[Federal Register Volume 67, Number 139 (Friday, July 19, 2002)]
[Notices]
[Pages 47578-47579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18253]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-25660; File No. 812-12694]


Pruco Life Insurance Company, et al.; Notice of Application

July 15, 2002.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for an amended order under Section 6(c) 
of the Investment Company Act of 1940 (the ``1940 Act'') granting 
exemptions from the provisions of Sections 2(a)(32), 22(c), and 
27(i)(2)(A) of the 1940 Act and Rule 22c-1 thereunder.

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    Summary of Application: Applicants seek an amendment of an Existing 
Order (described below) to permit the recapture of Credit amounts that 
differ from the Credit amounts contemplated by the Existing Order under 
the circumstances specified herein.
    Applicants: Pruco Life Insurance Company (``Pruco Life''); Pruco 
Life Flexible Premium Variable Annuity Account (``Pruco Life 
Account''); Pruco Life Insurance Company of New Jersey (``Pruco Life of 
New Jersey,'' and collectively with Pruco Life, the ``Insurance 
Companies''); Pruco Life of New Jersey Flexible Premium Variable 
Annuity Account (``Pruco Life of New Jersey Account,'' and collectively 
with Pruco Life Account, the ``Accounts''); and Prudential Investment 
Management Services LLC (``PIMS,'' and collectively with the Insurance 
Companies and the Accounts, ``Applicants'').
    Filing Date: The application was filed on November 19, 2001, and 
amended on July 3, 2002.
    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 August 
9, 2002, 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 SEC.

Addresses: Secretary, SEC, 450 5th Street, NW, Washington, DC 20549-
0609. Applicants, c/o The Prudential Insurance Company of America, 213 
Washington Street, Newark, NJ 07102-2992, Attn: C. Christopher Sprague, 
Esq.

For Further Information Contact: Joyce M. Pickholz, Senior Counsel, or 
William J. Kotapish, Assistant Director, at (202) 942-0670, Office of 
Insurance Products, Division of Investment Management.

Supplementary Information: The following is a summary of the 
application. The complete application is available for a fee from the 
SEC's Public Reference Branch, 450 Fifth Street, NW, Washington, DC 
20549-0102 [tel. (202) 942-8090].

Applicants' Representations

    1. On September 29, 2000, the Commission issued the Existing Order 
exempting certain transactions of Applicants from the provisions of 
Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the 1940 Act and Rule 22c-
1 thereunder to permit, under specified circumstances the recapture of 
certain credits applied to purchase payments made under the Contracts 
and Future Contracts described in the Existing Order.\1\
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    \1\ Investment Company Act Release Nos. 24635 (September 7, 
2000) (notice) and 24670 (September 29, 2000) (order).
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    2. Pursuant to the Existing Order, the Insurance Companies issued 
Contracts (the ``Original Contracts'') that uniformly applied a 4% 
Credit to purchase payments made, regardless of the purchase payment 
amount or the contract owner's age. Under this original version of the 
Contracts, each Credit is typically subject to its own vesting 
schedule, under which 10% of the Credit vests on each of the first six 
Contract Anniversaries following the purchase payment, and the 
remaining portion of the Credit vests on the seventh Contract 
Anniversary. Under some versions of the Original Contracts, the Credit 
may vest sooner. If a withdrawal is made of all or part of a purchase 
payment, the non-vested portion of the Credit attributable to that 
purchase payment is recaptured. In addition, the non-vested portion of 
the Credit is recaptured if: (a) The Contract is canceled under the 
free look provision, (b) death occurs within one year of a purchase 
payment, or (c) annuitization occurs during the vesting period 
applicable to the Credit.
    3. The Insurance Companies now desire to recapture Credit amounts 
that differ depending upon the purchase payment amount and the contract 
owner's age when the purchase payment is made. Under this new version 
of the Contracts (the ``New Contracts''), a 4% Credit will be applied 
to purchase payments less than $250,000 and a 5% Credit will be applied 
to purchase payments of $250,000 or more if the contract owner is age 
80 or younger (for jointly-owned contracts, if the older owner is 80 or 
younger) when the purchase payment is made. If the contract owner is 
age 81 or older (for jointly-owned contracts, if the older owner is 81 
or older) when the purchase payment is made, a 3% Credit will be 
applied regardless of the amount of the purchase payment. Under the New 
Contracts, the Credits will generally vest upon the expiration of the 
free look period. However, as under the Original Contracts, if a Credit 
is applied to a purchase payment within one year of death, any Credit 
attributable to that purchase payment will be recaptured in calculating 
the death benefit payable under the New Contracts. That is, in 
calculating the death benefit, the contract value will be adjusted to 
recapture any credits paid within one year of death.
    4. Under the New Contracts, the Insurance Companies will recapture 
Credits applied to purchase payments under the same circumstances 
permitted by the Existing Order, except that there will be no recapture 
of Credits upon a withdrawal or surrender after the free look period 
has expired, or upon annuitization.
    5. The New Contracts are substantially similar in all material 
respects to the Original Contracts covered by the Existing Order except 
that under the New Contracts: (a) The Credits are applied as described 
above, and vest upon the expiration of the free look period (except for 
Credits applied within one year prior to death), (b) the withdrawal 
charge as a percentage of purchase payments ranges from 8% prior to the 
first Contract Anniversary to 0% after 7 Contract Anniversaries, and 
(c) the asset-based insurance and administrative expense charges are at 
annual rates of 1.50% for the base death benefit, 1.70% for the 
guaranteed minimum death benefit with either Step-Up or the Roll-Up, 
and 1.80% for the guaranteed minimum death benefit with the greater of 
the Step-Up and the

[[Page 47579]]

Roll-Up, assessed pro-rata against the net assets of each sub-account.
    6. Applicants seek an amendment to the Existing Order to permit the 
recapture of the Credit amounts that will be applied to purchase 
payments made under the New Contracts. The New Contracts include those 
that exist presently, as well as contracts that may be issued in the 
future by the Insurance Companies through the Accounts and any other 
separate account established in the future by the Insurance Companies 
(``Future Accounts'') that are substantially similar in all material 
respects to the existing Contracts (``Future New Contracts''). Such 
Contracts will be sold by PIMS, the principal underwriter of the New 
Contracts, through broker-dealers that are affiliated with the 
Insurance Companies or NASD-registered broker-dealers that are not 
affiliated with the Insurance Companies. Each unaffiliated broker-
dealer will have entered into a dealer agreement with PIMS or an 
affiliate of PIMS prior to offering the New Contracts. Applicants also 
request that the amended order extend to any National Association of 
Securities Dealers, Inc. member broker-dealer controlling, controlled 
by or under common control with, the Insurance Companies, whether 
existing or created in the future, that serves as distributor or 
principal underwriter of the New Contracts offered through the Accounts 
or any Future Account.

Applicant's Legal Analysis

    1. Section 6(c) of the 1940 Act authorizes the Commission to exempt 
any person, security or transaction, or any class or classes of 
persons, securities or transactions, from the provisions of the 1940 
Act and the rules promulgated thereunder 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 policy and provisions of the 1940 Act. Applicants 
request that the Commission, pursuant to Section 6(c) of the 1940 Act, 
amend the Existing Order to the extent necessary to permit the 
recapture of the Credit amounts described above under New Contracts. 
Applicants believe that the requested exemptions are appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the 1940 Act.
    2. Applicants submit that the recapture of Credits will not raise 
concerns under Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the 1940 
Act, and Rule 22c-1 thereunder for the same reasons given in support of 
the Existing Order. Credits under the New Contracts will be recaptured 
only if the owner exercises his/her free look right or with regard to 
Credits applied within one year prior to death. The amounts recaptured 
equal the Credits provided by each Insurance Company from its own 
general account assets. When the Insurance Companies recapture any 
Credit, they are merely retrieving their own assets, and the owner has 
not been deprived of a proportionate share of the applicable Account's 
assets, because his or her interest in the Credit amount has not 
vested. With respect to Credit recaptures upon the exercise of the 
free-look privilege, it would be unfair to allow an owner exercising 
that privilege to retain a Credit amount under a New Contract that has 
been returned for a refund after a period of only a few days. If the 
Insurance Companies could not recapture the Credit, individuals could 
purchase a New Contract with no intention of retaining it, and simply 
return it for a quick profit. The owner generally bears the investment 
risk from the time of purchase until return of the New Contract, and is 
entitled to retain any investment gain attributable to the Credit.
    3. Applicants submit that the provisions for recapture of any 
Credits under the New Contracts do not, and any such Future New 
Contract provisions will not, violate Section 2(a)(32), 22(c) and 
27(i)(2)(A) of the 1940 Act, and Rule 22c-1 thereunder, and that the 
relief requested is consistent with the exemptive relief provided under 
the Existing Order.
    4. Applicants submit that their request for an amended order that 
applies to any Account or any Future Account established by an 
Insurance Company in connection with the issuance of New Contracts and 
Future New Contracts that are substantially similar to the New 
Contracts described herein in all material respects, and underwritten 
or distributed by PIMS, is appropriate in the public interest. Such an 
order would promote competitiveness in the variable annuity market by 
eliminating the need to file redundant exemptive applications, thereby 
reducing administrative expenses and maximizing the efficient use of 
Applicants' resources. Investors would not receive any benefit or 
additional protection by requiring Applicants to repeatedly seek 
exemptive relief that would present no issue under the 1940 Act that 
has not already been addressed in this Application. Having Applicants 
file additional applications would impair Applicants' ability 
effectively to take advantage of business opportunities as they arise.
    5. Applicants undertake that Future New Contracts funded by 
Accounts or by Future Accounts that seek to rely on the order issued 
pursuant to this Application will be substantially similar to the New 
Contracts in all material respects.

Conclusion

    Applicants submit that their request for an amended order meets the 
standards set out in Section 6(c) of the 1940 Act and that an amended 
order should, therefore, be granted.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-18253 Filed 7-18-02; 8:45 am]
BILLING CODE 8010-01-P