[Federal Register Volume 64, Number 219 (Monday, November 15, 1999)]
[Notices]
[Pages 61952-61957]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29652]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 24126; 812-11354]
Prudential Investments Fund Management LLC, et al.; Notice of
Application
November 5, 1999.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application for an order under section 12(d)(1)(J)
of the Investment Company Act of 1940 (the ``Act'') for an exemption
from sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and
17(b) of the Act for an exemption from section 17(a) of the Act, and
under section 17(d) of the Act and rule 17d-1 under the Act of permit
certain joint transactions.
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Summary of Application
Applicants request an order to permit: (i) Certain registered
investment companies to lend their portfolio securities to affiliated
broker-dealers; (ii) an affiliated lending agent to receive a fee based
upon a share of the proceeds derived by the registered investment
companies from their securities lending activities; (iii) the
registered investment companies and certain affiliated institutional
accounts to deposit cash collateral received in connection with their
securities lending activities and uninvested cash into certain other
registered investment companies; and (iv) certain transactions between
the registered investment companies.
Applicants: Prudential Balanced Fund, Prudential California
Municipal Fund, Prudential Developing Markets Fund, Prudential
Distressed Securities Fund, Inc., Prudential Diversified Bond Fund,
Inc., Prudential Diversified Funds, Prudential Emerging Growth Fund,
Inc., Prudential Equity Fund, Inc., Prudential Equity Income Fund,
Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund,
Inc., Prudential's Gibraltar Fund, Inc., Prudential Global Limited
Maturity Fund, Inc., Prudential Global Total Return Fund, Inc.,
Prudential Government Prudential High Yield Total Return Fund, Inc.,
Prudential Index Series Fund, Prudential Intermediate Global Income
Fund, Inc., Prudential International Bond Fund, Inc., The Prudential
Investments Portfolios Fund, Inc., Prudential Mid-Cap Value Fund,
Prudential Municipal Bond Fund, Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate
Securities Fund, Prudential Sector Funds, Inc., Prudential Series Fund,
Inc., Prudential Small-Cap Quantum Fund, Inc., Prudential Small Company
Value Fund, Inc., Prudential Structured Maturity Fund, Inc., Prudential
Tax-Free Money Fund, Inc., Prudential Tax-Managed Equity Fund,
Prudential 20/20 Focus Fund, Prudential World Fund, Inc. (collectively,
the ``Prudential Public Funds''); Prudential Core Investment Fund
(``Prudential Private Fund''), Cash Accumulation Trust, COMMAND
Government Fund, COMMAND Money Fund, COMMAND Tax-Free Fund, Prudential
Government Securities Trust, Prudential Institutional Liquidity
Portfolio, Inc., Prudential MoneyMart Assets, Inc., Prudential
Municipal Series Fund, Prudential National Municipals Fund, Inc.,
Prudential Special Money Market Fund, Inc., and Prudential Tax-Free
Money Fund, Inc. (collectively, the ``Investment Funds'' and together
with the Public funds, and the Prudential Separate Accounts defined
below, the ``Prudential Funds''); The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, and The
Prudential Variable Contract Account-11 (collectively, the ``Prudential
Separate Accounts''). Prudential Investments Fund Management LLC (the
``Manager''), the Prudential Investment Corporation (``Prudential
Investments'', the Prudential Insurance Company of America
(``Prudential '' and together with the Manager and Prudential
Investments, the ``Adviser''), Prudential Investment Management
Services LLC (the ``Distributor''), and Prudential Securities
Incorporated (``PSI'').
Filing Dates
The application was filed on September 24, 1998. Applicants have
agreed to file an amendment during the notice period, the substance of
which is reflected in this notice.
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 Commission's Secretary 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 November 30, 1999, and
should be accomplished by proof of service on applicants, in 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 Commission's
Secretary.
ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth
Street, NW, Washington, DC 20549-0609. Applicants, Gateway Center
Three, 100 Mulberry Street, Newark, New Jersey 07102-4077.
FOR FURTHER INFORMATION CONTACT: Kathleen L. Knisely, Staff Attorney,
at (202) 942-0517, or George J. Zornada,
[[Page 61953]]
Branch Chief, at (202) 942-0564 (Division of Investment Management,
Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
Commission's Public Reference Branch, 450 Fifth Street, NW, Washington,
DC 20549-0102. (tel. 202-942-8090).
Applicants' Representations
1. The Prudential Funds are registered under the Act as management
investment companies. All of the Prudential Funds, except the High-
Yield Income Fund, In. which is a closed-end investment company, are
open-end investment companies. The Prudential Private Fund does not
have its shares registered under the Securities Act of 1933. Certain
Investment Funds, including the Prudential Private Fund, are money
market funds that comply with rule 2a-7 under the Act (``Prudential
Money Market Funds''). The other Investment Funds are short-term bond
funds with portfolio maturities of three years or less.
2. The Manager is registered under the Investment Advisers Act of
1940 (``Advisers Act'') and serves as the investment adviser to the
Prudential Funds. Prudential Investments is registered under the
Advisers Act and serves as sub-adviser to certain of the Prudential
Funds. The Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934 (``Securities Exchange Act'') and
serves as principal underwriter to the Prudential Funds. The Manager
and Prudential Investments are wholly-owned subsidiaries of Prudential.
Prudential is registered under the Advisers Act and manages the
Prudential Separate Accounts. The Distributor is a limited liability
company whose sole member is Prudential. PSI, a wholly-owned subsidiary
of Prudential, is a broker-dealer registered under the Securities
Exchange Act.
3. Prudential and Prudential Investments also advise certain
institutional accounts (``Institutional Accounts''). The Institutional
Accounts include qualified employee benefit plans, trusts, corporate
cash accounts, offshore investment companies, foundations, Taft-Hartley
Plans, endowments, and bank collective investment trusts. Certain of
the Institutional Accounts are exempted from the definition of an
investment company by sections 3(c)(1) and 3(c)(11) of the Act. Future
Institutional Accounts may be excepted from the definition of an
investment company by section 3(c)(7) of the Act.
4. Applicants also request that the relief sought apply to (i) any
future registered management investment company, or registered open-end
management investment company, that is a separate account, that is
advised by the Advisers, or an entity controlling, controlled by, or
under common control with the Adviser; (ii) any other broker-dealer
registered under the Securities Exchange Act that may be controlling,
controlled by, or under common control with the Distributor
(``Affiliated Broker-Dealers''); (iii) an entity controlling,
controlled by, or under common control with Prudential that serves as
lending agent to the Lending Funds and; (iv) any future Institutional
Account advised by the Advisers or an entity controlling, controlled
by, or under common control with the Advisers.\1\
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\1\ All existing entities that currently intend to rely on the
order are named as applicants. Any existing or future entity that
relies on the order in the future will do so only in accordance with
the terms and conditions of the application.
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5. The Prudential Funds and the Institutional Accounts may have
uninvested cash (``Uninvested Cash''). Uninvested Cash includes
dividends or interest received from portfolio securities, cash received
through dollar rolls, reserves held for investment strategy purposes,
scheduled maturity of investments, liquidation of investment securities
to meet anticipated redemptions and dividend payments, and new monies
received from investors. Currently, the Prudential Funds can invest
Uninvested Cash into a joint account \2\ or the Prudential Funds and
the Institutional Accounts can invest Uninvested Cash directly in money
market instruments.
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\2\ See The Prudential Insurance Company of America, Investment
Company Act Release Nos. 17647 (Aug. 3, 1990) (notice) and 17719
(Aug. 30, 1990) (order); Prudential-Bache Adjustable Rate Preferred
Stock Fund, Inc., Investment Company Act Release Nos. 16279 (Feb.
18, 1988) (notice) and 16321 (Mar. 17, 1998) (order).
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6. The Prudential Funds, with the exception of the Prudential Money
Market Funds (collectively, the ``Lending Funds''), also propose to
lend their portfolio securities to the Affiliated Broker-Dealers and
other borrowers (``Borrowers''). Prudential securities lending group,
an operating unit within Prudential whose employees consist of
employees of PSI and other direct and indirect subsidiaries of
Prudential (``Prudential Securities Lending Group''), proposes to act
as lending agency for the Lending Funds.\3\
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\3\ Applicants state that the personnel who will provide day-to-
day lending agency services to the Lending Funds do not and will not
provide investment advisory services to the Lending Funds, or
participate in any way in the selection of the portfolio securities
or other aspects of the management of the Lending Funds.
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7. Prudential Securities Lending Group, among other things, will be
responsible for soliciting Borrowers from a list of pre-approved
eligible Borrowers, entering into loans of preapproved securities with
the Borrowers on pre-approved terms, negotiate the loans, and perform
other administrative functions in connection with the securities
lending program. Prudential Securities Lending Group's duties will be
restricted to those described in Norwest Bank Minnesota, N.A. (pub.
avail. May 25, 1995). Prudential Investments, a sub-adviser to the
Lending Funds, will be responsible for investing all cash collateral
received in respect of the securities loans.\4\
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\4\ Any Lending Fund for which Prudential Investments does not
currently serve as a Sub-Adviser will not participate in the
securities lending program until a subadvisory agreement with
Prudential Investments has been approved in accordance with the Act.
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8. When a securities loan is collateralized by cash, the cash
collateral is invested during the loan period. After paying the
Borrower an agreed upon fee or ``rebate'' from the return on the cash
collateral, the Lending Fund will retain the remainder, which will be
shared with the securities lending agent. In the case of collateral
other than cash, the Lending Fund will receive a lending fee paid by
the Borrower, which will be shared with the securities lending agent.
9. Applicants seek an order to permit (i) Prudential Securities
Lending Group to serve as lending agent for the Lending Funds and to
accept fees based on a share of the proceeds derived by the Lending
Funds from their securities lending activities; (ii) the Lending Funds
to lend portfolio securities to Affiliated Broker-Dealers; (iii) the
Lending Funds and the Institutional Accounts to invest cash collateral
received in connection with their securities lending activities (``Cash
Collateral'') and the Prudential Funds and Institutional Accounts to
invest Uninvested Cash into the Investment Funds, and (iv) the
Prudential Funds to engage in certain interfund transaction.
Applicants' Legal Analysis
A. Lending Agent Fees
1. Section 17(d) of the Act and rule 17d-1 under the Act prohibit
any affiliated person of or principal underwriter for a registered
investment company or any affiliated person of such person or principal
underwriter, acting as principal, from effecting any
[[Page 61954]]
transaction in connection with any joint enterprise or other joint
arrangement or profit sharing plan in which the investment company
participates. Rule 17d-1 permits the Commission to approve a proposed
joint transaction covered by the terms of section 17(d). In determining
whether to approve a transaction, the Commission is to consider whether
the proposed transaction is consistent with the provisions, policies,
and purposes of the Act, and the extent to which the participation of
the investment companies is on a basis different from or less
advantageous than that of the other participants.
2. Section 2(a)(3) of the Act defines an affiliated person to
include any person directly or indirectly controlling, controlled by,
or under common control with, the other person, and if the other person
is an investment company, its investment adviser. The Advisers, as
investment advisers or sub-advisers to the Lending Funds, are
affiliated persons of the Lending Funds. In addition, as wholly-owned
subsidiaries of Prudential, they may be deemed to be under common
control, and therefore affiliated persons. Accordingly, applicants
request an order under section 17(d) and 17d-1 under the Act to permit
each Lending Fund to pay and Prudential Securities Lending Group to
accept lending agent fees that are based on a share of the proceeds
derived by the Lending Funds from the loans of portfolio securities.
3. Applicants propose that each Lending Fund adopt the following
procedures to ensure that the proposed fee arrangement and the other
terms governing the relationship with the Prudential Securities Lending
Group meet the requirements of rule 17d-1:
(a) In connection with the approval of the securities lending
program, and the approval of Prudential Securities Lending Group as
lending agent for the Lending Funds and implementation of the proposed
fee arrangement, a majority of the board of directors of each Lending
Fund (``Board'') (including a majority of directors of each Lending
Fund who are not ``interested persons'' as defined in section 2(a)(19)
of the Act (the ``Independent Directors'')) will determine that (i) the
contract with Prudential Securities Lending Group is in the best
interests of the Lending Fund and its shareholders; (ii) the services
to be performed by the Prudential Securities Lending Group are
appropriate for the Lending Fund; (iii) the nature and quality of the
services provided by the Prudential Securities Lending Group are at
least equal to those provided by others offering the same or similar
services; and (iv) the fees for Prudential Securities Lending Group's
services are fair and reasonable in light of the usual and customary
charges imposed by others for services of the same nature and quality.
(b) In connection with the approval of the Prudential Securities
Lending Group as lending agent for the Lending Funds and the initial
implementation of the proposed fee arrangement, the Board will review
competing quotes with respect to lending agency fees from at least
three independent lending agents to assist the Board in making the
findings referred to in paragraph (a) above.
(c) Each Lending Fund's contract with the Prudential Securities
Lending Group for lending agent services will be reviewed annually and
will be approved for continuation only if a majority of the Board
(including a majority of the Independent Directors) makes the findings
referred to in paragraph (a) above.
(d) The Board, including a majority of the Independent Directors,
will (i) determine at each regular quarterly meeting that the loan
transactions during the prior quarter were effected in compliance with
the conditions and procedures set forth in the application and (ii)
review no less frequently than annually the conditions and procedures
for continuing appropriateness.
(e) Each Lending Fund will (i) maintain and preserve permanently in
an easily accessible place a written copy of the procedures and
conditions (and any modifications) described in the application or
otherwise followed in connection with lending securities pursuant to
the securities lending program and (ii) maintain and preserve for a
period not less than six years from the end of the fiscal year in which
any loan transaction pursuant to the Program occurred, the first two
years in an easily accessible place, a written record of each loan
transaction setting forth a description of the security loaned, the
identity of the person on the other side of the loan transaction, the
terms of the loan transaction, and the information or materials upon
which the determination was made that each loan was made in accordance
with the procedures set forth above and the conditions to the
application.
B. Investment of Uninvested Cash and Cash Collateral in the Investment
funds
1. Section 12(d)(1)(A) of the Act provides that no investment
company may acquire securities of a registered investment company if
such securities represent more than 3% of the acquired company's voting
stock, more than 5% of the acquiring company's total assets, or if such
securities, together with the securities of any other acquired
investment companies, represent more than 10% of the acquiring
company's total assets. Section 12(d)(1)(B) of the Act provides that no
registered open-end investment company may sell its securities to
another investment company if the sale will cause the acquiring company
to own more than 3% of the acquired company's voting stock, or if the
sale will cause more than 10% of the acquired company's voting stock to
be owned by investment companies.
2. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security or transaction from any provision of
section 12(d)(1) if, and to the extent that, such exemption is
consistent with the public interest and the protection of investors.
Applicants request relief under Section 12(d)(1)(J) to permit certain
Prudential Funds (``Acquiring Funds'') and the Institutional Accounts
that are relying on section 2(c)(1) or 3(c)(7) of the Act to invest
their Cash Collateral and Uninvested Cash in the Investment Funds in
excess of the limits in section 12(d)(1).
3. Applicants believe that the proposed arrangement does not result
in the abuses that section 12(d)(1) was intended to prevent. Applicants
state that the arrangements will not result in any layering of fees
because the Investment Funds will not impose any sales load, redemption
fee, asset-based distribution fee, or other service fee. The Management
or Prudential Investments, as applicable, will waive advisory fees paid
to it by an Investment Fund, or alternatively, the Acquiring Fund will
receive a credit or other offset against its management fee in an
amount equal to its proportionate share of the management fees paid by
the Investment Funds in which it invests, to the extend necessary to
avoid duplication of advisory fees for the Acquiring Funds as a result
of their investment in the Investment Funds. Applicants also believe
that the proposed arrangement will not create an overly complex fund
structure. Applicants note that the Investment Funds will be prohibited
from acquiring securities of any investment company in excess of the
limits contained in section 12(d)(1)(A) of the Act, unless the
Investment Fund is an Acquiring Fund investing its Cash Collateral or
Uninvested Cash pursuant to the requested order.
4. Section 17(a) of the Act makes it unlawful for an affiliated
person of a registered investment company, or any
[[Page 61955]]
second tier affiliate, acting as a principal, to sell or purchase any
security to or from the investment company. Because the Acquiring Funds
and the Investment Funds are advised by a common investment adviser, or
by investment advisers that are under common control, the Acquiring
Funds and the Investment Funds may be affiliated persons. Moreover, if
an Acquiring Fund owns 5% or more of an Investment Fund, the Acquiring
fund may be deemed to be an affiliated person of the Investment Fund.
Accordingly, applicants state that section 17(a) would prohibit the
sale of shares of the Investment Funds to the Acquiring Funds, and the
redemption of such shares by the Investment Funds.
5. Section 17(b) of the Act authorizes the Commission to exempt a
transaction from section 17(a) of the Act if the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching on the part of any
person concerned, the proposed transaction is consistent with the
policy of each registered investment company concerned, and with the
general purposes of the Act. Section 6(c) of the Act permits the
Commission to exempt any person or transaction from any provision of
the Act, if such exemption is necessary or appropriate in the public
interest and consistent with the protection of investors and the
purposes fairly intended by the policies of the Act.
6. Applicants request an order under sections 6(c) and 17(b) of the
Act to permit the Acquiring Funds to purchase shares of the Investment
Funds. Applicants submit that the terms of the proposed transactions
are reasonable and fair and do not involve overreaching. Applicants
also state that shares of the Investment Funds will be purchased and
redeemed at their net asset value. Applicants state that the Investing
Funds will retain their ability to invest Uninvested Cash directly in
money market instruments as authorized by their respective investment
objectives and policies if they believe they can obtain a higher rate
or return, or for any other reason. The Investment Funds have the right
to discontinue selling shares to any of the Acquiring Funds or the
Institutional Accounts if the Investment Fund's board of directors
determines that such sale would adversely affect its portfolio
management and operations.
7. Applicants submit that the Acquiring Funds' investment of
Uninvested Cash and Cash Collateral in the Investment Funds will be
consistent with the policy of each Acquiring Fund, as recited in its
registration statement and reports filed under the Act. Applicants
state that the Prudential Money Market Funds will invest only in an
Investment Fund that complies with rule 2a-7 under the Act. Applicants
also state that the investment of the Cash Collateral will be in
accordance with the Commission staff's securities lending guidelines.
Applicants state that an Acquiring Fund's aggregate investment of
Uninvested Cash in the Investment Funds will not exceed 25% of the
Acquiring Fund's total assets.
8. As noted above, section 17(d) and rule 17d-1 generally prohibit
joint transactions involving registered investment companies and
certain of their affiliates unless the Commission has approved the
transaction. Applicants state that the Acquiring Funds and the
Institutional Accounts by purchasing and redeeming shares of the
Investment Funds, the Advisers by acting as investment adviser or sub-
adviser to the Acquiring Funds and the Institutional Accounts, and the
Prudential Securities Lending Group by acting as lending agent, may be
deemed participants in a joint transaction under section 17(d) and rule
17d-1 under the Act. Applicants submit that the Acquiring Funds will
participate in the proposed transaction on a basis not different from
or less advantageous than that of any other participant and that the
transaction will be consistent with the Act.
C. Interfund Transactions
1. Applicants state that the Acquiring Funds and the Investment
Funds currently rely on rule 17a-7 under the Act to engage in purchase
and sale transactions involving short-term money market instruments
(``Interfund Transactions''). Rule 17a-7 under the Act excepts from the
prohibitions of section 17(a) the purchase or sale of certain
securities between registered investment companies which are affiliated
person, or second tier affiliates, of each other or between a
registered investment company and a person which is an affiliated
person of such company (or second tier affiliate) solely by reason of
having a common investment adviser, common officers, and/or common
directors. Applicants state that the Acquiring Funds and the Investment
Funds could be deemed to be affiliated persons of each other by virtue
of an Acquiring Fund owning 5% or more of the outstanding voting
securities of an Investment Fund. Thus, applicants believe they would
not be able to rely on rule 17a-7 to effect Interfund Transactions.
2. Applicants request an order under sections 6(c) and 17(b) of the
Act to permit the Interfund Transactions. Applicants state that the
Acquiring Funds and the Investment Funds will comply with rule 17a-7
under the Act in all respects, other than the requirement that the
participants be affiliated solely by reason of having a common
investment adviser or affiliated investment advisers, common officers,
or common directors, solely because the Acquiring Funds and the
Investment Funds might become affiliated persons within the meaning of
section 2(a)(3)(A) and (B) of the Act.
D. Lending of Portfolio Securities to Affiliated Broker-Dealers
1. Section 17(a)(3) of the Act makes it unlawful for any affiliated
person of or principal underwriter for a registered investment company
or an affiliated person of such a person, acting as principal, to
borrow money or other property from the registered investment company.
Applicants state that section 17(a)(3) of the Act would prohibit
Affiliated Broker-Dealers from borrowing securities from the Lending
Funds.
2. As noted above, section 17(d) of the Act and rule 17d-1 under
the Act generally prohibit joint transactions involving the registered
investment companies and certain of their affiliates unless the
Commission has approved the transaction. Applicants request relief
under sections 6(c) and 17(b) of the Act exempting them from section
17(a)(3) of the Act, and under section 17(d) of the Act and rule 17d-1
under the Act to permit the Lending Funds to lend portfolio securities
to Affiliated Broker-Dealers.
3. Applicants state that each loan to an Affiliated Broker-Dealer
by a Lending Fund will be made with a spread that is no lower than that
applied to comparable loans to unaffiliated broker-dealers.\5\ In this
regard, applicants state that at least 50% of the loans made by the
Lending Funds, on an aggregate basis, will be made to unaffiliated
Borrowers. Moreover, all loans will be made with spreads that are no
lower than those set forth in a schedule of spreads established by the
Independent Directors of each Lending Fund and all transactions with
Affiliated Broker-Dealers will be reviewed periodically by the officers
of the Lending Funds. The
[[Page 61956]]
Board, including a majority of the Independent Directors, also will
review detailed quarterly compliance reports on all lending activity.
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\5\ A ``spread'' is the compensation earned by a fund, as
lender, from a securities loan, that is in the form either of a
lending fee payable by the borrower to the fund (when non-cash
collateral is posted) or the excess--retained by the fund--over a
rebate rate payable by the fund to the borrower (when cash
collateral is posted and then invested by the fund).
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Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
A. General
1. Each Prudential Fund and each Prudential Institutional Account
will be advised by the Advisers, or an entity controlling, controlled
by, or under common control with the Advisers.
2. The securities lending program will comply with all present and
future applicable Commission and staff positions regarding securities
lending arrangements.
3. Approval of the Board, including a majority of Independent
Directors, shall be require for the initial and subsequent approvals of
Prudential Securities Lending Group as lending agent for a Lending
Fund, for the institution of all procedures relating to the securities
lending program, and for any periodic review of loan transactions for
which Prudential Securities Lending Group acted as lending agent.
B. Loans to Affiliated Broker-Dealers
4. Each Lending Fund will (i) maintain and preserve permanently in
an easily accessible place a written copy of the procedures (and any
modifications thereto) which are followed in connection with lending
securities and (ii) maintain and preserve for a period of not less than
six years from the end of the fiscal year in which any loan transaction
occurred, the first two years in an easily accessible place, a written
record of each loan transaction setting for the number of shares
loaned, the face amount of the securities loaned, the fee received (or
rebate remitted), the identity of the Borrower, the terms of the loan,
and any other information or material upon which the finding was made
that each loan made to Affiliated Broker-Dealers was fair and
reasonable, and that the procedures followed in making such a loan were
in accordance with the other undertakings set forth in the application.
5. The Lending Funds, on an aggregate basis, will make at least 50%
of their portfolio securities loans to unaffiliated Borrowers.
6(a) All loans will be made with spreads no lower than those set
forth in the schedule of spreads which will be established and may be
modified from time to time by a committee of the Lending Fund's Board
(``Lending Committee'') composed of Independent Directors (``Schedule
of Spreads''). The Schedule of Spreads and any modifications thereto
will be ratified by the full Board of each Lending Fund and by a
majority of the Independent Directors.
(b) The Schedule of Spreads will set forth rates of compensation to
the Lending Fund that are reasonable and fair, and that are determined
in light of those considerations set forth in the application.
(c) The Schedule of Spreads will be uniformly applied to all
Borrowers of the Lending Fund's portfolio securities, and will specify
the lowest allowable spread with respect to a loan of securities to any
Borrower.
(d) If a security is loaned to an unaffiliated Borrower with the
spread higher than the minimum set forth in the Schedule of Spreads,
all comparable loans to an Affiliated Broker-Dealer will be made at no
less than the higher spread.
(e) The Lending Fund's securities lending program will be monitored
on a daily basis by an officer of the Lending Fund who is subject to
section 36(a) of the Act. This officer will review the terms of each
loan to an Affiliated Broker-Dealer for comparability with loans to
unaffiliated Borrowers and conformity with the Schedule of Spreads, and
will periodically, and at least quarterly, report his or her findings
to the Lending Fund's Lending Committee.
7. A Lending Fund will not make any loan to any Affiliated Broker-
Dealer unless the income to the Lending Fund attributable to such loan
fully covers the transaction costs, if any, incurred in making the
loan.
8. The Board of the Lending Fund, include a majority of the
Independent Directors, will determine no less frequently than quarterly
that all transactions with Affiliated Broker Dealers effected during
the preceding quarter were effected in compliance with the requirements
of the procedures adopted by the Board and the conditions of any order
than may be granted and that such transactions were conducted on terms
that were reasonable and fair and will review no less frequently than
annually such requirements and conditions for their continuing
appropriateness.
9. The total value of securities loaned to any one broker-dealer on
the approved list will be in accordance with a schedule to be approved
by the Board of each Fund, but in no event will the total value of
securities lent to any one Affiliated Broker-Dealer exceed 10% of the
net assets of the Lending Fund, computed at market.
C. Investment of Uninvested Cash and Cash Collateral in Investment
Funds
10. The Manager will waive or credit the amount of its advisory fee
for each Acquiring Fund in an amount that offsets the amount of the
advisory fees of the Investment Funds incurred by the Acquiring Fund.
11. No Investment Fund will acquire securities of any other
investment company in excess of the limits contained in section
12(d)(1)(A) of the Act, unless the Investment Fund is an Acquiring Fund
investing its Cash Collateral or Uninvested Cash pursuant to the
requested order.
12. Shares of Investment Funds sold to and redeemed by the
Acquiring Funds will not be subject to a sales load, redemption fee,
distribution fee under a plan adopted in accordance with rule 12b-1
under the Act or service fee (as defined in Rule 2830(b)(9) of the
Conduct Rules of the National Association of Securities Dealers.
13. Acquiring Funds that are money market funds will not acquire
shares of any Investment Fund that does not comply with the
requirements of rule 2a-7 under the Act.
14. Investment in shares of the Investment Funds will be in
accordance with each Acquiring Fund's respective investment
restrictions and will be consistent with such Acquiring Fund's policies
are set forth in its registration statement.
15. Each of the Acquiring Funds will invest Uninvested Cash in, and
hold shares of, the Investment Fund only to the extent that the
Acquiring Fund's aggregate investment in the Investment Funds does not
exceed 25% of the Acquiring Fund's total assets. For purposes of this
limitation, each Acquiring Fund or series thereof will be treated as a
separate investment company.
D. Interfund Transactions
16. To engage in Interfund Transactions, the Prudential Funds will
comply with rule 17a-7 under the Act in all respects other than the
requirement that the parties to the transactions be affiliated persons
(or affiliated persons of affiliated persons) of each other solely by
reason of having a common investment adviser or investment advisers
which are affiliated persons of each other, common officers, and/or
common directors, solely because the Prudential Funds and the
Investment Funds might become affiliated persons within the meaning of
section 2(a)(3)(A) and (B) of the Act.
[[Page 61957]]
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29652 Filed 11-12-99; 8:45 am]
BILLING CODE 8010-01-M
