[Federal Register Volume 61, Number 162 (Tuesday, August 20, 1996)]
[Notices]
[Pages 43098-43100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21107]


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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22139; 812-10208]


The Target Portfolio TrustSM and Prudential Mutual Fund 
Management, Inc.; Notice of Application

August 13, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

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

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APPLICANTS: The Target Portfolio Trust SM (the ``Trust'') and 
Prudential Mutual Fund Management, Inc. (the ``Manager'').

RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the 
Act from the provisions of section 15(a) of the Act and rule 18f-2 
thereunder.

SUMMARY OF APPLICATION: Applicants seek a conditional order permitting 
the Manager, as investment adviser of the Trust, to enter into sub-
advisory contracts on behalf of the Trust without receiving prior 
shareholder approval.

FILING DATES: The application was filed on June 14, 1996. Applicants 
agree to file an amendment, the substance of which is incorporated 
herein, during the notice period.

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 
applicants 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 9, 
1996, and should be accompanied by proof of service on the 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 such notification by writing to 
the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, One Seaport Plaza, New York, New York 10292.

FOR FURTHER INFORMATION CONTACT: Sarah A. Beuscher, Staff Attorney, at 
(202) 942-0573, or Mercer E. Bullard, Branch Chief, at (202) 942-0546

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(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. The Trust is registered under the Act as an open-end management 
investment company and currently has ten separate investment portfolios 
(the ``Portfolios''). The Portfolios commenced operations on January 5, 
1993, except for the International Bond Portfolio, which commenced 
operations on May 17, 1994. Applicants request relief with respect to 
any current series and series of the Trust organized in the future, and 
for any future open-end management investment company advised by the 
Manager or a person controlling, controlled by, or under common control 
with the Manager, provided that such investment company operates in 
substantially the same manner as the Trust and complies with the 
conditions to the requested order.
    2. The Manager, an indirect wholly owned subsidiary of The 
Prudential Insurance Company of America, is an investment adviser 
registered under the Investment Advisers Act of 1940. The Trust has 
entered into an investment management agreement (the ``Management 
Agreement'') with the Manager who, in turn, has entered into an 
investment advisory agreement (the ``Advisory Agreement'') with one or 
more registered investment advisers (each an ``Adviser'') to the 
Portfolios. The Manager is responsible for selecting the Advisers, 
subject to the review and approval of the board of trustees of the 
Trust (the ``Board''). A Portfolio may be managed by a single Adviser 
or may be allocated by the Manager between or among two or more 
Advisers.
    3. The Manager evaluates investment management for the Trust by 
performing an initial review on prospective Advisers, monitoring 
Adviser performance through quantitative and qualitative analysis, and 
through in-person consultations with the Advisers. The Manager is also 
responsible for communicating performance expectations and evaluations 
to Advisers and recommending to the Board whether Advisers' contracts 
should be renewed, modified, or terminated. In addition, the Manager is 
responsible for conducting all operations of the Trust except those 
operations contracted to the Advisers, custodian, and transfer agent. 
The Trust pays the Manager a fee based on the average daily net assets 
of each Portfolio. The Manager pays each Adviser a fee based on the 
average daily net assets of the portion of the Portfolio managed by 
that Adviser. The Trust pays no fees directly to any Adviser.
    4. The Advisers serve in a sub-advisory capacity to the Portfolios. 
Each Adviser's responsibilities are limited to managing the securities 
held in a Portfolio, or portion thereof, it manages in accordance with 
the Portfolio's investment objectives and policies, making investment 
decisions for the Portfolio, and placing orders to purchase and sell 
securities on behalf of the Portfolio.
    5. Purchases of shares of a Portfolio are currently made through a 
securities account maintained with Prudential Securities Incorporated 
(``Prudential Securities''). Portfolio shares are available to 
participants in The Prudential Securities Target ProgramSM (the 
``Target Program'') who pay a separate investment advisory or program 
fee, to banks, trust companies, and other investment advisory services 
that maintain securities accounts with Prudential Securities, and to 
certain asset allocation programs of investments in registered 
investment companies sponsored by Prudential Securities.
    6. Prudential Securities, through the Target Program, provides 
advisory services in connection with investments among the Portfolios 
by identifying and recommending in writing an appropriate allocation of 
assets among the Portfolios that conforms to the investor's objectives, 
preferences, and risk tolerances, and providing a quarterly statement 
to the investor containing an analysis and evaluation of the investor's 
account. At times, Prudential Securities may recommend a modification 
in the allocation of assets among the Portfolios. Investors pay a 
quarterly fee to Prudential Securities for the Target Program services. 
Investors may terminate their participation in the Target Program at 
any time upon five business days' notice. If a Target Program account 
is terminated, all shares of the Portfolios held in that account will 
be redeemed. Portfolio shares may be redeemed at any time for cash at 
net asset value without the imposition of any sales charge, contingent 
deferred sales charge, or redemption fee. No Portfolio bears any 
distribution or shareholder servicing fee pursuant to rule 12b-1 under 
the Act.
    7. Applicants request an exemption from section 15(a) and rule 18f-
2 to permit the Manager to enter into new or amended Advisory 
Agreements without obtaining shareholder approval, including new 
Advisory Agreements necessitated because the prior Advisory Agreements 
were terminated as a result of an ``assignment'' (as defined in section 
2(a)(4) of the Act). The Management Agreement in all cases would be 
subject to the shareholder voting requirements of section 15(a).

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
provides that each series or class of stock in a series company 
affected by a matter must approve such matter if the Act requires 
shareholder approval.
    2. Applicants assert that the ability to enter into Advisory 
Agreements without shareholder approval would permit the Manager more 
effectively to perform the functions that the Portfolios are paying it 
to perform, namely, selecting Advisers, monitoring their performance, 
and changing Advisers when appropriate. Applicants believe that to 
require shareholders to approve each new Adviser not only would result 
in unnecessary administrative expense to the Portfolios, but also could 
result in harmful delays in executing changes in Advisers that the 
Manager and the Board have determined are necessary. Eight changes in 
Advisers or material changes in Advisory Agreements have been submitted 
for shareholder approval since the Portfolios commenced operations. 
Applicants submit that these meetings would not have taken place and 
shareholders would have been spared the expense and burden of repeat 
proxy solicitations, while receiving all relevant information that 
would have been included in a proxy statement, had the order requested 
in the application been in place.
    3. Applicants also assert that the primary responsibility for 
management of the Portfolios, in particular, the selection and 
supervision of the Advisers, is vested in the Manager, subject to 
oversight by the Board. Because of the unusual structure of the Trust, 
as well as the Manager's experience, applicants believe that it is 
consistent with the protection of investors to vest the selection and 
supervision of Advisers in the Manager. Applicants submit that, within 
this structure, the Manager is in a better position to make an informed 
selection of an Adviser than individual investors.
    4. Applicants believe that investors in the Portfolios would be in 
a position to make a fully informed decision as to

[[Page 43100]]

purchasing, redeeming, or retaining Portfolio shares. Shareholders will 
receive an information statement that includes all the information 
about a new Adviser or Adviser Agreement that would be included in a 
proxy statement. In addition, applicants state that all fees payable by 
the Manager to the Adviser will be disclosed in the prospectus of the 
applicable Portfolio in accordance with the requirements of Form N-1A.
    5. Applicants believe that investors who seek the investment advice 
of Prudential Securities typically have determined that they are 
unwilling to assume the burden of selecting an appropriate mix of 
investments to attain their investment objectives, or the appropriate 
money manager or managers to make specific investments in accord with 
those objectives. The Target Program is designed to create an asset 
allocation strategy to meet an investor's individual needs as well as 
selecting investments within each asset category.
    6. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act, if and 
to the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policies and provisions of the Act. 
Applicants believe that the requested relief meets this standard.

Applicants' Conditions

    Applicants agree that the requested exemption will be subject to 
the following conditions:
    1. The Manager will provide general management and administrative 
services to the Trust, including overall supervisory responsibility for 
the general management and investment of the Trust's securities 
portfolio, and, subject to review and approval by the Board, will (a) 
set the Portfolios' overall investment strategies; (b) select Advisers; 
(c) monitor and evaluate the performance of the Advisers; (d) allocate 
and, when appropriate, reallocate a Portfolio's assets among its 
Advisers in those cases where a Portfolio has more than one Adviser; 
and (e) implement procedures reasonably designed to ensure that the 
Advisers comply with the Trust's investment objectives, policies, and 
restrictions.
    2. Before a Portfolio may rely on the order requested hereby, the 
operation of the Portfolio in the manner described in the application 
will be approved by a majority of its outstanding voting securities, as 
defined in the Act, or, in the case of a new Portfolio whose public 
shareholders purchased shares on the basis of a prospectus containing 
the disclosure contemplated by condition 4 below, by the sole 
shareholder before offering of shares of such Portfolio to the public.
    3. The Trust will furnish to shareholders all information about a 
new Adviser or Advisory Agreement that would be included in a proxy 
statement. Such information will include any change in such disclosure 
caused by the addition of a new Adviser or any proposed material change 
in a Portfolio's Advisory Agreement. The Trust will meet this condition 
by providing shareholders with an informal information statement 
complying with the provisions of Regulation 14C under the Securities 
Exchange Act of 1934, as amended, and Schedule 14C thereunder. With 
respect to a newly retained Adviser, or a change in an Advisory 
Agreement, this information statement will be provided to shareholders 
of the Portfolio a maximum of ninety (90) days after the addition of 
the new Adviser or the implementation of any change in an Advisory 
Agreement. The information statement will also meet the requirements of 
Schedule 14A under the Exchange Act.
    4. The Trust will disclose in its prospectus the existence, 
substance, and effect of the order granted pursuant to this 
application.
    5. No trustee or officer of the Trust or director or officer of the 
Manager will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by such director, trustee, or 
officer) any interest in any Adviser except for (a) ownership of 
interests in the Manager or any entity that controls, is controlled by, 
or is under common control with the Manager; or (b) ownership of less 
than 1% of the outstanding securities of any class of equity or debt of 
a publicly traded company that is either an Adviser or any entity that 
controls, is controlled by or is under common control with an Adviser.
    6. The Manager will not enter into an Advisory Agreement with any 
Adviser that is an ``affiliated person,'' as defined in section 2(a)(3) 
of the Act, of the Trust or the Manager other than by reason of serving 
as an Adviser to one or more Portfolios (an ``Affiliated Adviser'') 
without such agreement, including the compensation to be paid 
thereunder, being approved by the shareholders of the applicable 
Portfolio.
    7. At all times, a majority of the members of the Board will be 
persons each of whom is not an ``interested person'' of the Trust as 
defined in section 2(a)(19) of the Act (the ``Independent Trustees''), 
and the nomination of new or additional Independent Trustees will be 
placed within the discretion of the then existing Independent Trustees.
    8. When an Adviser change is proposed for a Portfolio with an 
Affiliated Adviser, the Board, including a majority of the Independent 
Trustees, will make a separate finding, reflected in the Board's 
minutes, that such change is in the best interests of the Portfolio and 
its shareholders and does not involve a conflict of interest from which 
the Manager or the Affiliated Adviser derives an inappropriate 
advantage.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21107 Filed 8-19-96; 8:45 am]
BILLING CODE 8010-01-M