[Federal Register Volume 64, Number 219 (Monday, November 15, 1999)]
[Notices]
[Pages 61952-61957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29652]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24126; 812-11354]


Prudential Investments Fund Management LLC, et al.; Notice of 
Application

November 5, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 12(d)(1)(J) 
of the Investment Company Act of 1940 (the ``Act'') for an exemption 
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 
17(b) of the Act for an exemption from section 17(a) of the Act, and 
under section 17(d) of the Act and rule 17d-1 under the Act of permit 
certain joint transactions.

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Summary of Application

    Applicants request an order to permit: (i) Certain registered 
investment companies to lend their portfolio securities to affiliated 
broker-dealers; (ii) an affiliated lending agent to receive a fee based 
upon a share of the proceeds derived by the registered investment 
companies from their securities lending activities; (iii) the 
registered investment companies and certain affiliated institutional 
accounts to deposit cash collateral received in connection with their 
securities lending activities and uninvested cash into certain other 
registered investment companies; and (iv) certain transactions between 
the registered investment companies.
    Applicants: Prudential Balanced Fund, Prudential California 
Municipal Fund, Prudential Developing Markets Fund, Prudential 
Distressed Securities Fund, Inc., Prudential Diversified Bond Fund, 
Inc., Prudential Diversified Funds, Prudential Emerging Growth Fund, 
Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund, 
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund, 
Inc., Prudential's Gibraltar Fund, Inc., Prudential Global Limited 
Maturity Fund, Inc., Prudential Global Total Return Fund, Inc., 
Prudential Government Prudential High Yield Total Return Fund, Inc., 
Prudential Index Series Fund, Prudential Intermediate Global Income 
Fund, Inc., Prudential International Bond Fund, Inc., The Prudential 
Investments Portfolios Fund, Inc., Prudential Mid-Cap Value Fund, 
Prudential Municipal Bond Fund, Prudential Natural Resources Fund, 
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate 
Securities Fund, Prudential Sector Funds, Inc., Prudential Series Fund, 
Inc., Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company 
Value Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential 
Tax-Free Money Fund, Inc., Prudential Tax-Managed Equity Fund, 
Prudential 20/20 Focus Fund, Prudential World Fund, Inc. (collectively, 
the ``Prudential Public Funds''); Prudential Core Investment Fund 
(``Prudential Private Fund''), Cash Accumulation Trust, COMMAND 
Government Fund, COMMAND Money Fund, COMMAND Tax-Free Fund, Prudential 
Government Securities Trust, Prudential Institutional Liquidity 
Portfolio, Inc., Prudential MoneyMart Assets, Inc., Prudential 
Municipal Series Fund, Prudential National Municipals Fund, Inc., 
Prudential Special Money Market Fund, Inc., and Prudential Tax-Free 
Money Fund, Inc. (collectively, the ``Investment Funds'' and together 
with the Public funds, and the Prudential Separate Accounts defined 
below, the ``Prudential Funds''); The Prudential Variable Contract 
Account-2, The Prudential Variable Contract Account-10, and The 
Prudential Variable Contract Account-11 (collectively, the ``Prudential 
Separate Accounts''). Prudential Investments Fund Management LLC (the 
``Manager''), the Prudential Investment Corporation (``Prudential 
Investments'', the Prudential Insurance Company of America 
(``Prudential '' and together with the Manager and Prudential 
Investments, the ``Adviser''), Prudential Investment Management 
Services LLC (the ``Distributor''), and Prudential Securities 
Incorporated (``PSI'').

Filing Dates

    The application was filed on September 24, 1998. Applicants have 
agreed to file an amendment during the notice period, the substance of 
which is reflected in this notice.

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 November 30, 1999, and 
should be accomplished by proof of service on applicants, in 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 Commission's 
Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW, Washington, DC 20549-0609. Applicants, Gateway Center 
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.

FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney, 
at (202) 942-0517, or George J. Zornada,

[[Page 61953]]

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 at the 
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington, 
DC 20549-0102. (tel. 202-942-8090).

Applicants' Representations

    1. The Prudential Funds are registered under the Act as management 
investment companies. All of the Prudential Funds, except the High-
Yield Income Fund, In. which is a closed-end investment company, are 
open-end investment companies. The Prudential Private Fund does not 
have its shares registered under the Securities Act of 1933. Certain 
Investment Funds, including the Prudential Private Fund, are money 
market funds that comply with rule 2a-7 under the Act (``Prudential 
Money Market Funds''). The other Investment Funds are short-term bond 
funds with portfolio maturities of three years or less.
    2. The Manager is registered under the Investment Advisers Act of 
1940 (``Advisers Act'') and serves as the investment adviser to the 
Prudential Funds. Prudential Investments is registered under the 
Advisers Act and serves as sub-adviser to certain of the Prudential 
Funds. The Distributor is a broker-dealer registered under the 
Securities Exchange Act of 1934 (``Securities Exchange Act'') and 
serves as principal underwriter to the Prudential Funds. The Manager 
and Prudential Investments are wholly-owned subsidiaries of Prudential. 
Prudential is registered under the Advisers Act and manages the 
Prudential Separate Accounts. The Distributor is a limited liability 
company whose sole member is Prudential. PSI, a wholly-owned subsidiary 
of Prudential, is a broker-dealer registered under the Securities 
Exchange Act.
    3. Prudential and Prudential Investments also advise certain 
institutional accounts (``Institutional Accounts''). The Institutional 
Accounts include qualified employee benefit plans, trusts, corporate 
cash accounts, offshore investment companies, foundations, Taft-Hartley 
Plans, endowments, and bank collective investment trusts. Certain of 
the Institutional Accounts are exempted from the definition of an 
investment company by sections 3(c)(1) and 3(c)(11) of the Act. Future 
Institutional Accounts may be excepted from the definition of an 
investment company by section 3(c)(7) of the Act.
    4. Applicants also request that the relief sought apply to (i) any 
future registered management investment company, or registered open-end 
management investment company, that is a separate account, that is 
advised by the Advisers, or an entity controlling, controlled by, or 
under common control with the Adviser; (ii) any other broker-dealer 
registered under the Securities Exchange Act that may be controlling, 
controlled by, or under common control with the Distributor 
(``Affiliated Broker-Dealers''); (iii) an entity controlling, 
controlled by, or under common control with Prudential that serves as 
lending agent to the Lending Funds and; (iv) any future Institutional 
Account advised by the Advisers or an entity controlling, controlled 
by, or under common control with the Advisers.\1\
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    \1\ All existing entities that currently intend to rely on the 
order are named as applicants. Any existing or future entity that 
relies on the order in the future will do so only in accordance with 
the terms and conditions of the application.
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    5. The Prudential Funds and the Institutional Accounts may have 
uninvested cash (``Uninvested Cash''). Uninvested Cash includes 
dividends or interest received from portfolio securities, cash received 
through dollar rolls, reserves held for investment strategy purposes, 
scheduled maturity of investments, liquidation of investment securities 
to meet anticipated redemptions and dividend payments, and new monies 
received from investors. Currently, the Prudential Funds can invest 
Uninvested Cash into a joint account \2\ or the Prudential Funds and 
the Institutional Accounts can invest Uninvested Cash directly in money 
market instruments.
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    \2\ See The Prudential Insurance Company of America, Investment 
Company Act Release Nos. 17647 (Aug. 3, 1990) (notice) and 17719 
(Aug. 30, 1990) (order); Prudential-Bache Adjustable Rate Preferred 
Stock Fund, Inc., Investment Company Act Release Nos. 16279 (Feb. 
18, 1988) (notice) and 16321 (Mar. 17, 1998) (order).
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    6. The Prudential Funds, with the exception of the Prudential Money 
Market Funds (collectively, the ``Lending Funds''), also propose to 
lend their portfolio securities to the Affiliated Broker-Dealers and 
other borrowers (``Borrowers''). Prudential securities lending group, 
an operating unit within Prudential whose employees consist of 
employees of PSI and other direct and indirect subsidiaries of 
Prudential (``Prudential Securities Lending Group''), proposes to act 
as lending agency for the Lending Funds.\3\
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    \3\ Applicants state that the personnel who will provide day-to-
day lending agency services to the Lending Funds do not and will not 
provide investment advisory services to the Lending Funds, or 
participate in any way in the selection of the portfolio securities 
or other aspects of the management of the Lending Funds.
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    7. Prudential Securities Lending Group, among other things, will be 
responsible for soliciting Borrowers from a list of pre-approved 
eligible Borrowers, entering into loans of preapproved securities with 
the Borrowers on pre-approved terms, negotiate the loans, and perform 
other administrative functions in connection with the securities 
lending program. Prudential Securities Lending Group's duties will be 
restricted to those described in Norwest Bank Minnesota, N.A. (pub. 
avail. May 25, 1995). Prudential Investments, a sub-adviser to the 
Lending Funds, will be responsible for investing all cash collateral 
received in respect of the securities loans.\4\
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    \4\ Any Lending Fund for which Prudential Investments does not 
currently serve as a Sub-Adviser will not participate in the 
securities lending program until a subadvisory agreement with 
Prudential Investments has been approved in accordance with the Act.
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    8. When a securities loan is collateralized by cash, the cash 
collateral is invested during the loan period. After paying the 
Borrower an agreed upon fee or ``rebate'' from the return on the cash 
collateral, the Lending Fund will retain the remainder, which will be 
shared with the securities lending agent. In the case of collateral 
other than cash, the Lending Fund will receive a lending fee paid by 
the Borrower, which will be shared with the securities lending agent.
    9. Applicants seek an order to permit (i) Prudential Securities 
Lending Group to serve as lending agent for the Lending Funds and to 
accept fees based on a share of the proceeds derived by the Lending 
Funds from their securities lending activities; (ii) the Lending Funds 
to lend portfolio securities to Affiliated Broker-Dealers; (iii) the 
Lending Funds and the Institutional Accounts to invest cash collateral 
received in connection with their securities lending activities (``Cash 
Collateral'') and the Prudential Funds and Institutional Accounts to 
invest Uninvested Cash into the Investment Funds, and (iv) the 
Prudential Funds to engage in certain interfund transaction.

Applicants' Legal Analysis

A. Lending Agent Fees

    1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
any affiliated person of or principal underwriter for a registered 
investment company or any affiliated person of such person or principal 
underwriter, acting as principal, from effecting any

[[Page 61954]]

transaction in connection with any joint enterprise or other joint 
arrangement or profit sharing plan in which the investment company 
participates. Rule 17d-1 permits the Commission to approve a proposed 
joint transaction covered by the terms of section 17(d). In determining 
whether to approve a transaction, the Commission is to consider whether 
the proposed transaction is consistent with the provisions, policies, 
and purposes of the Act, and the extent to which the participation of 
the investment companies is on a basis different from or less 
advantageous than that of the other participants.
    2. Section 2(a)(3) of the Act defines an affiliated person to 
include any person directly or indirectly controlling, controlled by, 
or under common control with, the other person, and if the other person 
is an investment company, its investment adviser. The Advisers, as 
investment advisers or sub-advisers to the Lending Funds, are 
affiliated persons of the Lending Funds. In addition, as wholly-owned 
subsidiaries of Prudential, they may be deemed to be under common 
control, and therefore affiliated persons. Accordingly, applicants 
request an order under section 17(d) and 17d-1 under the Act to permit 
each Lending Fund to pay and Prudential Securities Lending Group to 
accept lending agent fees that are based on a share of the proceeds 
derived by the Lending Funds from the loans of portfolio securities.
    3. Applicants propose that each Lending Fund adopt the following 
procedures to ensure that the proposed fee arrangement and the other 
terms governing the relationship with the Prudential Securities Lending 
Group meet the requirements of rule 17d-1:
    (a) In connection with the approval of the securities lending 
program, and the approval of Prudential Securities Lending Group as 
lending agent for the Lending Funds and implementation of the proposed 
fee arrangement, a majority of the board of directors of each Lending 
Fund (``Board'') (including a majority of directors of each Lending 
Fund who are not ``interested persons'' as defined in section 2(a)(19) 
of the Act (the ``Independent Directors'')) will determine that (i) the 
contract with Prudential Securities Lending Group is in the best 
interests of the Lending Fund and its shareholders; (ii) the services 
to be performed by the Prudential Securities Lending Group are 
appropriate for the Lending Fund; (iii) the nature and quality of the 
services provided by the Prudential Securities Lending Group are at 
least equal to those provided by others offering the same or similar 
services; and (iv) the fees for Prudential Securities Lending Group's 
services are fair and reasonable in light of the usual and customary 
charges imposed by others for services of the same nature and quality.
    (b) In connection with the approval of the Prudential Securities 
Lending Group as lending agent for the Lending Funds and the initial 
implementation of the proposed fee arrangement, the Board will review 
competing quotes with respect to lending agency fees from at least 
three independent lending agents to assist the Board in making the 
findings referred to in paragraph (a) above.
    (c) Each Lending Fund's contract with the Prudential Securities 
Lending Group for lending agent services will be reviewed annually and 
will be approved for continuation only if a majority of the Board 
(including a majority of the Independent Directors) makes the findings 
referred to in paragraph (a) above.
    (d) The Board, including a majority of the Independent Directors, 
will (i) determine at each regular quarterly meeting that the loan 
transactions during the prior quarter were effected in compliance with 
the conditions and procedures set forth in the application and (ii) 
review no less frequently than annually the conditions and procedures 
for continuing appropriateness.
    (e) Each Lending Fund will (i) maintain and preserve permanently in 
an easily accessible place a written copy of the procedures and 
conditions (and any modifications) described in the application or 
otherwise followed in connection with lending securities pursuant to 
the securities lending program and (ii) maintain and preserve for a 
period not less than six years from the end of the fiscal year in which 
any loan transaction pursuant to the Program occurred, the first two 
years in an easily accessible place, a written record of each loan 
transaction setting forth a description of the security loaned, the 
identity of the person on the other side of the loan transaction, the 
terms of the loan transaction, and the information or materials upon 
which the determination was made that each loan was made in accordance 
with the procedures set forth above and the conditions to the 
application.

B. Investment of Uninvested Cash and Cash Collateral in the Investment 
funds

    1. Section 12(d)(1)(A) of the Act provides that no investment 
company may acquire securities of a registered investment company if 
such securities represent more than 3% of the acquired company's voting 
stock, more than 5% of the acquiring company's total assets, or if such 
securities, together with the securities of any other acquired 
investment companies, represent more than 10% of the acquiring 
company's total assets. Section 12(d)(1)(B) of the Act provides that no 
registered open-end investment company may sell its securities to 
another investment company if the sale will cause the acquiring company 
to own more than 3% of the acquired company's voting stock, or if the 
sale will cause more than 10% of the acquired company's voting stock to 
be owned by investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security or transaction from any provision of 
section 12(d)(1) if, and to the extent that, such exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under Section 12(d)(1)(J) to permit certain 
Prudential Funds (``Acquiring Funds'') and the Institutional Accounts 
that are relying on section 2(c)(1) or 3(c)(7) of the Act to invest 
their Cash Collateral and Uninvested Cash in the Investment Funds in 
excess of the limits in section 12(d)(1).
    3. Applicants believe that the proposed arrangement does not result 
in the abuses that section 12(d)(1) was intended to prevent. Applicants 
state that the arrangements will not result in any layering of fees 
because the Investment Funds will not impose any sales load, redemption 
fee, asset-based distribution fee, or other service fee. The Management 
or Prudential Investments, as applicable, will waive advisory fees paid 
to it by an Investment Fund, or alternatively, the Acquiring Fund will 
receive a credit or other offset against its management fee in an 
amount equal to its proportionate share of the management fees paid by 
the Investment Funds in which it invests, to the extend necessary to 
avoid duplication of advisory fees for the Acquiring Funds as a result 
of their investment in the Investment Funds. Applicants also believe 
that the proposed arrangement will not create an overly complex fund 
structure. Applicants note that the Investment Funds will be prohibited 
from acquiring securities of any investment company in excess of the 
limits contained in section 12(d)(1)(A) of the Act, unless the 
Investment Fund is an Acquiring Fund investing its Cash Collateral or 
Uninvested Cash pursuant to the requested order.
    4. Section 17(a) of the Act makes it unlawful for an affiliated 
person of a registered investment company, or any

[[Page 61955]]

second tier affiliate, acting as a principal, to sell or purchase any 
security to or from the investment company. Because the Acquiring Funds 
and the Investment Funds are advised by a common investment adviser, or 
by investment advisers that are under common control, the Acquiring 
Funds and the Investment Funds may be affiliated persons. Moreover, if 
an Acquiring Fund owns 5% or more of an Investment Fund, the Acquiring 
fund may be deemed to be an affiliated person of the Investment Fund. 
Accordingly, applicants state that section 17(a) would prohibit the 
sale of shares of the Investment Funds to the Acquiring Funds, and the 
redemption of such shares by the Investment Funds.
    5. Section 17(b) of the Act authorizes the Commission to exempt a 
transaction from section 17(a) of the Act if the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, the proposed transaction is consistent with the 
policy of each registered investment company concerned, and with the 
general purposes of the Act. Section 6(c) of the Act permits the 
Commission to exempt any person or transaction from any provision of 
the Act, if 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 of the Act.
    6. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Acquiring Funds to purchase shares of the Investment 
Funds. Applicants submit that the terms of the proposed transactions 
are reasonable and fair and do not involve overreaching. Applicants 
also state that shares of the Investment Funds will be purchased and 
redeemed at their net asset value. Applicants state that the Investing 
Funds will retain their ability to invest Uninvested Cash directly in 
money market instruments as authorized by their respective investment 
objectives and policies if they believe they can obtain a higher rate 
or return, or for any other reason. The Investment Funds have the right 
to discontinue selling shares to any of the Acquiring Funds or the 
Institutional Accounts if the Investment Fund's board of directors 
determines that such sale would adversely affect its portfolio 
management and operations.
    7. Applicants submit that the Acquiring Funds' investment of 
Uninvested Cash and Cash Collateral in the Investment Funds will be 
consistent with the policy of each Acquiring Fund, as recited in its 
registration statement and reports filed under the Act. Applicants 
state that the Prudential Money Market Funds will invest only in an 
Investment Fund that complies with rule 2a-7 under the Act. Applicants 
also state that the investment of the Cash Collateral will be in 
accordance with the Commission staff's securities lending guidelines. 
Applicants state that an Acquiring Fund's aggregate investment of 
Uninvested Cash in the Investment Funds will not exceed 25% of the 
Acquiring Fund's total assets.
    8. As noted above, section 17(d) and rule 17d-1 generally prohibit 
joint transactions involving registered investment companies and 
certain of their affiliates unless the Commission has approved the 
transaction. Applicants state that the Acquiring Funds and the 
Institutional Accounts by purchasing and redeeming shares of the 
Investment Funds, the Advisers by acting as investment adviser or sub-
adviser to the Acquiring Funds and the Institutional Accounts, and the 
Prudential Securities Lending Group by acting as lending agent, may be 
deemed participants in a joint transaction under section 17(d) and rule 
17d-1 under the Act. Applicants submit that the Acquiring Funds will 
participate in the proposed transaction on a basis not different from 
or less advantageous than that of any other participant and that the 
transaction will be consistent with the Act.

C. Interfund Transactions

    1. Applicants state that the Acquiring Funds and the Investment 
Funds currently rely on rule 17a-7 under the Act to engage in purchase 
and sale transactions involving short-term money market instruments 
(``Interfund Transactions''). Rule 17a-7 under the Act excepts from the 
prohibitions of section 17(a) the purchase or sale of certain 
securities between registered investment companies which are affiliated 
person, or second tier affiliates, of each other or between a 
registered investment company and a person which is an affiliated 
person of such company (or second tier affiliate) solely by reason of 
having a common investment adviser, common officers, and/or common 
directors. Applicants state that the Acquiring Funds and the Investment 
Funds could be deemed to be affiliated persons of each other by virtue 
of an Acquiring Fund owning 5% or more of the outstanding voting 
securities of an Investment Fund. Thus, applicants believe they would 
not be able to rely on rule 17a-7 to effect Interfund Transactions.
    2. Applicants request an order under sections 6(c) and 17(b) of the 
Act to permit the Interfund Transactions. Applicants state that the 
Acquiring Funds and the Investment Funds will comply with rule 17a-7 
under the Act in all respects, other than the requirement that the 
participants be affiliated solely by reason of having a common 
investment adviser or affiliated investment advisers, common officers, 
or common directors, solely because the Acquiring Funds and the 
Investment Funds might become affiliated persons within the meaning of 
section 2(a)(3)(A) and (B) of the Act.

D. Lending of Portfolio Securities to Affiliated Broker-Dealers

    1. Section 17(a)(3) of the Act makes it unlawful for any affiliated 
person of or principal underwriter for a registered investment company 
or an affiliated person of such a person, acting as principal, to 
borrow money or other property from the registered investment company. 
Applicants state that section 17(a)(3) of the Act would prohibit 
Affiliated Broker-Dealers from borrowing securities from the Lending 
Funds.
    2. As noted above, section 17(d) of the Act and rule 17d-1 under 
the Act generally prohibit joint transactions involving the registered 
investment companies and certain of their affiliates unless the 
Commission has approved the transaction. Applicants request relief 
under sections 6(c) and 17(b) of the Act exempting them from section 
17(a)(3) of the Act, and under section 17(d) of the Act and rule 17d-1 
under the Act to permit the Lending Funds to lend portfolio securities 
to Affiliated Broker-Dealers.
    3. Applicants state that each loan to an Affiliated Broker-Dealer 
by a Lending Fund will be made with a spread that is no lower than that 
applied to comparable loans to unaffiliated broker-dealers.\5\ In this 
regard, applicants state that at least 50% of the loans made by the 
Lending Funds, on an aggregate basis, will be made to unaffiliated 
Borrowers. Moreover, all loans will be made with spreads that are no 
lower than those set forth in a schedule of spreads established by the 
Independent Directors of each Lending Fund and all transactions with 
Affiliated Broker-Dealers will be reviewed periodically by the officers 
of the Lending Funds. The

[[Page 61956]]

Board, including a majority of the Independent Directors, also will 
review detailed quarterly compliance reports on all lending activity.
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    \5\ A ``spread'' is the compensation earned by a fund, as 
lender, from a securities loan, that is in the form either of a 
lending fee payable by the borrower to the fund (when non-cash 
collateral is posted) or the excess--retained by the fund--over a 
rebate rate payable by the fund to the borrower (when cash 
collateral is posted and then invested by the fund).
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Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:

A. General

    1. Each Prudential Fund and each Prudential Institutional Account 
will be advised by the Advisers, or an entity controlling, controlled 
by, or under common control with the Advisers.
    2. The securities lending program will comply with all present and 
future applicable Commission and staff positions regarding securities 
lending arrangements.
    3. Approval of the Board, including a majority of Independent 
Directors, shall be require for the initial and subsequent approvals of 
Prudential Securities Lending Group as lending agent for a Lending 
Fund, for the institution of all procedures relating to the securities 
lending program, and for any periodic review of loan transactions for 
which Prudential Securities Lending Group acted as lending agent.

B. Loans to Affiliated Broker-Dealers

    4. Each Lending Fund will (i) maintain and preserve permanently in 
an easily accessible place a written copy of the procedures (and any 
modifications thereto) which are followed in connection with lending 
securities and (ii) maintain and preserve for a period of not less than 
six years from the end of the fiscal year in which any loan transaction 
occurred, the first two years in an easily accessible place, a written 
record of each loan transaction setting for the number of shares 
loaned, the face amount of the securities loaned, the fee received (or 
rebate remitted), the identity of the Borrower, the terms of the loan, 
and any other information or material upon which the finding was made 
that each loan made to Affiliated Broker-Dealers was fair and 
reasonable, and that the procedures followed in making such a loan were 
in accordance with the other undertakings set forth in the application.
    5. The Lending Funds, on an aggregate basis, will make at least 50% 
of their portfolio securities loans to unaffiliated Borrowers.
    6(a) All loans will be made with spreads no lower than those set 
forth in the schedule of spreads which will be established and may be 
modified from time to time by a committee of the Lending Fund's Board 
(``Lending Committee'') composed of Independent Directors (``Schedule 
of Spreads''). The Schedule of Spreads and any modifications thereto 
will be ratified by the full Board of each Lending Fund and by a 
majority of the Independent Directors.
    (b) The Schedule of Spreads will set forth rates of compensation to 
the Lending Fund that are reasonable and fair, and that are determined 
in light of those considerations set forth in the application.
    (c) The Schedule of Spreads will be uniformly applied to all 
Borrowers of the Lending Fund's portfolio securities, and will specify 
the lowest allowable spread with respect to a loan of securities to any 
Borrower.
    (d) If a security is loaned to an unaffiliated Borrower with the 
spread higher than the minimum set forth in the Schedule of Spreads, 
all comparable loans to an Affiliated Broker-Dealer will be made at no 
less than the higher spread.
    (e) The Lending Fund's securities lending program will be monitored 
on a daily basis by an officer of the Lending Fund who is subject to 
section 36(a) of the Act. This officer will review the terms of each 
loan to an Affiliated Broker-Dealer for comparability with loans to 
unaffiliated Borrowers and conformity with the Schedule of Spreads, and 
will periodically, and at least quarterly, report his or her findings 
to the Lending Fund's Lending Committee.
    7. A Lending Fund will not make any loan to any Affiliated Broker-
Dealer unless the income to the Lending Fund attributable to such loan 
fully covers the transaction costs, if any, incurred in making the 
loan.
    8. The Board of the Lending Fund, include a majority of the 
Independent Directors, will determine no less frequently than quarterly 
that all transactions with Affiliated Broker Dealers effected during 
the preceding quarter were effected in compliance with the requirements 
of the procedures adopted by the Board and the conditions of any order 
than may be granted and that such transactions were conducted on terms 
that were reasonable and fair and will review no less frequently than 
annually such requirements and conditions for their continuing 
appropriateness.
    9. The total value of securities loaned to any one broker-dealer on 
the approved list will be in accordance with a schedule to be approved 
by the Board of each Fund, but in no event will the total value of 
securities lent to any one Affiliated Broker-Dealer exceed 10% of the 
net assets of the Lending Fund, computed at market.

C. Investment of Uninvested Cash and Cash Collateral in Investment 
Funds

    10. The Manager will waive or credit the amount of its advisory fee 
for each Acquiring Fund in an amount that offsets the amount of the 
advisory fees of the Investment Funds incurred by the Acquiring Fund.
    11. No Investment Fund will acquire securities of any other 
investment company in excess of the limits contained in section 
12(d)(1)(A) of the Act, unless the Investment Fund is an Acquiring Fund 
investing its Cash Collateral or Uninvested Cash pursuant to the 
requested order.
    12. Shares of Investment Funds sold to and redeemed by the 
Acquiring Funds will not be subject to a sales load, redemption fee, 
distribution fee under a plan adopted in accordance with rule 12b-1 
under the Act or service fee (as defined in Rule 2830(b)(9) of the 
Conduct Rules of the National Association of Securities Dealers.
    13. Acquiring Funds that are money market funds will not acquire 
shares of any Investment Fund that does not comply with the 
requirements of rule 2a-7 under the Act.
    14. Investment in shares of the Investment Funds will be in 
accordance with each Acquiring Fund's respective investment 
restrictions and will be consistent with such Acquiring Fund's policies 
are set forth in its registration statement.
    15. Each of the Acquiring Funds will invest Uninvested Cash in, and 
hold shares of, the Investment Fund only to the extent that the 
Acquiring Fund's aggregate investment in the Investment Funds does not 
exceed 25% of the Acquiring Fund's total assets. For purposes of this 
limitation, each Acquiring Fund or series thereof will be treated as a 
separate investment company.

D. Interfund Transactions

    16. To engage in Interfund Transactions, the Prudential Funds will 
comply with rule 17a-7 under the Act in all respects other than the 
requirement that the parties to the transactions be affiliated persons 
(or affiliated persons of affiliated persons) of each other solely by 
reason of having a common investment adviser or investment advisers 
which are affiliated persons of each other, common officers, and/or 
common directors, solely because the Prudential Funds and the 
Investment Funds might become affiliated persons within the meaning of 
section 2(a)(3)(A) and (B) of the Act.


[[Page 61957]]


    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29652 Filed 11-12-99; 8:45 am]
BILLING CODE 8010-01-M