Pruco Life Insurance Company, et al.; Notice of Application, 34171-34174 [E6-9153]
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and Exchange Commission
(‘‘Commission’’) has submitted to the
Office of Management and Budget
(‘‘OMB’’) requests for extension of the
previously approved collection of
information discussed below.
• Regulation S–P—Privacy of
Consumer Financial Information.
The Commission adopted Regulation
S–P (17 CFR part 248) under the
authority set forth in section 504 of the
Gramm-Leach-Bliley Act (15 U.S.C.
6804), sections 17 and 23 of the
Securities Exchange Act of 1934 (15
U.S.C. 78q, 78w), sections 31 and 38 of
the Investment Company Act of 1940
(15 U.S.C. 80a–30(a), 80a–37), and
sections 204 and 211 of the Investment
Advisers Act of 1940 (15 U.S.C. 80b–4,
80b–11). Regulation S–P implements the
requirements of Title V of the GrammLeach-Bliley Act (‘‘Act’’), which include
the requirement that at the time of
establishing a customer relationship
with a consumer and not less than
annually during the continuation of
such relationship, a financial institution
shall provide a clear and conspicuous
disclosure to such consumer of such
financial institution’s policies and
practices with respect to disclosing
nonpublic personal information to
affiliates and nonaffiliated third parties
(‘‘privacy notice’’). Title V of the Act
also provides that, unless an exception
applies, a financial institution may not
disclose nonpublic personal information
of a consumer to a nonaffiliated third
party unless the financial institution
clearly and conspicuously discloses to
the consumer that such information may
be disclosed to such third party; the
consumer is given the opportunity,
before the time that such information is
initially disclosed, to direct that such
information not be disclosed to such
third party; and the consumer is given
an explanation of how the consumer can
exercise that nondisclosure option (‘‘opt
out notice’’). The privacy notices
required by the Act are mandatory. The
opt out notices are not mandatory for
financial institutions that do not share
nonpublic personal information with
nonaffiliated third parties except as
permitted under an exception to the
statute’s opt out provisions. Regulation
S–P implements the statute’s
requirements with respect to brokerdealers, investment companies, and
registered investment advisers
(‘‘covered entities’’). The Act and
Regulation S–P also contain consumer
reporting requirements. In order for
consumers to opt out, they must
respond to opt out notices. At any time
during their continued relationship,
consumers have the right to change or
update their opt out status. Most
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covered entities do not share nonpublic
personal information with nonaffiliated
third parties and therefore are not
required to provide opt out notices to
consumers under Regulation S–P.
Therefore, few consumers are required
to respond to opt out notices under the
rule.
Currently, there are approximately
20,434 covered entities (approximately
6,280 registered broker-dealers, 4,939
investment companies, and, out of a
total of 10,210 registered investment
advisers, 9,215 registered investment
advisers that are not also registered
broker-dealers) that must prepare or
revise the annual and initial privacy
notices they provide to their customers.
To prepare or revise their privacy
notices, each of the approximately
11,219 covered entities that is a brokerdealer or investment company requires
an estimated 40 hours at a cost of $2,424
(32 hours of professional time at $70 per
hour plus 8 hours of clerical or
administrative time at $23 per hour) and
each of the approximately 9,215 covered
entities that is an investment adviser but
not also a broker-dealer requires an
estimated 5 hours at a cost of $303 (4
hours of professional time at $70 per
hour plus 1 hour of clerical or
administrative time at $23 per hour).
Thus, the total compliance burden per
year is 494,835 hours (40 hours for
11,219 broker-dealers and investment
companies, and 5 hours for 9,215
investment advisers that are not also
broker-dealers × 11,219 = 448,760, 5 ×
9,215 × 46,075, and 448,760 + 46,075 ×
494,835), and $29,987,001 ($2,424 ×
11,219 = $27,194,856, $303 × 9,215 =
$2,792,145, and $27,194,856 +
$2,792,145 = $29,987,001).
The wage estimates of $70 per hour
for professional time and $23 per hour
for clerical or administrative time used
in the foregoing calculations are based
on estimated mean hourly wages of
$68.23 for lawyers and $22.56 for all
other legal support workers in the U.S.
Department of Labor’s Bureau of Labor
Statistics’ November 2004 National
Industry-Specific Occupational
Employment and Wage Estimate, NAICS
523100—Securities and Commodity
Contracts Intermediation and Brokerage
(available online, as of March 2, 2006,
at https://www.bls.gov/oes/current/
naics4_523100.htm) adjusted upward
for inflation by 2.5% based on the
percentage increase in the employment
cost indexes for white collar workers
and for administrative support,
including clerical, workers from
December 2004 to December 2005, as
reported in the U.S. Department of
Labor’s Bureau of Labor Statistics’
Employment Cost Index for wages and
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34171
salaries for private industry workers by
industry and occupational group (not
seasonally adjusted) (available online,
as of March 2, 2006, at https://
www.bls.gov/news.release/eci.t06.htm).
Compliance with Regulation S–P is
necessary for covered entities to achieve
compliance with the consumer financial
privacy notice requirements of Title V of
the Act. The required consumer notices
are not submitted to the Commission.
Because the notices do not involve a
collection of information by the
Commission, Regulation S–P does not
involve the collection of confidential
information. Regulation S–P does not
have a record retention requirement per
se, although the notices to consumers it
requires are subject to the recordkeeping
requirements of Rules 17a–3 and 17a–4.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless it
displays a currently valid control
number.
Comments should be directed to (1)
the Desk Officer for the SEC, Desk
Officer for the Securities and Exchange
Commission, Office of Information and
Regulatory Affairs, Office of
Management and Budget, Room 10102,
New Executive Office Building,
Washington, DC 20503 or by sending an
e-mail to: David_Rostker@omb.eop.gov;
and (ii) R. Corey Booth, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Shirley
Martinson, 6432 General Green Way,
Alexandria, Virginia 22312 or send an email to: PRA_Mailbox@sec.gov.
Comments must be submitted to OMB
within 30 days of this notice.
Dated: June 5, 2006.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6–9152 Filed 6–12–06; 8:45 am]
BILLING CODE 8010–01–P
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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Federal Register / Vol. 71, No. 113 / Tuesday, June 13, 2006 / Notices
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.
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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.
ADDRESSES:
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).
SUPPLEMENTARY INFORMATION:
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
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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 brokerdealers 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
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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 medicallyrelated 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 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
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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 oneyear 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
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34173
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 medicallyrelated 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 freelook privilege, it would be unfair to
allow an owner exercising that privilege
to retain a New Credit amount under an
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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 brokerdealers, 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.
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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
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53935; File No. SR–CBOE–
2003–41]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Inc.; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1, 2, and
3 Thereto To List and Trade Options on
Corporate Debt Securities
June 2, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on
September 22, 2003, the Chicago Board
Options Exchange, Inc. (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by CBOE. On March 1, 2003,
CBOE filed Amendment No. 1 to the
proposed rule change.3 CBOE filed
Amendment No. 2 to the proposed rule
change on August 24, 2005.4 CBOE filed
Amendment No. 3 to the proposed rule
change on May 26, 2006.5 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, CBOE replaced and
superseded the original Exhibit A, which contained
its rule text, in its entirety. In addition, CBOE
provided explanatory commentary in response to
questions raised by Commission staff regarding the
proposal including, but not limited to, listing and
maintenance standards, strike price intervals, and
margins.
4 Amendment No. 2 replaced and superseded the
Exchange’s original Form 19b–4 in its entirety.
5 Amendment No. 3 replaced and superseded the
Exchange’s original Form 19b–4 in its entirety.
2 17
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE proposes to introduce for
trading a new type of option, called
‘‘Corporate Debt Security Options’’
(‘‘CDSOs’’), which would be options
based on corporate bonds. The text of
the proposed rule change is available on
CBOE’s Web site (https://
www.cboe.com), at the principal office
of CBOE, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
CBOE included statements concerning
the purpose of, and basis for, the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. CBOE has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
Over-the-counter (‘‘OTC’’)
transactions in corporate debt securities
(e.g., bonds and notes) recently have
been become subject to enhanced
transparency and now are reported
publicly through the NASD’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’) system. This enhanced
transparency and price reporting has
given rise to an OTC market in options
on corporate debt securities over the
past few years. CBOE believes that an
exchange-traded alternative may
provide a useful risk management and
trading vehicle for member firms and
their customers.
The Exchange understands that
products similar to CDSOs that are
proposed in this rule filing are currently
traded in the OTC market by hedge
funds, proprietary trading firms, and a
few very large fixed income funds.
These market participants have
indicated that there could be room for
significant growth in OTC trading of
options on corporate debt securities as
transparency further improves in the
market for the underlying corporate debt
securities and if a listed option product
were introduced. CBOE expects that
users of these OTC products would be
among the primary users of exchangetraded CDSOs. CBOE states that its
E:\FR\FM\13JNN1.SGM
13JNN1
]]>Agencies
[Federal Register Volume 71, Number 113 (Tuesday, June 13, 2006)]
[Notices]
[Pages 34171-34174]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-9153]
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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
