
[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Notices]
[Pages 54621-54626]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21773]



[[Page 54621]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-30186; File No. 812-13990]


Pruco Life Insurance Company, et al; Notice of Application

August 29, 2012.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order approving the substitution 
of certain securities pursuant to Section 26(c) of the Investment 
Company Act of 1940, as amended (the ``1940 Act'' or ``Act'') and an 
order of exemption pursuant to Section 17(b) of the Act from Section 
17(a) of the Act.

-----------------------------------------------------------------------

Applicants: Pruco Life Insurance Company (``Pruco Life''), Pruco Life 
Flexible Premium Variable Annuity Account (``Pruco Life Variable 
Annuity Account''), Pruco Life Insurance Company of New Jersey (``Pruco 
Life of New Jersey''), Pruco Life of New Jersey Flexible Premium 
Variable Annuity Account (``PLNJ Variable Annuity Account''), 
Prudential Annuities Life Assurance Corporation (``Prudential 
Annuities''), Prudential Annuities Life Assurance Corporation Variable 
Account B (``Variable Account B''), Allstate Life Insurance Company 
(``Allstate Life''), Allstate Financial Advisors Separate Account I 
(``Separate Account I''), Allstate Life Insurance Company of New York 
(``Allstate New York'' and collectively with Pruco Life, Pruco Life of 
New Jersey, Prudential Annuities and Allstate Life, the ``Insurance 
Companies''), Allstate Life of New York Separate Account A (``Separate 
Account A'' and collectively with Pruco Life Variable Annuity Account, 
PLNJ Variable Annuity Account, Variable Account B and Separate Account 
I, the ``Separate Accounts''), and Advanced Series Trust (``AST''). The 
Insurance Companies and the Separate Accounts are referred to herein 
collectively as the ``Substitution Applicants.'' Pruco Life, Pruco Life 
of New Jersey and Prudential Annuities are also referred to herein as 
the ``Prudential Insurance Companies.'' The Prudential Insurance 
Companies, Pruco Life Variable Annuity Account, PLNJ Variable Annuity 
Account, Variable Account B and AST are collectively referred to as the 
``Section 17 Applicants.''

Summary of Application: The Substitution Applicants seek an order 
pursuant to Section 26(c) of the 1940 Act, approving the substitution 
of shares of the AST Franklin Templeton Founding Funds Allocation 
Portfolio (the ``Replacement Fund'') for shares of the Franklin 
Templeton VIP Founding Funds Allocation Fund, a series of Franklin 
Templeton Variable Insurance Products Trust (``Franklin Templeton VIP 
Trust'') (the ``Existing Fund''), held by the Separate Accounts to fund 
certain individual variable annuity contracts (collectively, the 
``Contracts'') issued by the Insurance Companies. The Section 17 
Applicants seek an order pursuant to Section 17(b) of the 1940 Act 
exempting them from Section 17(a) of the Act to the extent necessary to 
permit them to engage in certain in-kind transactions in connection 
with the substitution.

DATES: Filing Date: The application was filed on December 9, 2011, and 
the amended and restated application was filed on August 23, 2012.

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 the 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 September 19, 2012, and should be 
accompanied by proof of service on the 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: Pruco Life Insurance Company, Pruco Life Flexible Premium 
Variable Annuity Account, Pruco Life Insurance Company of New Jersey 
and Pruco Life of New Jersey Flexible Premium Variable Annuity Account, 
751 Broad Street, Newark, NJ 07102; Prudential Annuities Life Assurance 
Corporation and Prudential Annuities Life Assurance Corporation 
Variable Account B, One Corporate Drive, Shelton, CT 06484; Advanced 
Series Trust, Gateway Center Three, 100 Mulberry Street, Newark, New 
Jersey 07102; Allstate Life Insurance Company and Allstate Financial 
Advisors Separate Account I, 3100 Sanders Road, Northbrook, IL 60062; 
Allstate Life Insurance Company of New York and Allstate Life of New 
York Separate Account A, 100 Motor Parkway, Suite 132, Hauppauge, New 
York 11788.

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 via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. The Insurance Companies, on their own behalf and on behalf of 
their respective separate accounts, propose to substitute shares of the 
Replacement Fund for shares of the Existing Fund held by the Separate 
Accounts to fund the Contracts. The Separate Accounts own only Class 4 
shares of the Existing Fund.
    2. Pruco Life is the depositor and sponsor of Pruco Life Variable 
Annuity Account. Pruco Life of New Jersey is the depositor and sponsor 
of PLNJ Variable Annuity Account. Prudential Annuities is the depositor 
and sponsor of Variable Account B. Allstate Life is the depositor and 
sponsor of Separate Account I. Allstate New York is the depositor and 
sponsor of Separate Account A.
    3. On June 1, 2006, Allstate Life and Allstate New York entered 
into an agreement with Prudential Financial, Inc. (``Prudential 
Financial'') and its subsidiary, The Prudential Insurance Company of 
North America (``Prudential''), pursuant to which Allstate Life and 
Allstate New York sold, through a combination of coinsurance and 
modified coinsurance reinsurance, substantially all of their variable 
annuity business. Allstate Life and Allstate New York also have entered 
into an administrative services agreement pursuant to which Prudential 
or an affiliate administers Separate Account I and Separate Account A.
    4. Each of Pruco Life Variable Annuity Account, PLNJ Variable 
Annuity Account, Variable Account B, Separate Account 1 and Separate 
Account A is a ``separate account'' as defined by Rule 0-1(e) under the 
Act and each is registered under the Act as a unit investment trust for 
the purpose of funding the Contracts. Security interests under the 
Contracts have been registered under the Securities Act of 1933. The 
application sets forth the registration statement file numbers for the 
Contracts and the Separate Accounts.
    5. AST and Franklin Templeton VIP Trust are registered open-end 
management investment companies of

[[Page 54622]]

the series type (File Number 033-24962 and 033-23493, respectively).
    6. Franklin Templeton Services, LLC (``Existing Fund 
Administrator'') serves as the administrator to the Existing Fund. 
Prudential Investments LLC and AST Investment Services, Inc. (together, 
the ``Investment Managers'') serve as the co-investment managers of the 
Replacement Fund. Franklin Advisers, Inc. (``Franklin Advisers''), 
Franklin Mutual Advisers, LLC (``Franklin Mutual''), and Templeton 
Global Advisors Limited (``Templeton Global'') serve as subadvisers to 
the Replacement Fund and are affiliates of the Existing Fund 
Administrator. Franklin Advisers, Franklin Mutual, and Templeton Global 
are collectively referred to as the ``FT Subadvisers.''
    7. The substitution will replace an investment option (i.e., the 
Existing Fund) administered by an entity (i.e., Franklin Templeton 
Services, LLC) that is not affiliated with the Substitution Applicants 
as of the date hereof (other than by way of certain of the Substitution 
Applicants owning more than 5% of the shares of the Existing Fund) with 
an investment option (i.e., the Replacement Fund) that is managed by 
investment managers (i.e., Prudential Investments LLC and AST 
Investment Services, Inc.) that are affiliated with the Prudential 
Insurance Companies. The Investment Managers may hire and replace 
unaffiliated subadvisers with the approval of AST's Board of Trustees. 
Pursuant to an exemptive order issued to a predecessor Prudential 
Financial investment adviser, Inv. Co. Rel. No. 22215 (Sept. 11, 1996), 
(the ``Multi-Manager Order''), the Investment Managers are authorized 
to enter into and amend sub-advisory agreements without shareholder 
approval under certain conditions. However, Substitution Applicants and 
AST represent that the Replacement Fund will not change a subadviser, 
add a new subadviser, or otherwise rely on the Multi-Manager Order 
without first obtaining shareholder approval of the change in 
subadviser, the new subadviser, or the Replacement Fund's ability to 
add or to replace a subadviser in reliance on the Multi-Manager Order 
at an AST shareholder meeting, the record date for which shall be after 
the proposed substitution has been effected. In addition, prior to the 
substitution, the Substitution Applicants state that each Contract 
owner will have been provided with the Replacement Fund prospectus 
describing the existence, substance and effect of the Multi-Manager 
order.
    8. The Contracts are individual and group flexible premium 
variable, variable with fixed options and variable with fixed and 
market value adjusted fixed options contracts. The Contracts permit the 
Insurance Companies to substitute shares of one fund with shares of 
another, including a fund of a different registered investment company. 
The prospectuses for the Contracts and the Separate Accounts contain 
disclosures of this right. The Contracts which offer the Existing Fund 
securities are registered in the Form N-4 Registration Statements 
listed in footnotes 1 through 5 of the application.
    9. The Existing Fund is a ``fund of funds'' meaning that it seeks 
to achieve its investment goal by investing its assets in a combination 
of Class 1 shares of the Franklin Income Securities Fund (``Franklin 
Income'') (33\1/3\%), Mutual Shares Securities Fund (``Mutual Shares'') 
(33\1/3\%), and Templeton Growth Securities Fund (``Templeton Growth,'' 
and collectively with Franklin Income and Mutual Shares, the 
``Underlying FT Funds''). Franklin Income is managed by Franklin 
Advisers, Mutual Shares is managed by Franklin Mutual, and Templeton 
Growth is managed by Templeton Global. The Existing Fund makes equal 
allocations to each of the Underlying FT Funds on a fixed percentage 
basis. Although the Replacement Fund will not operate as a ``fund of 
funds'' like the Existing Fund, its overall investment strategy will be 
substantially identical to that of the Existing Fund. Franklin Income, 
Franklin Mutual, and Templeton Global serve as subadvisers to the 
Replacement Fund. Each FT Subadviser handles the day-to-day investment 
management of approximately 33\1/3\% of the Replacement Fund's assets 
based upon the application of the specific investment strategy that it 
uses in connection with the corresponding Underlying FT Fund. Like the 
Existing Fund, the percentage of Replacement Fund assets that is 
allocated to each investment strategy will be monitored and those 
allocations will be rebalanced when they are more than 3% above or 
below the goal of equal allocations to each of the three investment 
strategies. A comparison of the investing strategies and risks of the 
Existing Fund and the Replacement Fund is included in the application. 
The following table compares the fees and expenses of the Existing Fund 
and the Replacement Fund as of December 31, 2011.\1\
---------------------------------------------------------------------------

    \1\ The Replacement Fund has no assets and has not yet commenced 
operations as of the date hereof. The estimated fees and expenses of 
the Replacement Fund are, however, based in part on assumed average 
daily net assets of approximately $2.4 billion for the Replacement 
Fund (i.e., the approximate amount of net assets that would have 
been acquired from the Existing Fund had the substitution been 
completed as of December 31, 2011) for the fiscal period ending 
December 31, 2012.

------------------------------------------------------------------------
                                     Existing fund
                                       (Class 4)       Replacement  Fund
------------------------------------------------------------------------
Management fees.................  None..............  0.95%
Distribution and service (12b-1)  0.35%.............  None
 fees.
Other Expenses..................  0.11%.............  0.16%
Acquired fund fees and expenses.  0.65%.............  --
Total annual Fund operating       1.11%.............  1.11%
 expenses.
Fee waiver and/or expense         -0.01%............  -0.03%
 reimbursement.
                                 ---------------------------------------
    Total annual Fund operating   1.10%.............  1.08%
     expenses after fee waiver
     and/or expense
     reimbursement.
------------------------------------------------------------------------

    10. The Existing Fund does not pay a management fee but as a 
shareholder in the underlying funds, indirectly bears its proportionate 
share of any management fees and other expenses paid by the underlying 
funds. The management fees of each of the underlying funds, based on 
each underlying fund's average net assets for the fiscal year ended 
December 31, 2011, are: Franklin Income Securities Fund: 0.45%; Mutual 
Shares Securities Fund: 0.60%; and Templeton Growth Securities Fund: 
0.74%.
    11. The Substitution Applicants state that the substitutions are 
expected to benefit Contract owners in a number of ways. The 
Replacement Fund is a new

[[Page 54623]]

series of AST, and thus the Replacement Fund is part of the Prudential 
Annuity family of funds. As such, the Insurance Companies generally 
expect to learn of any changes affecting the Replacement Fund well in 
advance of their effectiveness, thereby allowing the Insurance 
Companies to use the most efficient and least costly means to 
administer such changes (e.g., by including the changes in other 
routine filings and planned mailings to contract owners). The Insurance 
Companies believe that Contract owners will benefit from this 
streamlining as the Insurance Companies enhance their communication 
efforts to contract owners and sales representatives regarding 
investment options. Further, since the Replacement Fund is part of the 
Prudential Annuity family of funds, the Investment Managers will 
provide rigorous oversight and monitoring of the Replacement Fund's 
investment performance and its compliance with investment objectives, 
policies and restrictions. In addition, the Replacement Fund unlike the 
Existing Fund is not a ``fund of funds'' and therefore can generally 
operate with more flexibility. As described in more detail in the 
application, a portion of the assets attributable to each of the three 
investment strategies used in connection with the Replacement Fund will 
be invested in certain types of derivatives and short-term instruments 
to help maintain adequate portfolio liquidity. Such investments will 
provide for more effective and efficient fund management and operation 
during times of market volatility than the current fund-of-funds 
structure. Further, the Replacement Fund, as a series of AST, will have 
access to the Prudential Financial fund complex's credit facility which 
will also serve to potentially create efficiencies and cause less 
disruption to the orderly investment management of the Replacement Fund 
in times of market volatility and increased redemption activity. The 
Insurance Companies will also realize the benefit of reduced production 
and mailing expenses with respect to the prospectus, given that the 
Replacement Fund will be a series of AST with all disclosures 
concerning the Replacement Fund being included in the combined AST 
prospectus. Contract owners will benefit from consolidated and 
consistent fund disclosure. The Insurance Company Applicants believe 
that the Replacement Fund represents the best available match, 
consistent with the goal of providing Contract owners with a substitute 
investment option offering a lower expense ratio than the expense ratio 
of the Existing Fund. Further, Contract owners will be allowed a free 
transfer out of the Existing Fund (before the substitution) or out of 
the Replacement Fund (after the substitution) to any other investment 
option available under the applicable Contract; therefore any Contract 
owner will be able, without charge, to switch to another investment 
option.
    12. For these reasons and the reasons discussed below, the 
Substitution Applicants believe that substituting the Replacement Fund 
for the Existing Fund is appropriate and in the best interest of 
Contract owners. Because the Existing Fund does not have an investment 
manager, it does not directly pay any investment management fees. The 
Existing Fund does, however, indirectly pay investment management fees 
in connection with its investments in the Underlying FT Funds. In 
addition, as shown in more detail in the application, the estimated 
total operating expense ratio for the Replacement Fund will be lower 
than the net expense ratio for Class 4 shares of the Existing Fund as 
set forth in its current prospectus. There will be no increase in 
Contract fees and expenses, including mortality and expense risk fees 
and administration and distribution fees charged to the Separate 
Accounts as a result of the substitutions. The Substitution Applicants 
believe that the Replacement Fund has an investment objective, policies 
and a risk profile that are substantially the same as the Existing 
Fund, thus making the Replacement Fund an appropriate candidate as a 
substitute. In addition, after the substitutions, neither the 
Investment Managers nor any of their affiliates will receive 
compensation from the charges to the Separate Accounts related to the 
Contracts or from revenue sharing from the Replacement Funds in excess 
of the compensation currently received from the administrator or 
distributors of the Existing Fund.
    13. By a supplement to the prospectuses for the Contracts and the 
Separate Accounts each Insurance Company has notified all owners of the 
Contracts affected by the substitutions of its intention to take the 
necessary actions, including seeking the order requested by the 
application, to substitute shares of the funds as described herein. The 
supplement advised Contract owners that from the date of the supplement 
until the date of the proposed substitution, owners are permitted to 
make one transfer of Contract value (or annuity unit exchange) out of 
the Existing Fund sub-account to one or more other sub-accounts without 
the transfer (or exchange) being treated as one of a limited number of 
permitted transfers (or exchanges) permitted without a transfer charge. 
The supplement informed Contract owners that the Insurance Company will 
not exercise any rights reserved under any Contract to impose 
additional restrictions on transfers until at least 30 days after the 
proposed substitution. The supplement also informed Contract owners 
that for at least 30 days following the proposed substitution, the 
Insurance Companies will permit Contract owners affected by the 
substitution to make one transfer of Contract value (or annuity unit 
exchange) out of the Replacement Fund sub-account to one or more other 
sub-accounts without the transfer (or exchange) being treated as one of 
a limited number of permitted transfers (or exchanges) or a limited 
number of transfers (or exchanges) permitted without a transfer charge.
    14. The proposed substitution will take place at relative net asset 
value with no change in the amount of any Contract owner's Contract 
value or death benefit or in the dollar value of his or her investment 
in the Separate Accounts.
    15. The substitution will be effected by a combination of in-kind 
and cash transactions. It is anticipated that the majority of the 
transactions will be effected in-kind, with the remainder being 
effected in cash. With respect to in-kind transactions, it is intended 
that, after receipt of the Insurance Companies' redemption request, the 
Existing Fund will redeem shares it holds in the FT Underlying Funds, 
which request will be fulfilled by the FT Underlying Funds primarily in 
the form of underlying securities. The Existing Fund will then fulfill 
the Insurance Companies' redemption request with these in-kind 
securities received from the FT Underlying Funds. These in-kind 
securities will then be contributed to the Replacement Fund to purchase 
shares of that Fund. All in-kind redemptions from the Existing Fund of 
which any of the Substitution Applicants is an affiliated person will 
be effected in accordance with the conditions set forth in the 
Commission's no-action letter issued to Signature Financial Group, Inc. 
(available December 28, 1999). To the extent that the redemption 
request cannot be completed wholly through in-kind securities, the 
remainder of the substitution will be effected through the Insurance 
Companies' redeeming shares of the Existing Fund for cash and using the 
cash to purchase shares of the Replacement Fund.

[[Page 54624]]

    16. Contract owners will not incur any fees or charges as a result 
of the proposed substitution, nor will their rights or Insurance 
Company's obligations under the Contracts be altered in any way. All 
expenses incurred in connection with the proposed substitution, 
including brokerage, legal, accounting, and other fees and expenses, 
will be paid by the Insurance Companies. In addition, the proposed 
substitution will not impose any tax liability on Contract owners. The 
proposed substitution will not cause the Contract fees and charges 
currently being paid by existing Contract owners to be greater after 
the proposed substitution than before the proposed substitution. No 
fees will be charged on the transfers made at the time of the proposed 
substitution because the proposed substitution will not be treated as a 
transfer for the purpose of assessing transfer charges or for 
determining the number of remaining permissible transfers in a Contract 
year.
    17. In addition to the prospectus supplements distributed to owners 
of Contracts, within five business days after the proposed substitution 
is completed, Contract owners will be sent a written notice informing 
them that the substitution was carried out and that they may make one 
transfer of any Contract value invested in the Replacement Fund sub-
account on the date of the notice to one or more other sub-accounts 
available under their Contract at no cost and without regard to the 
usual limit on the frequency of transfers among sub-accounts or from 
the variable account options to the fixed account options. The notice 
will also reiterate that (other than with respect to ``market timing'' 
activity) the Insurance Companies will not exercise any rights reserved 
by it under the Contracts to impose additional restrictions on 
transfers or to impose any charges on transfers until at least 30 days 
after the proposed substitution. The Insurance Companies will also send 
each Contract owner a current prospectus for the Replacement Fund to 
the extent that they have not previously received a copy. Each 
Insurance Company also is seeking approval of the proposed substitution 
from any state insurance regulators whose approval may be necessary or 
appropriate.
    Legal Analysis and Conditions:
    Section 26(c) Relief:
    1. The Substitution Applicants request that the Commission issue an 
order pursuant to Section 26(c) of the Act approving the proposed 
substitution. Section 26(c) of the Act requires the depositor of a 
registered unit investment trust holding the securities of a single 
issuer to obtain Commission approval before substituting the securities 
held by the trust.
    2. The Contracts permit the applicable Insurance Company, subject 
to compliance with applicable law, to substitute shares of another 
investment company for shares of an investment company held by a sub-
account of the Separate Accounts. The prospectuses for the Contracts 
and the Separate Accounts contain disclosure of this right. The 
Replacement Fund is anticipated to have a lower total expense ratio 
than the Existing Fund. The Insurance Companies believe that it is in 
the best interests of the Contract owners to substitute the Replacement 
Fund for the Existing Fund. The Substitution Applicants believe that 
the FT Subadvisers will, over the long term, be positioned to provide 
at least comparable performance to that of the Existing Fund through 
their equal investments in the Underlying FT Funds because the 
Underlying FT Funds are managed by the same entities.
    3. The proposed substitution is not of the type that Section 26(c) 
was designed to prevent. Unlike traditional unit investment trusts 
where a depositor could only substitute an investment security in a 
manner which permanently affected all the investors in the trust, the 
Contracts provide each Contract owner with the right to exercise his or 
her own judgment and transfer Contract or cash values into other sub-
accounts. Moreover, the Contracts will offer Contract owners the 
opportunity to transfer amounts out of the affected sub-accounts into 
any of the remaining sub-accounts without cost or other disadvantage. 
The proposed substitution, therefore, will not result in the type of 
costly forced redemption which Section 26(c) was designed to prevent. 
The proposed substitution also is unlike the type of substitution which 
Section 26(c) was designed to prevent in that by purchasing a Contract, 
Contract owners select much more than a particular investment company 
in which to invest their account values. They also select the specific 
type of insurance coverage offered by an insurance company under their 
Contract as well as numerous other rights and privileges set forth in 
the Contract.
    4. The Substitution Applicants and AST agree that for the two year 
period commencing on the date of the substitution the total annual Fund 
operating expenses of the Replacement Fund (net of reimbursement and 
waivers) will be capped at a level equal to the Existing Fund's total 
annual Fund operating expenses (net of reimbursement and waivers) of 
1.10% of average daily net assets. In addition, the Substitution 
Applicants and AST have agreed to permanently cap the management fee of 
the Replacement Fund at .95% of average daily net assets.
    5. The Substitution Applicants submit that the proposed 
substitution meets the standards set forth in Section 26(c) and assert 
that the replacement of the Existing Fund with the Replacement Fund is 
consistent with the protection of investors and the purposes fairly 
intended by the policy and provisions of the 1940 Act.
    Section 17(b) Relief:
    1. The Section 17 Applicants request an order under Section 17(b) 
of the Act exempting them from the provisions of Section 17(a) to the 
extent necessary to permit the Prudential Insurance Companies to carry 
out the proposed substitution as described herein.
    2. Section 17(a)(1) of the Act, in relevant part, prohibits any 
affiliated person of a registered investment company, or any affiliated 
person of such person, acting as principal, from knowingly selling any 
security or other property to that company. Section 17(a)(2) of the Act 
generally prohibits the persons described above, acting as principals, 
from knowingly purchasing any security or other property from the 
registered company.
    3. Because shares held by a separate account of an insurance 
company are legally owned by the insurance company, the Prudential 
Insurance Companies and their affiliates collectively own of record 
substantially all of the shares of each of the various series of AST 
(and will also own such with respect to the Replacement Fund upon its 
commencement of operations). Therefore, AST and each of its respective 
series could be deemed to be under the control of the Prudential 
Insurance Companies for purposes of the Act, notwithstanding the fact 
that Contract owners may be considered the beneficial owners of those 
shares held in the Separate Accounts for certain purposes. If AST and 
each of its respective series are deemed to be under the control of the 
Prudential Insurance Companies for purposes of the Act, then each 
Prudential Insurance Company could be deemed to be an affiliated person 
of AST and each of its respective series within the meaning of Section 
2(a)(3) of the Act. Likewise if the Prudential Insurance Companies are 
deemed to control AST and each of its respective series for purposes of 
the Act, then AST and each of its respective series, could be deemed to 
be affiliated persons of the Prudential Insurance

[[Page 54625]]

Companies within the meaning of Section 2(a)(3) of the Act. Regardless 
of whether or not the Prudential Insurance Companies are considered to 
control AST and each of its respective series within the meaning of 
Section 2(a)(9) of the Act, because the Prudential Insurance Companies 
own of record more than 5% of the shares of each series of AST, the 
Prudential Insurance Companies could be deemed to be affiliated persons 
of AST and each of its respective series within the meaning of Section 
2(a)(3) of the Act. Notwithstanding the foregoing, because the 
Prudential Insurance Companies and the Investment Managers are under 
the common control of Prudential Financial, the Prudential Insurance 
Companies could be deemed to be affiliated persons of an affiliated 
person (i.e., the Investment Managers) of a registered investment 
company (i.e., AST and each of its respective series) for purposes of 
Section 17(a) of the Act. Because the substitution may be effected, in 
whole or in part, by means of in-kind redemptions of shares of the 
Existing Fund and in-kind purchases of shares of the Replacement Fund, 
the substitution may be deemed to involve one or more purchases or 
sales of securities or property between affiliated persons. The 
proposed transactions could be deemed to involve the transfer of 
portfolio securities held by the Underlying FT Funds through the 
Existing Fund to the Prudential Insurance Companies and the 
simultaneous purchase by the Prudential Insurance Companies of shares 
of the Replacement Fund using such portfolio securities as 
consideration. As a practical matter, the custodian for the Replacement 
Fund will receive such transferred assets from the custodians for the 
Existing Fund and Underlying FT Funds. Accordingly, as the Prudential 
Insurance Companies and the Existing Fund, and the Prudential Insurance 
Companies and the Replacement Fund, could be viewed as first-tier or 
second-tier affiliates of one another under Section 2(a)(3) of the Act, 
it is conceivable that this aspect of the substitutions could be viewed 
as being prohibited by Section 17(a) of the Act. As a result, the 
Section 17 Applicants have determined that it is prudent to seek relief 
from Section 17(a) in the context of this application for the in-kind 
purchases of Replacement Fund shares by the Prudential Insurance 
Companies and the in-kind sales of Replacement Fund shares to the 
Prudential Insurance Companies.
    4. The Section 17 Applicants submit that for all the reasons stated 
in the application, the terms of the proposed in-kind purchases of 
shares of the Replacement Fund by the Prudential Insurance Companies, 
including the consideration to be paid and received, as described in 
this application, are reasonable and fair and do not involve 
overreaching on the part of any person concerned. The Section 17 
Applicants also submit that the proposed in-kind purchases by the 
Prudential Insurance Companies of Replacement Fund shares are 
consistent with the policies of AST and the Replacement Fund as recited 
in their current registration statements and reports filed under the 
Act. Finally, the Section 17 Applicants submit that the proposed 
substitution is consistent with the general purposes of the Act. To the 
extent that the in-kind purchases by the Prudential Insurance Companies 
of the Replacement Fund's shares are deemed to involve principal 
transactions among first-tier or second-tier affiliates for purposes of 
Section 17(a) of the Act, the procedures described below should be 
sufficient to assure that the terms of the proposed transactions are 
reasonable and fair to all participants. The Section 17 Applicants 
maintain that the terms of the proposed in-kind purchase transactions, 
including the consideration to be paid and received by each fund 
involved, are reasonable, fair and do not involve overreaching 
principally because the transactions will conform with all but one of 
the conditions enumerated in Rule 17a-7. The one condition of Rule 17a-
7 that the Section 17 Applicants will not comply with is the condition 
requiring that the transaction be a purchase or sale for no 
consideration other than cash payment against prompt delivery of a 
security for which market quotations are readily available. The 
proposed transactions will take place at relative net asset value in 
conformity with the requirements of Section 22(c) of the Act and Rule 
22c-1 thereunder with no change in the amount of any Contract owner's 
contract value or death benefit or in the dollar value of his or her 
investment in any of the Separate Accounts. Contract owners will not 
suffer any adverse tax consequences as a result of the substitution. 
The fees and charges under the Contracts will not increase because of 
the substitution. Even though the Separate Accounts, the Prudential 
Insurance Companies, and AST may not rely on Rule 17a-7, the Section 17 
Applicants believe that the Rule's conditions outline the type of 
safeguards that result in transactions that are fair and reasonable to 
registered investment company participants and preclude overreaching in 
connection with an investment company by its affiliated persons. The 
Section 17 Applicants assert that where, as here, they or the relevant 
investment company would comply with all but one of the conditions of 
the Rule as described above, the Commission should consider the extent 
to which they would meet these or other similar conditions and issue an 
order if the protections of the Rule would be provided in substance.
    5. The board of AST has adopted procedures, as required by 
paragraph (e)(1) of Rule 17a-7 under the Act, pursuant to which the 
Replacement Fund may purchase and sell securities to and from its 
affiliates. The board of AST will conduct its review of the 
transactions in the same manner that it normally would follow in 
accordance with Rule 17a-7 under the Act. The Section 17 Applicants 
will carry out the proposed Prudential Insurance Companies' in-kind 
purchases in conformity with all of the conditions of Rule 17a-7 and 
AST's procedures thereunder, except that the consideration paid for the 
securities being purchased or sold may not be entirely cash. 
Nevertheless, the circumstances surrounding the proposed substitution 
will be such as to offer the same degree of protection to the 
Replacement Fund from overreaching that Rule 17a-7 provides to it 
generally in connection with its purchase and sale of securities under 
that Rule in the ordinary course of its business. In particular, the 
Prudential Insurance Companies (or any of their affiliates) cannot 
effect the proposed transactions at a price that is disadvantageous to 
the Replacement Fund. Although the transactions may not be entirely for 
cash, each will be effected based upon (1) the independent market price 
of the portfolio securities valued as specified in paragraph (b) of 
Rule 17a-7, and (2) the net asset value per share of each fund involved 
valued in accordance with the procedures disclosed in its respective 
investment company registration statement and as required by Rule 22c-1 
under the Act. No brokerage commission, fee, or other remuneration will 
be paid to any party in connection with the proposed in-kind purchase 
transactions.
    6. The sale of shares of the Replacement Fund for investment 
securities, as contemplated by the proposed Prudential Insurance 
Companies' in-kind purchases, is consistent with the investment 
policies and restrictions of the Replacement Fund because (1) the 
shares are sold at their net asset value, (2) each of the FT 
Subadvisers also serves as the

[[Page 54626]]

investment manager for the relevant Underlying FT Fund, (3) each of the 
FT Subadvisers will implement the same investment strategy for the 
Replacement Fund that it uses to manage the corresponding Underlying FT 
Fund, and (4) the assets of the Replacement Fund will be equally 
divided among the three relevant investment strategies in exactly the 
same manner as the Existing Fund equally divides its assets among the 
three Underlying FT Funds. The portfolio securities are of the type and 
quality that the Replacement Fund would have acquired with the proceeds 
from the sale of shares of the Existing Fund had the shares of the 
Existing Fund been sold for cash. To assure that this condition is met, 
as applicable, the Investment Managers and the subadvisers for the 
Replacement Fund will examine the portfolio securities being offered to 
the Replacement Fund and accept only those securities as consideration 
for shares that it would have acquired for each such fund in a cash 
transaction.
    Conclusion:
    For the reasons and upon the facts set forth above and in the 
application, the Substitution Applicants and the Section 17 Applicants 
believe that the requested orders meet the standards set forth in 
Section 26(c) of the Act and Section 17(b) of the Act, respectively, 
and should therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21773 Filed 9-4-12; 8:45 am]
BILLING CODE 8011-01-P


