[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