[Federal Register: April 15, 2003 (Volume 68, Number 72)]
[Notices]
[Page 18306-18308]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap03-127]
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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