[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Notices]
[Pages 42292-42295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20719]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 22122; 812-10186]


The Prudential Institutional Fund, et al.; Notice of Application

August 7, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: The Prudential Institutional Fund (``PIF''), Prudential 
Jennison Fund, Inc. (``Jennison Fund''), Prudential Allocation Fund 
(``Allocation Fund''), Prudential Government Income Fund, Inc. 
(``Government Income Fund''), Prudential MoneyMart Assets, Inc. 
(``MoneyMart Fund''), Prudential World Fund, Inc. (``World Fund''), 
Prudential Institutional Fund Management, Inc. (``PIFM''), Prudential 
Mutual Fund Management, Inc. (``PMF''), The Prudential Investment 
Corporation (``PIC''), Jennison Associates Capital Corp. 
(``Jennison''), Mercator Asset Management, L.P. (``Mercator'') and The 
Prudential Insurance Company of America (``Prudential'').

RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act 
granting an exemption from section 17(a).

SUMMARY OF APPLICATION: Applicants request an order to permit the 
Jennison Fund, the Balanced Portfolio of the Allocation Fund 
(``Balanced Portfolio''), the Government Income Fund, the MoneyMart 
Fund, and the International Stock Series of the World Fund 
(``International Series'') to acquire substantially all of the assets 
of corresponding series of PIF in exchange for shares of the acquiring 
funds.

FILING DATES: The application was filed on May 30, 1996 and amended on 
August 5, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicant with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on September 3, 
1996, and should be accompanied by proof of service on the applicant, 
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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. PIF and PIFM, 30 Scranton Office Park, Moosic, Pennsylvania 
18507; Jennison Fund, Allocation Fund, Government Income Fund, 
MoneyMart Fund, World Fund, and PMF, One Seaport Plaza, New York, New 
York 10292; PIC and Prudential, 751 Broad Street, Newark, New Jersey 
07102; Jennison, 466 Lexington Avenue, New York, New York 10017; and 
Mercator, 2400 East Commercial Boulevard, Fort Lauderdale, Florida 
33308.

FOR FURTHER INFORMATION CONTACT:
Mary Kay Frech, Senior Attorney, at (202) 942-0579, or Alison E. Baur, 
Branch Chief, at (202) 942-0564 (Division of Investment Management, 
Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. PIF is organized as a Delaware business trust and is registered 
under the Act as a diversified open-end management investment company. 
Currently, PIF consists of seven separate series: the Balanced Fund, 
the Income Fund, the Money Market Fund, the Growth Stock Fund, the 
Stock Index Fund, the International Stock Fund, and the Active Balanced 
Fund (the ``PIF Funds''). Each PIF Fund offers for sale one class of 
shares, which are offered without a sales charge or distribution or 
service fee. Shares of the PIF Funds are offered exclusively to 
retirement programs and arrangements through plan sponsors, to 
Individual Retirement Accounts and to certain institutional investors.
    2. PIFM is the investment adviser to each PIF Fund. PIFM has 
entered into subadvisory agreements with PIC, Jennison, and Mercator 
(together, the ``Subadvisers'') whereby each Subadviser furnishes 
investment advisory services to one or more PIF Funds.
    3. The Jennison Fund, Government Income Fund, MoneyMart Fund, and 
World Fund each is organized as a Maryland corporation. The Allocation 
Fund is organized as a Massachusetts business trust. The Jennison Fund, 
Government Income Fund, MoneyMart Fund, Allocation Fund, and World Fund 
(the ``PMF Funds'') each is registered under the Act as a diversified 
open-end management investment company. Currently, the Allocation Fund 
consists of two series: the Balanced Portfolio and the Strategy 
Portfolio. The World Fund consists of two series: the International 
Series and the Global Series.
    4. The PMF Funds (other than the MoneyMart Fund) each offer four 
classes of shares: Class A, Class B, Class C, and Class Z. Class Z 
shares are offered to certain institutional investors without a sales 
charge or rule 12b-1 fee. The MoneyMart Fund issues two classes of 
shares, Class A and Class Z. Class Z shares of the MoneyMart Fund are 
offered without a sales charge or rule 12b-1 fee.
    5. PMF is the investment adviser to the PMF Funds. PMF has entered 
into a subadvisory agreement with Jennison whereby Jennison furnishes 
investment advisory services to the Jennison Fund. PMF also has entered 
into a subadvisory agreement with PIC whereby PIC furnishes investment 
advisory services to the Allocation Fund, the Government Income Fund, 
the MoneyMart Fund, and the World Fund.
    6. PIFM, PMF, and the Subadvisers each is registered as an 
investment adviser under the Investment Advisers Act of 1940. PIFM, 
PMF, PIC, and Jennison are direct or indirect wholly-owned subsidiaries 
of Prudential. Mercator is a limited partnership of which Prudential, 
through a wholly-owned subsidiary, maintains a limited partnership 
interest.
    7. Prudential beneficially owns shares in several PIF Funds. As of 
March 31, 1996, Prudential owned 51.48% of the outstanding voting 
securities of the Income Fund and 47.63% of the outstanding voting 
securities of the Money Market Fund. Through the separate account of 
the Prudential Variable Contract Investment Fund, Prudential also holds 
5.6% of the outstanding voting securities of the Growth Stock Fund, 
23.23% of the outstanding voting securities of the Balanced Fund, and 
12.05% of the outstanding voting securities of the International Stock 
Fund. Through its employees' savings plan, Prudential holds (on behalf 
of its employees) 28.93% of the outstanding voting securities of the 
Growth Stock Fund, 25.74% of the outstanding voting securities of the 
Balanced Fund, and 42.21% of the outstanding voting securities of the 
International Stock Fund. In addition, Prudential Securities, Inc., a 
wholly-owned direct subsidiary of Prudential, holds on behalf of its 
clients, without any direct interest, more than 5.00% of the 
outstanding shares of each PMF Fund and is registered as a broker-
dealer under the Securities Exchange Act of 1934.

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    8. Prudential has formed the ``Money Management Group'' to combine 
certain pension, investment, mutual fund, and annuity businesses into a 
single business group. One strategic initiative of this combination is 
to present a single broad mutual fund family to the pension 
marketplace. Consistent with this change, Prudential and the trustees 
of PIF and the trustees/directors of each PMF Fund believe it would be 
in the best interest of shareholders to consolidate certain mutual 
funds sponsored by Prudential. As a result, each PMF Fund (the 
Allocation Fund only with respect to the Balanced Portfolio and the 
World Fund only with respect to the International Series) proposes to 
acquire all or substantially all of the assets of a corresponding PIF 
Fund in exchange for Class Z shares of that PMF Fund, which will be 
distributed by that PIF Fund to its shareholders (each, a 
``Reorganization''). The two remaining PIF Funds that are not involved 
in the Reorganizations (the Stock Index Fund and the Active Balanced 
Fund) will not merge into a PMF Fund, but will enter into new 
investment advisory and distribution contracts with PMF and related 
entities and thereby become part of the same ``group of investment 
companies'' of PMF, as that term is defined in rule 11a-3 under the 
Act. The exchange pursuant to each Reorganization will take place on 
the basis of the relative net asset values per share of each PIF Fund 
and PMF Fund.
    9. Subject to and contingent upon receipt of the affirmative vote 
of the holders of at least a majority of the outstanding shares of 
beneficial interest in each affected PIF Fund, the following 
Reorganizations will take place: (a) the Jennison Fund will acquire 
substantially all of the assets of the Growth Stock Fund in exchange 
for shares of the Jennison Fund and the assumption by the Jennison Fund 
of the liabilities of the Growth Stock Fund; (b) the Balanced Portfolio 
will acquire substantially all of the assets of the Balanced Fund in 
exchange for shares of the Balanced Portfolio and the assumption by the 
Balanced Portfolio of the liabilities of the Balanced Fund; (c) the 
Government Income Fund will acquire substantially all of the assets of 
the Income Fund in exchange for shares of the Government Income Fund 
and the assumption by the Government Income Fund of the liabilities of 
the Income Fund; (d) the MoneyMart Fund will acquire substantially all 
of the assets of the Money Market Fund in exchange for shares of the 
MoneyMart Fund and the assumption by the MoneyMart Fund of the 
liabilities of the Money Market Fund; and (e) the International Series 
will acquire substantially all of the assets of the International Stock 
Fund in exchange for shares of the International Series and the 
assumption by the International Series of the liabilities of the 
International Stock Fund. The Growth Stock Fund, the Balanced Fund, the 
Income Fund, the Money Market Fund, and the International Stock Fund 
hereinafter are referred to as the ``Acquired Funds,'' and the Jennison 
Fund, the Balanced Portfolio, the Government Income Fund, the MoneyMart 
Fund, and the International Series are referred to as the ``Acquiring 
Funds.'' The Acquired Funds and the Acquiring Funds together are 
referred to as the ``Funds,'' and each pair of Funds participating in 
the Reorganization are referred to as ``corresponding Funds.''
    10. Subject to approval by the shareholders of the PIF Funds at 
meetings to be held on September 6, 1996, the closing date of the 
Reorganizations (the ``Closing Date'') is expected to be September 20, 
1996. Pursuant to an Agreement and Plan of Reorganization entered into 
between each Acquiring Fund and its corresponding Acquired Fund in 
connection with their Reorganization (each, a ``Plan''), each Acquired 
Fund will endeavor to discharge all of its known liabilities and 
obligations prior to or as of the Closing Date. Each Acquiring Fund 
will assume all liabilities, expenses, costs, charges, and reserves or 
obligations of its corresponding Acquired Fund as of the Closing Date. 
As soon as conveniently practicable after the Closing Date, each 
Acquired Fund will distribute pro rata to its shareholders of record as 
of the close of business on the Closing Date the shares of the 
Corresponding Acquiring Fund received by the Acquired Fund in the 
Reorganization. The number of full and fractional shares of an 
Acquiring Fund to be issued to shareholders of its corresponding 
Acquired Fund will be determined by dividing the net asset value of 
that Acquired Fund by the net asset value of a Class Z share of that 
corresponding Acquiring Fund as of 4:15 p.m. on the Closing Date. The 
net asset value per share of each Fund will be determined by dividing 
its assets, less liabilities, by the total number of its outstanding 
shares.
    11. The board of trustees of PIF and the boards of directors or 
trustees of the Acquiring Funds (collectively, the ``Boards''), 
including, in each case, the members of the Boards who are not 
interested persons, have reviewed and approved the form of each Plan, 
including the consideration to be paid or received by each of the 
Funds. The Boards also have concluded that the Reorganizations are in 
the best interests of the shareholders of the respective Funds and will 
not result in the dilution of the interests of any of the existing 
shareholders of the Acquired Funds or the Acquiring Funds.
    12. In recommending approval of the Reorganizations to the 
shareholders of the Acquired Funds and in approving the terms of the 
proposed Reorganizations, the Boards considered the following factors: 
(a) The capabilities and resources of the Acquiring Funds' investment 
adviser, principal underwriter, administrator, and transfer agent in 
the areas of marketing, investment, and shareholder servicing; (b) 
expense ratios and information regarding the fees of the Funds; (c) the 
comparative investment performance of the Acquired Funds and the 
Acquiring Funds; (d) the terms and conditions of the Reorganizations 
and whether the Reorganizations would result in dilution of shareholder 
interests; (e) the advantages of eliminating competition and 
duplication of effort inherent in marketing funds with the same 
investment objective; (f) the compatibility of the Funds' investment 
objectives, as well as service features available to shareholders in 
the respective Funds; (g) the cost incurred by the Funds as a result of 
the Reorganizations; and (h) the tax consequences of the 
Reorganizations.
    13. A prospectus/proxy statement describing the proposed 
Reorganizations has been sent to shareholders of each Acquired Fund on 
or about July 29, 1996. Such prospectus/proxy statement discloses the 
fees and expenses that will be borne by the shareholders of the 
Acquired Fund after the Reorganizations as shareholders of the 
Acquiring Funds and the projected expense ratios of the combined funds 
based upon estimates developed by PMF as manager and administrator to 
the Acquiring Funds.
    14. The consummation of each Reorganization is subject to the 
conditions set forth in each Plan, including that the parties will have 
received exemptive relief from the SEC with respect to the order 
requested herein. Each Fund shall be liable for its expenses incurred 
in connection with the Reorganizations (except that PIF's International 
Stock Fund will bear the expense of its Reorganization). Expenses will 
be allocated pro rata in proportion to each Fund's respective assets. 
Because the International Series will have no assets as of the Closing 
Date, each PIF International Stock Fund shareholder will receive Class 
Z shares

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of the International Series identical in number and net asset value to 
his or her International Stock Fund shares.

Applicants' Legal Analysis

    1. Section 17(a), in pertinent part, prohibits an affiliated person 
of a registered investment company, or any affiliated person of such a 
person, acting as principal, from selling to or purchasing from such 
registered company, or any company controlled by such registered 
company, any security or other property.
    2. Section 2(a)(3) of the Act defines the term ``affiliated person 
of another person'' to include (a) any person directly or indirectly 
owning, controlling, or holding with power to vote five percent or more 
of the outstanding voting securities of such other person, (b) any 
person five percent or more of whose outstanding voting securities are 
directly or indirectly owned, controlled or held with power to vote by 
such other person, and (c) any person directly or indirectly, 
controlling, controlled by, or under common control with such other 
person. Section 2(a)(3) further provides that the term ``affiliated 
person of another person'' includes any investment adviser of such 
other person if such other person is an investment company. The PIF 
Funds could be deemed to be an affiliated person of an affiliated 
person of the PMF Funds because of Prudential's ownership interest in 
the PIF Funds. Thus, the proposed Reorganizations could be deemed to be 
subject to the provisions of section 17(a).
    3. Section 17(b) provides that the SEC may exempt a transaction 
from the provisions of section 17(a) if evidence establishes that the 
terms of the proposed transaction, including the consideration to be 
paid, are reasonable and fair and do not involve overreaching on the 
part of any person concerned, and that the proposed transaction is 
consistent with the policy of the registered investment company 
concerned and with the general purposes of the Act.
    4. Applicants submit that the terms of the proposed Reorganizations 
meet the standards set forth in section 17(b). The Boards of the Funds, 
including the members of the Boards who are not interested persons, 
having reviewed and approved the form of each Plan, including the 
consideration to be paid or received by each of the Funds. The Boards 
also have concluded that the Reorganizations are in the best interests 
of the shareholders of the respective Funds and that the 
Reorganizations will not result in the dilution of the interests of any 
of the existing shareholders of the Acquired Funds or the Acquiring 
Funds. The Reorganizations are expected to benefit each Fund's 
shareholders because of estimated lower expense ratios and the expected 
increase in size of the combined funds, both immediately after the 
Reorganizations and through improved potential for growth in the 
future, which should assist in each Fund's ability to invest more 
effectively, to achieve certain economies of scale and, in turn, to 
potentially increase its operating efficiencies and facilitate 
portfolio management.
    5. Applicants believe that the terms of the Plans are fair and 
reasonable and do not involve overreaching on the part of any person 
concerned. In addition, the proposed Reorganizations are consistent 
with the policies of the respective Funds recited in their respective 
registration statements and reports filed under the Act. Applicants 
assert that granting the requested order is consistent with the 
provisions, policies and purposes of the Act.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-20719 Filed 8-13-96; 8:45 am]
BILLING CODE 8010-01-M