Pruco Life Insurance Company, et al.; Notice of Application, 36452-36455 [2010-15362]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 122 (Friday, June 25, 2010)]
[Notices]
[Pages 36452-36455]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15362]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-29302; File No. 812-13713]


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

June 18, 2010.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of application for an order under Section 6(c) of the 
Investment Company Act of 1940, as amended (the ``Act'' or ``1940 
Act'') granting exemptions from the provisions of Sections 2(a)(32), 
and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder.

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Applicants:  Pruco Life Insurance Company (``Pruco Life''), Pruco Life 
Insurance Company of New Jersey (``PLNJ,'' and collectively with Pruco 
Life, the ``Insurance Companies''), Pruco Life Flexible Premium 
Variable Annuity Account (``Pruco Life Account''); Pruco Life of New 
Jersey Flexible Premium Variable Annuity Account (``Pruco Life of New 
Jersey Account,'' and collectively with Pruco Life Account, the 
``Accounts''), and Prudential Annuities Distributors, Inc. (``PAD'', 
and collectively with the Insurance Companies, and the Accounts 
``Applicants'').
SUMMARY: Summary of Application: Applicants seek an order under Section 
6(c) of the Act, exempting them from Sections 2(a)(32), and 27(i)(2)(A) 
of the Act and Rule 22c-1 thereunder, to permit the recapture of 
credits previously applied to purchase payments under certain variable 
flexible premium deferred annuity contracts issued by the Insurance 
Companies.

DATES:  Filing Date: The application was filed on November 2, 2009 and 
amended on June 18, 2010.

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 13, 2010, and should be accompanied by 
proof of service on Applicants in the form of an affidavit or, for 
lawyers, a certificate of service. Hearing requests should state the 
nature of the requester's interest, the reason for the request, and the 
issues contested. Persons who wish to be notified of a hearing may 
request notification by writing to the Secretary of the Commission.

ADDRESSES: Secretary, SEC, 100 F Street, NE., Washington, DC 20549-
1090. Applicants, c/o C. Christopher Sprague, Esq., The Prudential 
Insurance Company of America, 751 Broad Street, Newark, NJ 07102.

FOR FURTHER INFORMATION CONTACT: Sally Samuel, Senior Counsel, or Joyce 
M. Pickholz, Branch Chief, Office of Insurance Products, Division of 
Investment Management, at (202) 551-6795.

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at https://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. In this application, Applicants seek the exemptions needed to 
recapture purchase credits granted under the Prudential Premier 
Retirement Variable Annuity X Series annuity (the ``Contract'') to be 
issued by each of Pruco Life and PLNJ, in the circumstances set forth 
below. The Contract is a ``bonus annuity'' registered on Form N-4 in 
registration statements file nos. 333-162673 and 333-162678. These 
Pruco Life and PLNJ registration statements are incorporated by 
reference into the application to the extent necessary. These Form N-4 
registration statements also describe other annuity classes that do not 
offer purchase credits and thus are not the subject of the exemptions 
requested in this application. Applicants also ask that the exemptions 
requested extend to contracts that are substantially similar in all 
material respects to the Contracts (the ``Future Contracts'') issued 
through the Accounts or any other separate account of the Insurance 
Companies created in the future (a ``Future Account'') to support 
Future Contracts.
    2. Pruco Life is a stock life insurance company organized under the 
laws of the State of Arizona. PLNJ is a stock life insurance company 
organized under the laws of the State of New Jersey. PLNJ is a wholly-
owned subsidiary of Pruco Life, which is itself a wholly-owned 
subsidiary of The Prudential Insurance Company of America 
(``Prudential''). PAD, an affiliate of Prudential, is the principal 
underwriter of the Contract. PAD is registered with the Commission as a 
broker-dealer under the Securities Exchange Act of 1934, as amended 
(the ``1934 Act'') and is a member of FINRA.
    3. Pruco Life is the issuer of the Contracts funded through Pruco 
Life Account and serves as depositor of the Pruco Life Account. PLNJ is 
the issuer of the Contracts funded through Pruco Life of New Jersey 
Account and serves as depositor of the Pruco Life of New Jersey 
Account. Pruco Life and PLNJ may in the future issue Future Contracts 
through the Accounts, or through Future Accounts for which they would 
also serve as depositor.
    4. Pruco Life Account is a segregated asset account of Pruco Life 
(file no. 811-07325), and Pruco Life of New Jersey Account is a 
segregated asset account of PLNJ (file no. 811-07975). The respective 
Accounts will fund the variable benefits available under the Contracts. 
Each Account is registered under the Act as a unit investment trust and 
meets the definition of separate account set forth in Section 2(a)(37) 
of the Act. The same will be true of any Future Account.
    5. The Contracts are variable flexible premium deferred annuity 
contracts. Registered representatives of broker-dealers with which PAD 
has entered into selling agreements will sell the Contracts. The 
Contracts may be issued on a non-tax qualified basis or in connection 
with arrangements that qualify for favorable Federal income tax 
treatment under Internal Revenue Code (e.g., IRAs). Certain of the 
features and benefits under the Contracts described below may differ, 
depending on the State in which the Contract is issued and the broker-
dealer through which the Contract is sold.
    6. A Contract may be purchased with a minimum initial payment of 
$10,000. Unless prohibited by applicable State law, the Insurance 
Companies presently allow additional purchase payments, provided that 
the payment is at least $100 (a $50 minimum is imposed for electronic 
fund transfer purchases). The Insurance Companies reserve the right to 
change these purchase payment minimums. The Insurance Companies reserve 
the right to refuse any initial or additional purchase payment where 
the total amount of purchase payments equals $1,000,000 or more with 
respect to the Contract and any other annuities the annuity owner is 
purchasing from the Insurance Companies and/or their affiliates. The 
maximum issue age for a Contract is 80.
    7. The Contract offers variable investment options and a companion 
market-value adjustment option that has

[[Page 36453]]

been registered on Form S-3 (see file no. 333-162683). The Form S-3 is 
incorporated into the application by reference to the extent necessary 
for the exemptions requested in the application. Pruco Life will offer 
one market value adjustment option with three, five, seven, and ten 
year guarantee periods, and may offer guarantee periods of other 
durations in the future. Pruco Life also will offer a market value 
adjustment option to be used in connection with a dollar-cost averaging 
program in which amounts are transferred systematically over a 6-month 
or 12-month period. The multi-year market value adjustment option and 
6-month/12-month market value adjustment option are registered on a 
single Form S-3 registration statement. PLNJ does not intend to offer 
these market value adjustment options in New York, but may choose to do 
so at a later date. Pruco Life may eliminate any or all of the multi-
year ``guarantee periods,'' or offer guarantee periods of different 
durations.
    8. Contract owners may select one of several optional living 
benefits. The Contract offers two guaranteed minimum accumulation 
benefits, called the Guaranteed Return Option Plus II and Highest Daily 
Guaranteed Return Option II, for which each of Pruco Life and PLNJ 
imposes a charge equal to 0.60% annually, applied against the account 
value in the sub-accounts. The Contract also offers guaranteed lifetime 
withdrawal benefits, under which the benefit participant may, subject 
to certain limitations, withdraw an ``annual income amount'' each year 
for life, irrespective of market-based declines in the Contract's 
account value. These guaranteed lifetime withdrawal benefits are: (a) 
Highest Daily Lifetime 6 Plus, offered for a charge currently equal to 
0.85% assessed against the greater of the Contract's account value or 
the ``protected withdrawal value'' under the benefit; (b) Highest Daily 
Lifetime 6 Plus with Lifetime Income Accelerator, offered for a charge 
currently equal to 1.20% assessed against the greater of the Contract's 
account value or the protected withdrawal value under the benefit; and 
(c) Spousal Highest Daily Lifetime 6 Plus, offered for a charge 
currently equal to 0.95% assessed against the greater of the Contract's 
account value or the protected withdrawal value under the benefit. The 
Insurance Companies reserve the right to increase the charges for the 
optional lifetime guaranteed minimum withdrawal benefits in certain 
circumstances. Certain of these optional living benefits may be 
modified or not offered, depending on applicable State law.
    9. The minimum death benefit under the Contracts is equal to the 
greater of the following: (a) the sum of all purchase payments made 
since the issue date of the Contract (excluding any purchase credits) 
until the date due proof of death is received, reduced proportionally 
by the ratio of the amount of any withdrawal to the account value 
immediately prior to the withdrawal; and (b) the ``unadjusted account 
value'' (i.e., the account value without any positive or negative 
market value adjustment), less the amount of any purchase credits 
applied during the period beginning 12 months prior to the decedent's 
date of death, and ending on the date we receive due proof of death. 
The charge for the minimum death benefit is subsumed within the basic 
insurance charge for the Contract, which is equal to 1.85% annually 
(assessed against the sub-accounts) during the first 9 annuity years 
and 1.30% annually in later annuity years. The Contract offers two 
optional death benefits: (a) The Highest Anniversary Value Death 
Benefit, under which the death benefit generally is equal to the 
greater of (i) the minimum death benefit described above and (ii) the 
greatest of the account values attained on each anniversary of the 
issue date of the Contract up to and including the earlier of the date 
of death or attainment of a ``death benefit target date''; and (b) a 
Combination 5% Roll-Up and Highest Anniversary Value Death Benefit, 
under which the death benefit generally is equal to the greater of the 
minimum death benefit described above, the Highest Anniversary Value 
Death Benefit described above, and purchase payments (including 
purchase credits) appreciated at an annual effective interest rate 
currently equal to 5% until the earlier of the date of death or 
attainment of a ``death benefit target date.'' As detailed in the 
registration statements for the Contracts, each of the Highest 
Anniversary Value Death Benefit and the Combination 5% Roll-Up and 
Highest Anniversary Value Death Benefit is adjusted for purchase 
payments and withdrawals. Certain of these optional death benefits may 
be modified or not offered, depending on applicable State law. Pruco 
Life will impose a charge, assessed against sub-account net assets, of 
0.80% annually for the Combination 5% Roll-Up and HAV Death Benefit 
(this benefit is not offered by PLNJ in New York), and each Insurance 
Company will impose a charge, assessed against Sub-account net assets, 
of 0.40% annually for the Highest Anniversary Value Death Benefit.
    10. The Contracts provide for a withdrawal charge equal to a 
percentage of purchase payments surrendered, which declines according 
to the following schedule:

------------------------------------------------------------------------
                                                           Percentage
                                                         applied against
      ``Age'' of purchase payment being withdrawn       purchase payment
                                                         being withdrawn
------------------------------------------------------------------------
Less than one year old................................               9.0
1 year old or older, but not yet 2 years old..........               9.0
2 years old or older, but not yet 3 years old.........               9.0
3 years old or older, but not yet 4 years old.........               9.0
4 years old or older, but not yet 5 years old.........               8.0
5 years old or older, but not yet 6 years old.........               8.0
6 years old or older, but not yet 7 years old.........               8.0
7 years old or older, but not yet 8 years old.........               5.0
8 years old or older, but not yet 9 years old.........               2.5
9 or more years old...................................               0.0
------------------------------------------------------------------------

    11. Some Contracts may offer lower withdrawal charges than what is 
indicated above. A ``charge-free'' amount, generally equal to 10% of 
all purchase payments currently subject to a contingent deferred sales 
charge, is exempt from the above charge. No withdrawal charge is 
imposed in any situation where the purchase credit is recaptured.
    12. Other charges under the Contracts are: (a) A mortality, expense 
and

[[Page 36454]]

administrative risk charge at annual rates of 1.85% in Contract years 
1-9 and 1.30% in later Contract years; (b) an annual contract 
maintenance charge equal to the lesser of $50 or 2% of the unadjusted 
account value (for the PLNJ Contract, the lesser of $30 or 2% of the 
account value); (c) in those jurisdictions in which premium taxes are 
assessed, a charge to cover these taxes, deducted either at the time 
the tax is imposed, upon full surrender of the Contract, or when 
annuity payments begin; (d) for each transfer among subaccounts after 
the twentieth in a single Contract year, a charge of $10; and (e) the 
optional benefits charges discussed above. In addition, the underlying 
mutual funds each impose investment management fees and charges for 
various other expenses.
    13. Each time an Insurance Company receives a purchase payment 
under the Contracts, it will allocate to the contract value a purchase 
credit equal to a percentage of each purchase payment received 
(hereinafter, a ``Credit''). With respect to purchase payments (of any 
amount) received during Contract years 1 through 4, the Credit 
percentage will equal 6%, so long as the oldest owner of the Contract 
(or the Annuitant, if entity-owned) is younger than 82 at the time the 
purchase payment is made. If the oldest owner (or Annuitant, if entity-
owned) of the Contract is aged 82-85 at the time the purchase payment 
(of any amount) is made, the Credit percentage will equal 3% during 
Contract years 1-4. With respect to purchase payments received on the 
fourth anniversary of the Contract's issue date and thereafter, 
regardless of the Owner's/Annuitant's age, no Credit will be applied. 
Because neither Insurance Company accepts purchase payments after the 
oldest owner of the Contract (or the Annuitant, if entity-owned) is 
older than 85, there will be no Credits applied in that scenario.
    14. Each Insurance Company may offer a special class of the 
Contract (the ``Employee/Agent Contract'') that is identical in all 
material respects to the Contract itself, except that: (a) The 
Employee/Agent Contract will be offered only to the following class of 
purchasers: (i) Current or retired officers, directors, trustees, and 
employees (and their immediate families, where ``immediate family'' 
includes the spouse, children, mother and father of the owner) of 
Prudential Financial, Inc. and its affiliates; and (ii) current 
employees and registered representatives (and their immediate families) 
of any broker-dealer firm that has a selling agreement with PAD; (b) 
the Credit under the Employee/Agent Contract will be different; and (c) 
a lower (or no) commission will be paid with respect to the Employee/
Agent Contract. The withdrawal charge under the Employee/Agent Contract 
will be the same as what is set forth above for the Contract.
    15. With respect to purchase payments (of any amount) received 
during years 1 through 4 of the Employee/Agent Contract, the Credit 
percentage will equal 9%, so long as the oldest owner of the Employee/
Agent Contract (or Annuitant, if entity-owned) is younger than 82 at 
the time the purchase payment is made. If the oldest owner (or 
Annuitant, if entity-owned) of the Employee/Agent Contract is aged 82-
85 at the time the purchase payment (of any amount) is made, the Credit 
percentage will equal 4.5% during years 1-4 of the Employee/Agent 
Contract. With respect to purchase payments received on the fourth 
anniversary of the Employee/Agents Contract's issue date and 
thereafter, regardless of the owner's age, no Credit will be applied. 
Because neither Insurance Company accepts purchase payments under the 
Employee/Agent Contract after the oldest owner of the Contract (or the 
Annuitant, if entity-owned) is older than 85, there will be no Credits 
applied in that scenario. With respect to Employee/Agent Contracts 
where a 9% Credit was applied, Applicants represent they will recapture 
only an amount equal to 6.5% of the purchase payment to which the 9% 
Credit related.
    16. With respect to both the Contracts and the Employee/Agent 
Contracts, the Credit will be allocated among the variable investment 
options in the same percentages as the purchase payment to which it 
relates. Except where indicated specifically, references to the 
``Contract'' are intended to include both the Contracts and the 
Employee/Agent Contracts, and references to ``Credits'' are intended to 
include both Credits granted under the Contracts and Credits granted 
under the Employee/Agent Contracts.
    17. Each Insurance Company will fund Credits from its general 
account assets. To the extent allowed by applicable State law, each 
Insurance Company will recapture Credits under the following 
circumstances: (a) If the Contract is canceled under the ``free look'' 
provision; (b) with respect to Credits granted within the period 
beginning 12 months prior to the decedent's date of death and ending on 
the date due proof of death is received; and (c) with respect to 
Credits granted within 12 months prior to the Insurance Company's 
receipt in good order of the exercise of the medically-related 
surrender provision of the Contract.
    18. The Contract may be continued by a person who survives the 
death of his/her spouse. Neither Insurance Company will recapture any 
Credits when the surviving spouse continues the Contract. However, for 
the Pruco Life Contract, if the death benefit payable upon the death of 
the surviving spouse is equal to the ``unadjusted'' account value 
(where ``unadjusted account value'' means account value without the 
effect of any market value adjustment), then Pruco Life will recapture 
Credits that were applied during the time period that (a) begins 12 
months prior to the first-to-die spouse's date of death; and (b) ends 
on the date due proof of death of the first-to-die spouse was received.

Applicants' Legal Analysis

    1. Section 6(c) of the Act authorizes the Commission to exempt any 
person, security or transaction, or any class or classes of persons, 
securities or transactions, from the provisions of the Act and the 
rules promulgated thereunder if and to the extent that such exemption 
is necessary or appropriate in the public interest and consistent with 
the protection of investors and the purposes fairly intended by the 
policy and provisions of the Act.
    2. Applicants request that the Commission, pursuant to Section 6(c) 
of the Act, issue an order to the extent necessary to permit the 
recapture of Credits 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 Credits will not 
raise concerns under Sections 2(a)(32) and 27(i)(2)(A) of the Act, and 
Rule 22c-1 thereunder. The Credits will be recaptured only in the 
following instances: (a) If the Contract is canceled under the ``free 
look'' provision; (b) with respect to Credits granted within the period 
beginning 12 months prior to the decedent's date of death and ending on 
the date due proof of death is received; (c) with respect to Credits 
granted within 12 months prior to the Insurance Company's receipt in 
good order of the exercise of the medically-related surrender provision 
of the Contract; and (d) in the case of a spousally-continued Contract, 
if the death benefit payable upon the death of the surviving spouse is 
equal to the amount detailed above. With respect to Employee/Agent

[[Page 36455]]

Contracts where a 9% Credit was applied, Applicants will recapture only 
an amount equal to 6.5% of the purchase payment to which the 9% Credit 
related. Applicants represent that no withdrawal charge will be 
deducted in any instance where a Credit is recaptured.
    4. The amounts recaptured equal the Credit provided by each 
Insurance Company from its own general account assets. Applicants argue 
that when Insurance Company recaptures the Credit, it is merely 
retrieving its own assets, and the owner has not been deprived of a 
proportionate share of the Account's assets, because his or her 
interest in the Credit amount has not vested. With respect to a Credit 
recaptured upon the exercise of the free-look privilege, it would be 
unfair to allow an owner exercising that privilege to retain the Credit 
under a Contract that has been returned for a refund after a period of 
only a few days. If Insurance Company could not recapture the 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 Credit, even if the Credit is 
ultimately recaptured. Furthermore, the recapture of the Credit if 
death or a medically-related surrender occurs within 12 months after 
receipt of a Credit is designed to provide the Insurance Company 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 Company 
less time to recover the cost of the Credit, to the Insurance Company's 
financial detriment.
    5. The recapture of a Credit could be viewed as involving the 
redemption of redeemable securities for a price other than one based on 
the current net asset value of an Account. The recapture of the Credit 
does not involve either of the evils that Rule 22c-1 was intended to 
address, namely: (i) The dilution of the value of outstanding 
redeemable securities of registered investment companies through their 
sale at a price below net asset value or redemption or repurchase at a 
price above it; and (ii) other unfair results, including speculative 
trading practices. Applicants assert that the proposed recapture of the 
Credit does not pose a threat of dilution. To effect a recapture of a 
Credit, interests in an owner's account will be redeemed at a price 
determined on the basis of the current net asset value. The amount 
recaptured will equal the amount of the Credit that the Insurance 
Company paid out of its general account assets. Although the owner will 
be entitled to retain any investment gain attributable to a Credit, the 
amount of that gain will be determined on the basis of current net 
asset value. Therefore, no dilution will occur upon the recapture of a 
Credit. Applicants also submit that the second harm that Rule 22c-1 was 
designed to address, namely speculative trading practices calculated to 
take advantage of backward pricing, will not occur as a result of the 
recapture of a Credit.
    6. Applicants submit that their request for an order that applies 
to any Account or any Future Account established by Pruco Life or PLNJ 
in connection with the issuance of Contracts and Future Contracts, and 
distributed by PAD 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 the 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 
Contracts in all material respects.

Conclusion

    Applicants submit that their request for an order meets the 
standards set out in Section 6(c) of the Act and that an order should, 
therefore, be granted.

    For the Commission, by the Division of Investment Management, 
under delegated authority.

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15362 Filed 6-24-10; 8:45 am]
BILLING CODE 8010-01-P