[Federal Register Volume 67, Number 185 (Tuesday, September 24, 2002)]
[Notices]
[Pages 59869-59873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24212]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25736, 812-12480]


Prudential Investments LLC, et al.; Notice of Application

September 18, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under: (a) section 6(c) of the 
Investment Company Act of 1940 (``Act'') requesting an exemption from 
sections 12(d)(3) and 17(e) of the Act and rule 17e-1 under the Act; 
(b) sections 6(c) and 17(b) of the Act requesting an exemption from 
section 17(a) of the Act; and (c) section 10(f) of the Act requesting 
an exemption from section 10(f) of the Act.

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    Summary of Application: Applicants request an order to permit 
certain registered management investment companies advised by one or 
more investment advisers to engage in principal and brokerage 
transactions with a broker-dealer affiliated with one of the investment 
advisers and to purchase securities in certain underwritings. The 
transactions would be between a broker-dealer and a portion of the 
investment company's

[[Page 59870]]

portfolio or another portfolio that is not advised by the adviser 
affiliated with the broker-dealer. The order also would permit these 
investment companies not to aggregate certain purchases from an 
underwriting syndicate in which an affiliated person of one of the 
investment advisers is a principal underwriter. Further, applicants 
request relief to permit a portion of an investment company's portfolio 
to purchase securities issued by a broker-dealer which is an affiliated 
person of an investment adviser to another portion, subject to the 
limits in rule 12d3-1 under the Act.
    Applicants: Prudential Investments LLC (``PI''), Prudential 
Investment Management Inc. (``PIM''), Jennison Associates LLC 
(``Jennison''), and Cash Accumulation Trust, Command Government Fund, 
Command Money Fund, Command Tax-Free Fund, Prudential California 
Municipal Fund, Prudential Core Investment Fund, Prudential Equity 
Fund, Inc., Prudential Europe Growth Fund, Inc., Prudential's Gibraltar 
Fund, Inc., Prudential Global Total Return Fund, Inc., Prudential 
Government Income Fund, Inc., Prudential Government Securities Trust, 
Prudential High Yield Fund, Inc., Prudential Index Series Fund, 
Prudential Institutional Liquidity Portfolio, Inc., Prudential 
MoneyMart Assets, Inc., Prudential Municipal Bond Fund, Prudential 
Municipal Series Fund, Prudential National Municipals Fund, Inc., 
Prudential Natural Resources Fund, Inc., Prudential Pacific Growth 
Fund, Inc., Prudential Real Estate Securities Fund, Prudential Sector 
Funds, Inc., Prudential Short-Term Corporate Bond Fund, Inc., 
Prudential Small Company Fund, Inc., Prudential Tax-Free Money Fund, 
Inc., Prudential Tax-Managed Funds, Prudential Tax-Managed Small-Cap 
Fund, Inc., Prudential Total Return Bond Fund, Inc., Prudential 20/20 
Focus Fund, Prudential U.S. Emerging Growth Fund, Inc., Prudential 
Value Fund, Prudential World Fund, Inc., Special Money Market Fund, 
Inc., Strategic Partners Asset Allocation Funds, Strategic Partners 
Opportunity Funds, Strategic Partners Style Specific Funds, The High 
Yield Income Fund, Inc., The Prudential Investment Portfolios, Inc., 
The Prudential Series Fund, Inc., The Target Portfolio Trust, The 
Prudential Variable Contract Account-2, The Prudential Variable 
Contract Account-10, and The Prudential Variable Contract Account-11 
(collectively, the registered investment companies and any existing and 
future series thereof, the ``Funds'').
    Filing Dates: The application was filed on March 21, 2001 and 
amended on September 17, 2002.
    Hearing or Notification of Hearing: An order granting the requested 
relief 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 October 15, 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 may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW, Washington, DC 
20549-0609. Applicants, Gateway Center Three, 100 Mulberry Street, 
Newark, New Jersey 07102-4077.

FOR FURTHER INFORMATION CONTACT: Jaea F. Hahn, Senior Counsel, at (202) 
942-0614, or Janet M. Grossnickle, 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 5th Street, NW, Washington, 
DC 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Each Fund is a management investment company registered under 
the Act. PI is an investment adviser registered under the Investment 
Advisers Act of 1940 (``Advisers Act'') and is an indirect wholly owned 
subsidiary of The Prudential Insurance Company of America 
(``Prudential''). PI serves as investment adviser to each Fund. PI has 
appointed one or more investment subadvisers (``Sub-Advisers'') to 
manage certain of the Funds (``Sub-Advised Portfolios''). The Sub-
Advised Portfolios that are managed by more than one Sub-Adviser are 
referred to herein as ``Multi-Managed Portfolios''. Each Sub-Adviser is 
registered under the Advisers Act or is exempt from registration. Each 
Sub-Adviser is responsible for making independent investment and 
brokerage allocation decisions for its discrete segment (``Portion'') 
of a Multi-Managed Portfolio or its Sub-Advised Portfolio based on its 
own research and credit evaluations. Each Sub-Adviser is paid a fee, 
based on a percentage of the value of assets under the Sub-Adviser's 
management, by PI out of the proceeds of the management fee received by 
PI from the Fund. PIM and Jennison, both of which are indirect wholly 
owned subsidiaries of Prudential, directly advise Portions of Multi-
Managed Portfolios and Sub-Advised Portfolios. PI may also directly 
advise a Portion of a Multi-Managed Portfolio.
    2. Applicants request relief to permit: (a) A broker-dealer that 
serves as a Sub-Adviser or is an affiliated person of a Sub-Adviser 
(the broker-dealer, an ``Affiliated Broker-Dealer;'' the Sub-Adviser, 
an ``Affiliated Sub-Adviser'') to engage in principal transactions with 
a Portion of a Multi-Managed Portfolio that is advised by another Sub-
Adviser that is not an affiliated person of the Affiliated Broker-
Dealer or Affiliated Sub-Adviser (the Portion, an ``Unaffiliated 
Portion''; the other Sub-Adviser, an ``Unaffiliated Sub-Adviser''); (b) 
Affiliated Broker-Dealers to provide brokerage services to an 
Unaffiliated Portion of the Multi-Managed Portfolios, and the 
Unaffiliated Portion to use such brokerage services, without complying 
with rule 17e-1(b) and (d) under the Act; (c) Unaffiliated Portions of 
the Multi-Managed Portfolios to purchase securities during the 
existence of an underwriting syndicate, a principal underwriter of 
which is an Affiliated Sub-Adviser or a person of which an Affiliated 
Sub-Adviser is an affiliated person (``Affiliated Underwriter''); (d) a 
Portion advised by an Affiliated Sub-Adviser (``Affiliated Portion'') 
to purchase securities during the existence of an underwriting 
syndicate, a principal underwriter of which is an Affiliated 
Underwriter, in accordance with the conditions of rule 10f-3, except 
that paragraph (b)(7) of the rule would not require the aggregation of 
purchases by the Affiliated Portion with purchases by an Unaffiliated 
Portion; and (e) the Unaffiliated Portions of the Multi-Managed 
Portfolios to purchase securities issued by an Affiliated Sub-Adviser, 
or an affiliated person of an Affiliated Sub-Adviser, engaged in 
securities-related activities (``Securities Affiliate''), subject to 
the limits in rule 12d3-1 under the Act.\1\
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    \1\ ``Affiliated Broker-Dealer'' does not include any broker-
dealer that is an affiliated person of PI. The terms ``Unaffiliated 
Sub-Adviser'', ``Sub-Adviser'', ``Unaffiliated Portion'' and 
``Unaffiliated Portfolio'' include PI, PIM and Jennison and any 
other entity that is an affiliated person of PI, and the discrete 
Portion of a Sub-Advised Portfolio directly advised by these 
entities, respectively, provided that each of these entities manages 
the Sub-Advised Portfolio (or Portion thereof) independently of any 
other Sub-Advised Portfolio (or Portion thereof) managed by a 
different Sub-Adviser, and these entities do not control or 
influence any other Sub-Adviser's investment decisions for its 
Portion of the Multi-Managed Portfolios.

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[[Page 59871]]

    3. Applicants also request relief to permit: (a) An Affiliated 
Broker-Dealer to engage in principal transactions with a Sub-Advised 
Portfolio (which may or may not be a Multi-Managed Portfolio) that is 
advised by another Sub-Adviser that is not an affiliated person of the 
Affiliated Broker-Dealer or Affiliated Sub-Adviser (an ``Unaffiliated 
Portfolio''); and (b) Affiliated Broker-Dealers to provide brokerage 
services to an Unaffiliated Portfolio, and the Unaffiliated Portfolio 
to use such brokerage services, without complying with rule 17e-1(b) 
and (d) under the Act.
    4. Applicants request that the exemptive relief apply to each Fund 
and any existing or future registered management investment company or 
series thereof that is advised by PI or any entity controlling, 
controlled by, or under common control with (within the meaning of 
section 2(a)(9) of the Act), PI. In addition, applicants request that 
the relief apply to any existing or future entity that serves as Sub-
Adviser, Affiliated Broker-Dealer or Affiliated Underwriter to a Multi-
Managed or Unaffiliated Portfolio. All existing entities affiliated 
with PI that currently intend to rely on the order have been named as 
applicants. PI will take steps designed to ensure that any other 
existing or future entity that relies on the order will comply with the 
terms and conditions of the application.

Applicants' Legal Analysis

A. Principal Transactions Between Unaffiliated Portions, Unaffiliated 
Portfolios, and Affiliated Broker-Dealers

    1. Section 17(a) of the Act generally prohibits sales or purchases 
of securities between a registered investment company and an affiliated 
person of, promoter of, or principal underwriter for such company, or 
any affiliated person of an affiliated person, promoter, or principal 
underwriter (``second-tier affiliate''). Section 2(a)(3)(E) of the Act 
defines an affiliated person to be any investment adviser of an 
investment company, and section 2(a)(3)(C) of the Act defines an 
affiliated person of another person to include any person directly or 
indirectly controlling, controlled by, or under common control with 
such person. Applicants state that an Affiliated Sub-Adviser would be 
an affiliated person of a Multi-Managed Portfolio, and an Affiliated 
Broker-Dealer would be either an Affiliated Sub-Adviser or an 
affiliated person of the Affiliated Sub-Adviser to the same Multi-
Managed Portfolio, and thus a second-tier affiliate of a Multi-Managed 
Portfolio, including the Unaffiliated Portions. Applicants believe that 
an Affiliated Broker-Dealer that is the Sub-Adviser to a Sub-Advised 
Portfolio is an affiliated person of the Sub-Advised Portfolio, and an 
Unaffiliated Portfolio may also be an affiliated person of that Sub-
Advised Portfolio by virtue of being under the common control of PI. 
Thus, the Affiliated Broker-Dealer may be an affiliated person of an 
affiliated person of the Unaffiliated Portfolio. Accordingly, 
applicants state that any transactions to be effected by an 
Unaffiliated Sub-Adviser on behalf of an Unaffiliated Portion of a 
Multi-Managed Portfolio with an Affiliated Broker-Dealer or by an 
Unaffiliated Sub-Adviser on behalf of an Unaffiliated Portfolio with an 
Affiliated Broker-Dealer are subject to the prohibitions of section 
17(a).
    2. Applicants seek relief under sections 6(c) and 17(b) of the Act, 
to exempt principal transactions prohibited by section 17(a) where: (a) 
An Affiliated Broker-Dealer is deemed to be an affiliated person or a 
second-tier affiliate of an Unaffiliated Portion solely because an 
Affiliated Sub-Adviser is the Sub-Adviser to another Portion of the 
same Multi-Managed Portfolio or (b) an Affiliated Broker-Dealer is 
deemed to be an affiliated person or a second-tier affiliate of an 
Unaffiliated Portfolio solely because the Affiliated Broker-Dealer is 
the Sub-Adviser to another series of the same or an affiliated 
investment company.
    3. Section 17(b) of the Act authorizes the Commission to grant an 
order permitting a transaction otherwise prohibited by section 17(a) if 
it finds that the terms of the proposed transaction are reasonable and 
fair and do not involve overreaching on the part of any person 
concerned, and the proposed transaction is consistent with the policy 
of each registered investment company concerned and the general 
purposes of the Act. Section 6(c) of the Act permits the Commission to 
exempt any person or transaction or classes of persons or transactions 
from any provisions of the Act if the 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 
provision of the Act.
    4. Applicants contend that section 17(a) is intended to prevent 
persons who have the power to control an investment company from using 
that power to the person's own pecuniary advantage. Applicants assert 
that when the person acting on behalf of an investment company has no 
direct or indirect pecuniary interest in a party to a principal 
transaction, the abuses that section 17(a) was designed to prevent are 
not present. Applicants state that if an Unaffiliated Sub-Adviser were 
to purchase securities on behalf of an Unaffiliated Portion or an 
Unaffiliated Portfolio in a principal transaction with an Affiliated 
Broker-Dealer, any benefit that might inure to the Affiliated Broker-
Dealer would not be shared by the Unaffiliated Sub-Adviser. In 
addition, applicants state that Sub-Advisers are paid on the basis of a 
percentage of the value of the assets under their management. The 
execution of a transaction to the disadvantage of an Unaffiliated 
Portion or an Unaffiliated Portfolio would also disadvantage the 
Unaffiliated Sub-Adviser to the extent that it diminishes the value of 
the Unaffiliated Portion or Unaffiliated Portfolio. Applicants further 
state that PI's power to dismiss Sub-Advisers or to change the Portion 
of a Multi-Managed Portfolio allocated to each Sub-Adviser reinforces a 
Sub-Adviser's incentive to maximize the investment performance of its 
own Portion of the Multi-Managed Portfolio or Unaffiliated Portfolio.
    5. Applicants state the each Sub-Adviser's contract assigns it 
responsibility to manage a Portion of the Multi-Managed Portfolio or an 
entire Unaffiliated Portfolio. Each Sub-Adviser is responsible for 
making independent investment and brokerage allocation decisions based 
on its own research and credit evaluations. Applicants state that PI 
does not dictate brokerage allocation or investment decisions for Funds 
advised by a Sub-Adviser, or have the contractual right to do so, 
except for any Portion of a Multi-Managed Portfolio advised directly by 
PI. Applicants submit that, in managing a Portion of a Multi-Managed 
Portfolio or all of a Fund, each Sub-Adviser acts for all practical 
purposes as though it is managing a separate investment company.
    6. Applicants state that the proposed transactions will be 
consistent with the policies of the Funds since each Unaffiliated Sub-
Adviser is required to manage the assets allocated to it in accordance 
with the investment objectives and related investment policies of the 
Fund involved as described in its registration statement. Applicants 
assert that permitting the transactions will be consistent with the 
general purposes of the Act and in the public interest because the 
ability to engage in such transactions increases the likelihood of the 
Sub-Advised Portfolio achieving best price and execution on its 
principal transactions,

[[Page 59872]]

while giving rise to none of the abuses that the Act was designed to 
prevent.

B. Payment of Brokerage Compensation by an Unaffiliated Portion or 
Unaffiliated Portfolio to an Affiliated Broker-Dealer

    1. Section 17(e)(2) of the Act prohibits an affiliated person or a 
second-tier affiliate of a registered investment company from receiving 
compensation for acting as a broker in connection with the sale of 
securities to or by the investment company if the compensation exceeds 
the limits prescribed by the section unless otherwise permitted by rule 
17e-1 under the Act. Rule 17e-1 sets forth the conditions under which 
an affiliated person or a second-tier affiliate of an investment 
company may receive a commission, fee or other remuneration as a broker 
in a securities transaction that would not exceed the ``usual and 
customary broker's commission'' for purposes of section 17(e)(2) of the 
Act. Rule 17e-1(b) requires the investment company's board of 
directors, including a majority of the directors who are not interested 
persons under section 2(a)(19) of the Act, to adopt certain procedures 
and to determine at least quarterly that all transactions effected in 
reliance on the rule complied with the procedures. Rule 17e-1(d) 
specifies the records that must be maintained by each investment 
company with respect to any transaction effected pursuant to rule 17e-
1.
    2. As discussed above, applicants state that an Affiliated Broker-
Dealer is either an affiliated person (as Sub-Adviser to another 
portion of a Multi-Managed Portfolio) or a second-tier affiliate of an 
Unaffiliated Portion, or an affiliated person or a second-tier 
affiliate of the Unaffiliated Portfolio and thus subject to section 
17(e). Applicants request relief under section 6(c) of the Act from 
section 17(e) of the Act and rule 17e-1 under the Act to the extent 
necessary to permit the Unaffiliated Portion or Unaffiliated Portfolio 
to pay brokerage compensation to an Affiliated Broker-Dealer acting as 
broker in the ordinary course of business without complying with the 
requirements of rule 17e-1(b) and (d). The requested exemption would 
apply only where (a) an Affiliated Broker-Dealer is deemed to be an 
affiliated person or a second-tier affiliate of an Unaffiliated Portion 
solely because an Affiliated Sub-Adviser is the Sub-Adviser to another 
Portion of the Multi-Managed Portfolio or (b) an Affiliated Broker-
Dealer is deemed to be an affiliated person or a second-tier affiliate 
of an Unaffiliated Portfolio because the Affiliated Broker-Dealer is a 
Sub-Adviser (i.e., the Affiliated Broker-Dealer is part of the same 
legal entity as the Sub-Adviser) to another portfolio of the same or an 
affiliated investment company. The relief would not apply if the 
Affiliated Broker-Dealer (except by virtue of serving as a Sub-Adviser 
to a Portion of a Multi-Managed Portfolio or an Unaffiliated Portfolio) 
is an affiliated person or second-tier affiliate of PI, the 
Unaffiliated Sub-Adviser making the investment decision with respect to 
the Unaffiliated Portion of the Multi-Managed Fund or Unaffiliated 
Portfolio, a principal underwriter, promoter, or any officer, trustee 
or employee of the Multi-Managed Portfolio or Unaffiliated Portfolio.
    3. Applicants believe that the proposed brokerage transactions 
involve no conflicts of interest or possibility of self-dealing and 
will meet the standards of section 6(c) of the Act. Applicants assert 
that the interests of an Unaffiliated Sub-Adviser are directly aligned 
with the interests of the Unaffiliated Portion or Unaffiliated 
Portfolio it advises, and an Unaffiliated Subadviser will enter into 
brokerage transactions with Affiliated Broker-Dealers only if the fees 
charged are reasonable and fair, as required by rule 17e-1(a). 
Applicants note that an Unaffiliated Sub-Adviser has a fiduciary duty 
to obtain best price and execution for the Unaffiliated Portion or 
Unaffiliated Portfolio.

C. Purchases of Securities From Offerings With Affiliated Underwriters

    1. Section 10(f) of the Act, in relevant part, prohibits a 
registered investment company from knowingly purchasing or otherwise 
acquiring, during the existence of any underwriting or selling 
syndicate, any security (except a security of which the company is the 
issuer) when a principal underwriter of the security, or an affiliated 
person of the principal underwriter, is an officer, director, member of 
an advisory board, investment adviser or employee of the investment 
company. Section 10(f) also provides that the Commission may exempt by 
order any transaction or classes of transactions from any of the 
provisions of section 10(f), if and to the extent that such exemption 
is consistent with the protection of investors. Rule 10f-3 under the 
Act exempts certain transactions from the prohibitions of section 10(f) 
if specified conditions are met. Paragraph (b)(7) of rule 10f-3 limits 
the securities purchased by the investment company, or by two or more 
investment companies having the same investment adviser, to 25% of the 
principal amount of the offering of the class of securities.
    2. Applicants state that each Sub-Adviser, although under contract 
to manage only a Portion of a Multi-Managed Portfolio, is an investment 
adviser to the entire Multi-Managed Portfolio. Therefore, all purchases 
of securities by an Unaffiliated Portion from an underwriting 
syndicate, a principal underwriter of which is an Affiliated 
Underwriter, would be subject to section 10(f).
    3. Applicants request relief under section 10(f) to permit an 
Unaffiliated Portion to purchase securities in the ordinary course of 
business during the existence of an underwriting or selling syndicate, 
a principal underwriter of which is an Affiliated Underwriter. 
Applicants request relief from section 10(f) only to the extent those 
provisions apply solely because an Affiliated Sub-Adviser is an 
investment adviser to the Multi-Managed Portfolio. The requested relief 
would not be available if the Affiliated Underwriter (except by virtue 
of serving as Sub-Adviser to a Portion of a Multi-Managed Portfolio) is 
an affiliated person or a second-tier affiliated of PI, the 
Unaffiliated Sub-Adviser making the investment decision, a principal 
underwriter, promoter, or any officer, trustee or employee of the 
Multi-Managed Portfolio. Applicants also seek relief from section 10(f) 
to permit an Affiliated Portion to purchase securities during the 
existence of an underwriting syndicate, a principal underwriter of 
which is an Affiliated Underwriter, provided that the purchase is in 
accordance with the conditions of rule 10f-3, except that paragraph 
(b)(7) of the rule will not require the aggregation of purchases by the 
Affiliated Portion with purchases by an Unaffiliated Portion.
    4. Applicants state that section 10(f) was adopted in response to 
concerns about the ``dumping'' of otherwise unmarketable securities on 
investment companies, either by forcing the investment company to 
purchase unmarketable securities from its underwriting affiliate, or by 
forcing or encouraging the investment company to purchase the 
securities from another member of the syndicate. Applicants submit that 
these abuses are not present in the context of the Multi-Managed 
Portfolios because a decision by an Unaffiliated Sub-Adviser to a 
Portion of a Multi-Managed Portfolio to purchase securities during the 
existence of an underwriting syndicate, a principal underwriter of 
which is an Affiliated Underwriter, involves no potential for 
``dumping''. In addition, applicants state that aggregating purchases 
would serve no purpose because there is no collaboration among Sub-
Advisers, and

[[Page 59873]]

any common purchases by an Affiliated Sub-Adviser and an Unaffiliated 
Sub-Adviser would be coincidence.

D. Purchases of Securities Issued by Securities Affiliates

    1. Section 12(d)(3) of the Act generally prohibits a registered 
investment company from acquiring any security issued by any person who 
is a broker, dealer, investment adviser, or engaged in the business of 
underwriting. Rule 12d3-1 under the Act exempts certain transactions 
from the prohibitions of section 12(d)(3) if certain conditions are 
met. One of these conditions, set forth in paragraph (c) of rule 12d3-
1, provides that the exemption provided by the rule is not available 
when the issuer of the securities is the investment company's 
investment adviser, promoter, or principal underwriter, or an 
affiliated person of the investment adviser, promoter, or principal 
underwriter.
    2. Applicants state that because each Sub-Adviser to a Multi-
Managed Portfolio is considered to be an investment adviser to the 
entire Multi-Managed Portfolio, an Unaffiliated Portion may not 
purchase securities of a Securities Affiliate in reliance on rule 12d3-
1. Applicants request an exemption under section 6(c) from section 
12(d)(3) to permit an Unaffiliated Portion to acquire securities issued 
by a Securities Affiliate subject to the limits in rule 12d3-1, except 
for paragraph (c) to the extent that the paragraph applies solely 
because the Securities Affiliate is an Affiliated Sub-Adviser, or an 
affiliated person of an Affiliated Sub-Adviser. The requested relief 
would not extend to securities issued by the Sub-Adviser making the 
purchase, PI, a principal underwriter or promoter of the Fund or any 
affiliated person of any of these entities.
    3. Applicants state that their proposal does not raise the 
conflicts of interest that rule 12d3-1(c) was designed to address 
because of the nature of the affiliation between a Securities Affiliate 
and the Unaffiliated Portion. Applicants submit that each Sub-Adviser 
acts independently of the other Sub-Advisers in making investment 
decisions for the assets allocated to its portion of the Multi-Managed 
Portfolio. Further, applicants assert that prohibiting the Unaffiliated 
Portions from purchasing securities issued by Securities Affiliates 
could harm the interests of shareholders by causing the Unaffiliated 
Sub-Advisers to forego investment opportunities that would be in the 
best interests of the Unaffiliated Portions that they manage.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. Each Multi-Managed Portfolio relying on the requested order will 
be advised by an Affiliated Subadviser and at least one Unaffiliated 
Sub-Adviser, and will be operated in the manner described in the 
application.
    2. No Affiliated Sub-Adviser, Affiliated Broker-Dealer, Affiliated 
Underwriter or Securities Affiliate (except by virtue of serving as 
Sub-Adviser to an Unaffiliated Portfolio or a Portion of a Multi-
Managed Portfolio) will be an affiliated person or second-tier 
affiliate of PI, any Unaffiliated Sub-Adviser, or any principal 
underwriter, promoter, officer, director or employee of the Sub-Advised 
Portfolio.
    3. No Affiliated Sub-Adviser will directly or indirectly consult 
with any Unaffiliated Sub-Adviser concerning allocation of principal or 
brokerage transactions.
    4. No Affiliated Sub-Adviser will participate in any arrangement 
whereby the amount of its sub-advisory fees will be affected by the 
investment performance of an Unaffiliated Sub-Adviser.
    5. With respect to purchases of securities by an Affiliated Portion 
during the existence of any underwriting or selling syndicate, a 
principal underwriter of which is an Affiliated Underwriter, the 
conditions of rule 10f-3 will be satisfied except that paragraph (b)(7) 
will not require the aggregation of purchases by the Affiliated Portion 
with purchases by an Unaffiliated Portion.
    6. With respect to purchases by an Unaffiliated Portion of 
securities issued by a Securities Affiliate, the conditions of rule 
12d3-1 will be satisfied except for paragraph (c) to the extent such 
paragraph is applicable solely because such issuer is an Affiliated 
Sub-Adviser or an affiliated person of an Affiliated Sub-Adviser.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-24212 Filed 9-23-02; 8:45 am]
BILLING CODE 8010-01-P