
[Federal Register: March 11, 2008 (Volume 73, Number 48)]
[Notices]               
[Page 13046-13049]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11mr08-110]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28180; File No. 812-13437]

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

March 4, 2008.
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'' or 
``1940 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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     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 Annuities Distributors, Inc. 
(``PAD'', and

[[Page 13047]]

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 
Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 
thereunder, to permit the recapture of credit amounts that differ from 
the credit amounts contemplated by the existing order, under certain 
specified circumstances.
     Filing Date: The application was filed on October 9, 2007, and 
amended on January 7, 2008.
     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 March 31, 2008, 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 C. Christopher Sprague, Esq., The Prudential 
Insurance Company of America, 751 Broad Street, Newark, NJ 07102.

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. 27389 (June 6, 2006) 
(notice) and 27419 (July 7, 2006) (order), the Commission granted an 
order (the ``2006 Order'') that permits, under specified circumstances, 
the recapture of certain bonus payments under the X Series of the 
Prudential Premier variable annuity contract (``X Series Contract'') of 
each of Pruco Life and Pruco Life of New Jersey. The current bonus 
credit (the ``Credit'') under the X Series Contract varies, 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 Credit equals 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 Credit is 3%, regardless 
of the amount of the purchase payment.
    2. Applicants recapture the Credit if (i) the X Series Contract is 
surrendered during the free look period, or (ii) the Credit was applied 
within 12 months prior to death or (iii) the Credit was applied within 
12 months prior to a request for a Medically-Related Surrender (note 
that the medically-related surrender provision is not available under 
the Pruco Life of New Jersey contract). No contingent deferred sales 
charges (``CDSC'') is applied in connection with any transaction in 
which the Credit is recaptured.
    3. With respect to X Series Contracts as to which the oldest owner 
is 80 or younger on the date the purchase payment is made, Applicants 
wish to increase the credit amount from 5% to 6%. 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 this 6% credit (the ``New Credit'') under exactly the same 
scenarios as is allowed under the 2006 Order.
    4. Applicants request that the amended order sought herein apply to 
any future separate account established by the Insurance Company 
(``Future Account'') to support Future Contracts (as defined below) and 
to any variable annuity contract offered by the Insurance Companies in 
the future that is substantially similar in all material respects to 
the X Series Contracts (``Future Contracts'').
    5. Applicants also request that the amended order extend to any 
FINRA 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 FINRA-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 PAD or an affiliate of PAD prior to offering the 
X Series Contracts.
    6. The X Series Contracts are flexible premium deferred variable 
annuity contracts that are registered on Form N-4. 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 Insurance Companies 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 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 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. 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,

[[Page 13048]]

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). Earnings are not 
subject to any CDSC, and thus are not considered part of the free 
withdrawal.
    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 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 subaccounts. 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. There is 
yet another variant called Highest Daily Lifetime Five, which bears a 
charge of 0.60% annually. 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 subaccounts. 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 subaccounts. (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 Advanced Series Trusts 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.
    12. If the elder owner is 80 or younger when a purchase payment is 
made, the New Credit will equal 6%, regardless of the purchase payment 
amount. Applicants will 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 the surrender of the 
contract under the medically-related surrender provision of the X 
Series Contract (e.g., if the owner is diagnosed with a ``fatal 
illness'' and chooses to invoke this contract provision on that basis). 
(The medically-related surrender provision is not available in New 
York.) Applicants seek an amended order pursuant to Section 6(c) 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 preceding sentence. No CDSC will be assessed in connection with any 
transaction in which the New Credit is recaptured.
    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 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.
    2. Applicants request that the Commission, pursuant to Section 6(c) 
of the Act, amend the 2006 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 2006 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) makes 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 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. The recapture of the New Credit could be viewed as involving the 
redemption of redeemable securities for a price other than one based on 
the

[[Page 13049]]

current net asset value of the Account. The recapture of the New Credit 
does not involve either of the evils that Rule 22c-1 was intended to 
address, namely: (i) The dilution of the value of outstanding 
redeemable securities of registered investment companies through their 
sale at a price below net asset value or redemption or repurchase at a 
price above it, and (ii) other unfair results, including speculative 
trading practices.
    6. Applicants also assert that the proposed recapture of the New 
Credit does not pose a threat of dilution. To effect a recapture of a 
New Credit, interests in an owner's account will be redeemed at a price 
determined on the basis of the current net asset value. The amount 
recaptured will equal the amount of the New Credit that the Insurance 
Companies paid out of their general account assets. Although the owner 
will be entitled to retain any investment gain attributable to the New 
Credit, the amount of that gain will be determined on the basis of 
current net asset value. Therefore, no dilution will occur upon the 
recapture of the New Credit.
    7. Applicants also submit that the second harm that Rule 22c-1 was 
designed to address, namely speculative trading practices calculated to 
take advantage of backward pricing, will not occur as a result of the 
recapture of the New Credit. 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 Sections 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 
2006 Order and other Commission precedent.
    8. 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 the X Series 
Contract and Future Contracts, and underwritten or distributed by PAD 
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.
    9. 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 Contract 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, under delegated authority.

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4685 Filed 3-10-08; 8:45 am]

BILLING CODE 8011-01-P
