

[Federal Register: June 13, 2006 (Volume 71, Number 113)]
[Notices]               
[Page 34171-34174]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13jn06-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-27389; File No. 812-13274]

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

June 6, 2006.
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, as amended (the ``Act'') 
granting exemptions from the provisions of sections 2(a)(32), 22(c) and 
27(i)(2)(A) of the Act and Rule 22c-1 thereunder.

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[[Page 34172]]


Applicants: Pruco Life Insurance Company (``Pruco Life''), Pruco Life 
Insurance Company of New Jersey (``Pruco Life of New Jersey,'' and 
collectively with Pruco Life, the ``Insurance Companies''), Pruco Life 
Flexible Premium Variable Annuity Account (``Pruco Life Account''); 
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'').

Summary of Application: Applicants seek an order amending an existing 
order under section 6(c) of the Act, exempting them from section 
2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder, 
to permit, under specified circumstances, the recapture of certain 
credits previously applied to purchase payments made under (1) the 
Prudential Premier Variable Annuity X Series (``X Series Contract''), 
or (2) variable annuity contracts issued by the Insurance Companies 
that are substantial similar in all material respects to the X Series 
Contract (``Future Contracts''). Applicants also request that the order 
extend to any NASD member broker-dealer controlling, controlled by, or 
under common control with the Insurance Companies, whether existing or 
created in the future, that serves as a distributor or principal 
underwriter of the X Series Contracts offered through the Accounts or 
any other separate accounts established in the future by the Insurance 
Companies (``Future Accounts'') to support Future Contracts.

Filing Date: The application was filed on January 18, 2006, and amended 
on April 5, 2006.

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 Secretary of the 
Commission 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 July 3, 2006, 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 requester'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 Commission.

ADDRESSES: Secretary, SEC, 100 F Street, NE., Washington, DC 20549-
1090. 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: Sally Samuel, Senior Counsel, or Joyce 
M. Pickholz, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch, 100 F Street, NE., Washington, DC 
20549 (tel. (202) 551-8090).

Applicants' Representations

    1. In Investment Company Act Release Nos. 25999 (April 9, 2003) 
(notice) and 26043 (April 30, 2003) (order), the Commission granted an 
order (the ``2003 Order'') that permits, under specified circumstances, 
the recapture of a 6% bonus payment (a ``Credit'') applied to certain 
purchase payments made under deferred variable annuity contracts that 
the Insurance Companies issue through the Accounts, as well as 
contracts that the Insurance Companies may in the future issue through 
the Accounts or any future account. The 2003 Order applied to the 
versions of the Strategic Partners Annuity One contract (File Nos. 333-
37728 and 333-49230).
    2. The 2003 Order, in turn, amended a prior exemptive order (the 
``2002 Order'') that contemplated the granting, and recapture under 
certain circumstances, of a Credit of 3%, 4%, or 5%, depending on the 
amount of the purchase payment and the age of the owner. See Investment 
Company Act Release Nos. 25660 (July 15, 2002) (notice) and 25695 
(August 12, 2002) (order). Applicants wish to leave the 2002 Order and 
the 2003 Order intact, thus allowing them to continue to recapture 
Credits under the versions of the Strategic Partners Annuity One 
contracts.
    3. In this application, Applicants seek an order allowing them to 
recapture credits under a new variable annuity contract, the X Series 
Contract. Applicants in this application are identical to the 
applicants in the 2002 Order and the 2003 Order.
    4. Applicants request that the amended order extend to any NASD 
member broker-dealer controlling, controlled by, or under common 
control with, the Insurance Companies, whether existing or created in 
the future, that serves as a distributor or principal underwriter of 
the X Series Contracts offered through the Accounts or any Future 
Account (``Broker-Dealers''). Applicants note that the X Series 
Contracts will be sold through such Broker-Dealers and also through 
broker-dealers that are NASD-registered and not affiliated with the 
Insurance Companies or the Broker-Dealers (the ``Unaffiliated Broker-
Dealers''). Each Unaffiliated Broker-Dealer will have entered into a 
dealer agreement with PIMS or an affiliate of PIMS prior to offering 
the X Series Contracts.
    5. Applicants also request that the amended order sought herein 
apply to any other separate account of the Insurance Companies 
currently existing that will support any Future Contracts or any Future 
Accounts established to support Future Contracts.
    6. The X Series Contracts are flexible premium deferred variable 
annuity contracts that are registered on Form N-4 (File Nos. 333-130989 
and 333-131035). The minimum initial purchase payment is $10,000, and 
any additional purchase payment must be at least $100 (except for 
contract owners who participate in certain periodic purchase payment 
programs). The maximum issue age for the X Series Contract is 75, 
meaning that, for (i) contracts with one owner, the owner must be 75 or 
younger (ii) contracts that are jointly-owned, the oldest owner must be 
75 or younger, and (iii) for entity-owned contracts, the annuitant must 
be 75 or younger.
    7. There are various insurance features under the X Series Contract 
and charges associated with those features. There is a 1.55% annual 
insurance charge that is deducted daily from the unit value of each 
subaccount, consisting of 1.40% for mortality and expense risks and 
0.15% for administrative expenses. For X Series Contracts valued less 
than $100,000, there is a maintenance fee equal to the lesser of $35 
($30 in New York) or 2% of unadjusted account value, which is assessed 
annually on the X Series Contract's anniversary date or upon surrender. 
The maintenance fee is deducted pro rata from both the variable 
investment options and the fixed option under the X Series Contract. 
The applicant insurers impose no fee with respect to the first 20 
transfers in an annuity year, but after the 20th such transfer, 
currently impose a fee of $10 per transfer. There is a contingent 
deferred sales charge (``CDSC'') under the X Series Contract, the 
amount of which is based on the ``age'' of each purchase payment being 
withdrawn. During the first year after a purchase payment is made, the 
CDSC is equal to

[[Page 34173]]

9%. In subsequent years, the CDSC is as follows: 8.5% in year 2, 8% in 
year 3, 7% in year 4, 6% in year 5, 5% in year 6, 4% in year 7, 3% in 
year 8, and 2% in year 9. After nine years have elapsed from the date 
on which the purchase payment was made, no CDSC is imposed with respect 
to that purchase payment. No CDSC is imposed in connection with the 
calculation of a death benefit payment. In addition, no CDSC is imposed 
on the portion of a withdrawal that can be taken as part of the free 
withdrawal feature of the X Series Contract. The free withdrawal amount 
available in each annuity year is equal to 10% of the sum of all 
purchase payments made during the year and prior to the beginning of 
that year, except that (i) only purchase payments that would be subject 
to a CDSC are included in that calculation and (ii) a free withdrawal 
amount that is not used in a given year cannot be carried over to 
future years. For purposes of calculating the CDSC, partial withdrawals 
are deemed to be taken first from any free withdrawal amount and 
thereafter from purchase payments (on a first-in, first-out basis). 
Where permitted by law, an X Series Contract owner may request to 
surrender without a CDSC upon the occurrence of a medically-related 
contingency event, such as a diagnosis of a fatal illness (a 
``Medically-Related Surrender'').
    8. An X Series Contract owner may select one or more of several 
optional benefits. The Guaranteed Minimum Income Benefit is subject to 
a charge of 0.50% per year of the average protected income value during 
each year, and the charge is deducted annually in arrears each annuity 
year. The Lifetime Five Income Benefit (which allows the owner to 
withdraw a specified protected value through periodic withdrawals or a 
series of payments for life) is subject to a charge of 0.60% annually 
of the average daily net assets in the sub-accounts. The X Series 
Contract also offers a variant of the Lifetime Five benefit (called 
Spousal Lifetime Five) which, for a charge of 0.75% annually, 
guarantees income until the second-to-die of two individuals married to 
each other. The Highest Daily Value death benefit (which provides a 
death benefit equal to the higher of the basic death benefit or the 
``highest daily value'') is subject to a charge of 0.50% annually of 
the average daily net assets of the sub-accounts. Finally, the 
combination 5% roll-up/HAV death benefit (which refers to a death 
benefit equal to the greater of (i) the ``highest anniversary value'' 
or (ii) purchase payments plus credits, adjusted for withdrawals, 
appreciated at 5% annually) is subject to a charge of 0.50% annually of 
the average daily net assets of the sub-accounts. (For New York 
contracts, the only optional death benefit will be the Highest 
Anniversary Value Death Benefit).
    9. In addition to the optional insurance features, the X Series 
Contract offers several optional administrative features at no 
additional cost (e.g., auto rebalancing, systematic withdrawals).
    10. The X Series Contract offers both variable investment options 
and a one-year fixed rate option. The X Series Contract also may offer 
an enhanced, dollar cost averaging fixed interest rate option. At 
present, only portfolios of American Skandia Trust are available as 
variable investment options. Under the X Series Contract, Applicants 
reserve the right to add new underlying funds and series, and to 
substitute new portfolios for existing portfolios (subject to 
Commission approval).
    11. An owner choosing to annuitize under the X Series Contract will 
have only fixed annuity options available. Those fixed annuity options 
include annuities based on a single measuring life or joint lives, 
based on a single measuring life or joint lives with a period certain 
(e.g., 5 years, 10 years, or 15 years), or based on a period certain 
only. If the owner fails to choose an annuity option, the default is to 
a life annuity with 10 years certain. The latest annuitization date is 
the first day of the month immediately following the annuitant's 95th 
birthday.
    12. The bonus credit under the X Series Contract (the ``New 
Credit'') will vary depending on the age of the older of the owner and 
any joint owner on the date that the purchase payment is made, but not 
on the amount of the purchase payment. Specifically, if the elder owner 
is 80 or younger when a purchase payment is made, the New Credit will 
equal 5%, regardless of the purchase payment amount. If the elder owner 
is between ages 81 and 85 when the purchase payment is made, then the 
New Credit will be 3%, regardless of the amount of the purchase 
payment. Applicants would recapture the New Credit if (i) the X Series 
Contract is surrendered during the free look period, or (ii) the New 
Credit was applied within 12 months prior to death or (iii) the New 
Credit was applied within 12 months prior to a request for a Medically-
Related Surrender. No CDSC is applied in connection with any 
transaction in which the New Credit would be recaptured. Applicants 
seek an amended order pursuant to section 6(c) of the Act exempting 
them from sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and Rule 
22c-1 thereunder to the extent necessary to permit an Insurance Company 
to recapture the New Credit described herein in the instances described 
in the immediately preceding sentence.
    13. Finally, the X Series Contract will offer a ``longevity 
credit'' that will be paid on the 10th annuity anniversary and each 
annuity anniversary thereafter. The longevity credit will equal 0.40% 
of the sum of all purchase payments (less withdrawals) that are more 
than 9 years old. Applicants are not seeking an exemption to recapture 
the longevity credit.

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 under the Act if and to the extent that such 
exemption is necessary or appropriate in the public interest and 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the Act.
    2. Applicants request that the Commission, pursuant to section 6(c) 
of the Act, issue an order amending the 2003 Order to the extent 
necessary to permit the recapture of the New Credit under the 
circumstances described above. 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.
    3. Applicants submit that the recapture of the New Credit 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 2003 Order. The New Credit will be recaptured only if 
the owner (i) exercises his/her free look right (ii) dies within 12 
months after receiving a New Credit or (iii) requests a medically-
related surrender within 12 months after receiving a New Credit. The 
amounts recaptured equal the New Credits provided by each Insurance 
Company from its own general account assets.
    4. When the Insurance Companies recapture the New 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 New Credit amount has not vested. With 
respect to New Credit recaptures upon the exercise of the free-look 
privilege, it would be unfair to allow an owner exercising that 
privilege to retain a New Credit amount under an

[[Page 34174]]

X Series Contract that has been returned for a refund after a period of 
only a few days. If the Insurance Companies could not recapture the New 
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 New Credit, even if 
the New Credit is ultimately recaptured. Furthermore, the recapture of 
New Credits if death or a Medically-Related Surrender occurs within 12 
months after the receipt of a New Credit is designed to provide the 
Insurance Companies with a measure of protection against ``anti-
selection.'' The risk here is that an owner, with full knowledge of 
impending death or serious illness, will make very large payments and 
thereby leave the Insurance Companies less time to recover the cost of 
the New Credit, to their financial detriment.
    5. Applicants submit that the provisions for recapture of the New 
Credit under the X Series Contract 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 2003 Order and 
other Commission precedent.
    6. 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 X Series 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.
    7. Applicants undertake that Future Contracts funded by the 
Accounts or by Future Accounts that seek to rely on the order issued 
pursuant to the application will be substantially similar to the X 
Series 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 Act and that an order amending 
the 2003 Order should, therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-9153 Filed 6-12-06; 8:45 am]

BILLING CODE 8010-01-P
