[Federal Register Volume 68, Number 72 (Tuesday, April 15, 2003)]
[Notices]
[Pages 18306-18308]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-9159]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC 25999; File No. 812-12894]


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

April 9, 2003.
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'' or ``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 October 15, 2002, and amended 
and restated on April 8, 2003.

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 May 5, 2003, 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).

[[Page 18307]]

Applicants' Representations

    1. On August 12, 2002, 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 certain 
deferred variable annuity contracts (``Strategic Partners Annuity One'' 
or ``Contracts'') and Future Contracts described in the Existing 
Order.\1\
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    \1\ Investment Company Act Release Nos. 25660 (July 15, 2002) 
(notice) and 25695 (August 12, 2002) (order).
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    2. The Existing Order allows the Insurance Companies to recapture 
credit amounts (``Credits'') that differ depending upon the purchase 
payment amount and the contract owner's age when the purchase payment 
is made. Specifically, a 4% Credit is applied to purchase payments less 
than $250,000 and a 5% Credit is 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 is applied, regardless of the 
amount of the purchase payment. These Credits generally vest upon the 
expiration of the free look period. However, if a Credit is applied to 
a purchase payment made within one year prior to death, and the death 
benefit amount is equal to contract value, then any Credit attributable 
to that purchase payment will be recaptured in calculating the death 
benefit payable under the Contracts.
    3. Applicants seek to amend the Existing Order in one respect. 
Namely, the Insurance Companies would add a new ``tier'' to the above-
referenced bonus structure, under which they would grant a Credit equal 
to 6% of any purchase payment of $1 million or more made by a Contract 
owner aged 80 or younger (for jointly-owned Contracts, if the older 
owner is aged 80 or younger). The 6% Credit would vest upon the 
expiration of the free look period (except for certain 6% Credits 
applied within one year prior to death). As to recapture upon death, if 
a 6% Credit is applied to a purchase payment made within one year 
before death, and the death benefit amount is equal to Contract value, 
then the Credit attributable to that purchase payment will be 
recaptured in calculating the death benefit amount. However, there will 
be no such recapture if the death benefit amount is equal to the roll-
up value, the step-up value, the greater of roll-up and step-up, or 
total purchase payments (less any withdrawals).
    4. Subsequent to the Existing Order, on December 13, 2002, 
Applicants filed a post-effective amendment to the registration 
statement for the version of Strategic Partners Annuity One currently 
offered by Pruco Life (File No. 333-37728) (the ``Pruco Life SPAO 
Amendments''). That post-yeffective amendment is now effective. The 
Pruco Life SPAO Amendments made several changes to the Strategic 
Partners Annuity One Contract, including the addition of a new ``Income 
Appreciator'' benefit. Applicants have incorporated the Pruco Life SPAO 
Amendments filing by reference into the application for purposes of 
detailing the features of the Pruco Life Strategic Partners Annuity One 
Contract that will offer the 6% Credit. The Strategic Partners Annuity 
One Contract described in the Pruco Life SPAO Amendments is 
substantially similar in all material respects to the Strategic 
Partners Annuity One Contract that was described in the Existing Order, 
with these salient differences: (a) Addition of a new, Income 
Appreciator Benefit, (b) increased maximum issue age for the guaranteed 
minimum income benefit and the guaranteed minimum death benefit and the 
availability of each of these benefits individually, (c) expanded 
availability of the fixed rate option, (d) change in the date on which 
the guaranteed minimum death benefit value is ``frozen'', (e) 
availability of the earnings appreciator supplemental death benefit and 
the guaranteed minimum income benefit to older age owners, and (f) 
modification to the joint ownership and spousal continuance features. 
Applicants seek the exemptive relief needed to recapture the 6% Credit 
under the version of Strategic Partners Annuity One described in the 
Pruco Life SPAO Amendments (and under any future version of the Pruco 
Life Strategic Partners Annuity One Contract that is substantially 
similar, in all material respects, to the Contract described in the 
Pruco Life SPAO Amendments).
    5. In addition, on December 10, 2002, Pruco Life of New Jersey 
filed a post-effective amendment to the version of Strategic Partners 
Annuity One that it currently sells (File No. 333-49230). That filing 
also has become effective. Applicants have incorporated that filing 
(the ``Pruco Life of New Jersey SPAO Amendments'') by reference into 
the application. The version of Strategic Partners Annuity One 
described in the Pruco Life of New Jersey SPAO Amendments is 
substantially similar in all material respects to the version described 
in the Existing Order, except for these salient differences: (a) The 
newer version offers, for an additional charge, a banded bonus 
structure featuring credit amounts of either 3%, 4%, 5%, or 6%, (b) the 
newer version offers an enhanced guaranteed minimum death benefit at a 
higher charge, (c) the newer version modifies the joint ownership 
feature and adds a spousal continuance feature, and (d) the newer 
version reflects certain changes to the fixed options. Applicants also 
seek the exemptive relief needed to recapture the 6% Credit under the 
version of Strategic Partners Annuity One described in the Pruco Life 
of New Jersey SPAO Amendments (and under any future version of the 
Pruco Life of New Jersey Strategic Partners Annuity One Contract that 
is substantially similar, in all material respects, to the Contract 
described in the Pruco Life of New Jersey SPAO Amendments).
    6. The prospectuses for the currently offered versions of the 
Strategic Partners Annuity One variable annuity offer the 6% Credit. 
However, the prospectuses also indicate that unless and until the 
Commission grants the relief requested in the application, the 
respective insurer will not recoup the amount of any 6% Credit granted 
within 12 months prior to death, and for a Contract that is returned 
during the free look period, will only recapture the value of the 6% 
Credit as of the business day on which the insurer receives the 
redemption request (less any charges attributable to that Credit).
    7. The version of Strategic Partners Annuity One that offers a 
Credit (including the 6% Credit proposed in the application) has 
certain charges that differ from the counterpart contract not offering 
any Credit. The Contract with Credit has a different withdrawal charge 
schedule, under which the withdrawal charge is 8% of the amount 
withdrawn if no contract anniversary has elapsed since the purchase 
payment was made, 8% if only one contract anniversary has elapsed, 8% 
if only two contract anniversaries have elapsed, 8% if only three 
contract anniversaries have elapsed, 7% if only four contract 
anniversaries have elapsed, 6% if only five contract anniversaries have 
elapsed, and 5% if only six contract anniversaries have elapsed. The 
withdrawal charge no longer applies once seven or more contract 
anniversaries have elapsed since the date that the purchase payment was 
made. In contrast, the withdrawal charge applicable to the Contract not

[[Page 18308]]

offering any Credit is 7% of the amount withdrawn if no contract 
anniversary has elapsed since the purchase payment was made, 6% if only 
one contract anniversary has elapsed, 5% if only two contract 
anniversaries have elapsed, 4% if only three contract anniversaries 
have elapsed, 3% if only four contract anniversaries have elapsed, 2% 
if only five contract anniversaries have elapsed, and 1% if only six 
contract anniversaries have elapsed. The withdrawal charge no longer 
applies once seven or more contract anniversaries have elapsed since 
the date that the purchase payment was made. In addition, there is an 
additional, asset-based charge equal to 10 basis points annually that 
applies to the version of Strategic Partners Annuity One under which 
Credits (including the 6% Credit) are not recaptured after expiration 
of the free look period unless death occurs within one year of a 
purchase payment.

Applicants' Legal Analysis

    1. Section 6(c) of the 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 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 Act. Applicants request that the 
Commission, pursuant to section 6(c) of the Act, amend the Existing 
Order to the extent necessary to permit the recapture of the 6% Credit 
amounts described above under the 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 Act.
    2. Applicants submit that the recapture of 6% 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. 6% Credits under the Contracts will be 
recaptured only if the owner exercises his/her free look right, and 
with respect to certain 6% Credits granted 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 6% 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 6% Credit amount has not vested. With respect to 6% 
Credit recaptures upon the exercise of the free-look privilege, it 
would be unfair to allow an owner exercising that privilege to retain a 
6% Credit amount under a Contract that has been returned for a refund 
after a period of only a few days. If the Insurance Companies could not 
recapture the 6% Credit during the free look period, individuals could 
purchase a Contract with no intention of retaining it, and simply 
return it for a quick profit. Applicants also note that the Contract 
owner is entitled to retain any investment gain attributable to the 6% 
Credit, even if the Credit is ultimately recaptured. Furthermore, the 
recapture of 6% Credits relating to purchase payments made within one 
year prior to death is designed to provide the Insurance Companies with 
a measure of protection against ``anti-selection.'' The risk here is 
that, rather than spreading purchase payments over a number of years, 
an owner will make very large payments shortly before death, thereby 
leaving the Insurance Companies less time to recover the cost of the 6% 
Credits applied, to their financial detriment.
    3. Applicants submit that the provisions for recapture of any 6% 
Credits under the Contracts do not, and any such Future Contract 
provisions will not, violate section 2(a)(32) and 27(i)(2)(A) of the 
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 Contracts and 
Future Contracts, and underwritten or distributed by PIMS or other 
broker-dealers, 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 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 Contracts funded by Accounts or 
by Future Accounts that seek to rely on the order issued pursuant to 
the application will be substantially similar to the 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. 03-9159 Filed 4-14-03; 8:45 am]
BILLING CODE 8010-01-P