issued by an Insurance Company that are substantially similar to the 
Contracts and to any share class of any Prudential Mutual Fund for 
which there are no front-end sales charges or deferred sales charges.
    2. Applicants submit that providing class relief is appropriate. 
Applicants assert that because no front-end or deferred sales charges 
are applicable and all exchanges will be at relative net asset value, 
there will be no possibility of the abuses Congress sought to prevent 
through Section 11. Furthermore, without such exemptive relief, before 
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.

Conclusion

    For the reasons and upon the facts summarized above, Applicants 
submit that the proposed exchange offers at net asset value do not 
involve any of the abuses that Section 11 is designed to prevent and 
provide a benefit to Participants by expanding exchange privileges 
under Programs designed to provide a mix of investment options and 
annuity benefits for retirement savings.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-10705 Filed 5-13-08; 8:45 am]

BILLING CODE 8010-01-P