[Federal Register Volume 61, Number 162 (Tuesday, August 20, 1996)]
[Notices]
[Pages 43098-43100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21107]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 22139; 812-10208]
The Target Portfolio TrustSM and Prudential Mutual Fund
Management, Inc.; Notice of Application
August 13, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: The Target Portfolio Trust SM (the ``Trust'') and
Prudential Mutual Fund Management, Inc. (the ``Manager'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) of the
Act from the provisions of section 15(a) of the Act and rule 18f-2
thereunder.
SUMMARY OF APPLICATION: Applicants seek a conditional order permitting
the Manager, as investment adviser of the Trust, to enter into sub-
advisory contracts on behalf of the Trust without receiving prior
shareholder approval.
FILING DATES: The application was filed on June 14, 1996. Applicants
agree to file an amendment, the substance of which is incorporated
herein, during the notice period.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on September 9,
1996, and should be accompanied by proof of service on the applicants,
in the form of an affidavit or, for lawyers, a certificate of service.
Hearing requests should state the nature of the writer's interest, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request such notification by writing to
the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, One Seaport Plaza, New York, New York 10292.
FOR FURTHER INFORMATION CONTACT: Sarah A. Beuscher, Staff Attorney, at
(202) 942-0573, or Mercer E. Bullard, Branch Chief, at (202) 942-0546
[[Page 43099]]
(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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Trust is registered under the Act as an open-end management
investment company and currently has ten separate investment portfolios
(the ``Portfolios''). The Portfolios commenced operations on January 5,
1993, except for the International Bond Portfolio, which commenced
operations on May 17, 1994. Applicants request relief with respect to
any current series and series of the Trust organized in the future, and
for any future open-end management investment company advised by the
Manager or a person controlling, controlled by, or under common control
with the Manager, provided that such investment company operates in
substantially the same manner as the Trust and complies with the
conditions to the requested order.
2. The Manager, an indirect wholly owned subsidiary of The
Prudential Insurance Company of America, is an investment adviser
registered under the Investment Advisers Act of 1940. The Trust has
entered into an investment management agreement (the ``Management
Agreement'') with the Manager who, in turn, has entered into an
investment advisory agreement (the ``Advisory Agreement'') with one or
more registered investment advisers (each an ``Adviser'') to the
Portfolios. The Manager is responsible for selecting the Advisers,
subject to the review and approval of the board of trustees of the
Trust (the ``Board''). A Portfolio may be managed by a single Adviser
or may be allocated by the Manager between or among two or more
Advisers.
3. The Manager evaluates investment management for the Trust by
performing an initial review on prospective Advisers, monitoring
Adviser performance through quantitative and qualitative analysis, and
through in-person consultations with the Advisers. The Manager is also
responsible for communicating performance expectations and evaluations
to Advisers and recommending to the Board whether Advisers' contracts
should be renewed, modified, or terminated. In addition, the Manager is
responsible for conducting all operations of the Trust except those
operations contracted to the Advisers, custodian, and transfer agent.
The Trust pays the Manager a fee based on the average daily net assets
of each Portfolio. The Manager pays each Adviser a fee based on the
average daily net assets of the portion of the Portfolio managed by
that Adviser. The Trust pays no fees directly to any Adviser.
4. The Advisers serve in a sub-advisory capacity to the Portfolios.
Each Adviser's responsibilities are limited to managing the securities
held in a Portfolio, or portion thereof, it manages in accordance with
the Portfolio's investment objectives and policies, making investment
decisions for the Portfolio, and placing orders to purchase and sell
securities on behalf of the Portfolio.
5. Purchases of shares of a Portfolio are currently made through a
securities account maintained with Prudential Securities Incorporated
(``Prudential Securities''). Portfolio shares are available to
participants in The Prudential Securities Target ProgramSM (the
``Target Program'') who pay a separate investment advisory or program
fee, to banks, trust companies, and other investment advisory services
that maintain securities accounts with Prudential Securities, and to
certain asset allocation programs of investments in registered
investment companies sponsored by Prudential Securities.
6. Prudential Securities, through the Target Program, provides
advisory services in connection with investments among the Portfolios
by identifying and recommending in writing an appropriate allocation of
assets among the Portfolios that conforms to the investor's objectives,
preferences, and risk tolerances, and providing a quarterly statement
to the investor containing an analysis and evaluation of the investor's
account. At times, Prudential Securities may recommend a modification
in the allocation of assets among the Portfolios. Investors pay a
quarterly fee to Prudential Securities for the Target Program services.
Investors may terminate their participation in the Target Program at
any time upon five business days' notice. If a Target Program account
is terminated, all shares of the Portfolios held in that account will
be redeemed. Portfolio shares may be redeemed at any time for cash at
net asset value without the imposition of any sales charge, contingent
deferred sales charge, or redemption fee. No Portfolio bears any
distribution or shareholder servicing fee pursuant to rule 12b-1 under
the Act.
7. Applicants request an exemption from section 15(a) and rule 18f-
2 to permit the Manager to enter into new or amended Advisory
Agreements without obtaining shareholder approval, including new
Advisory Agreements necessitated because the prior Advisory Agreements
were terminated as a result of an ``assignment'' (as defined in section
2(a)(4) of the Act). The Management Agreement in all cases would be
subject to the shareholder voting requirements of section 15(a).
Applicants' Legal Analysis
1. Section 15(a) of the Act makes it unlawful for any person to act
as investment adviser to a registered investment company except
pursuant to a written contract that has been approved by a majority of
the investment company's outstanding voting securities. Rule 18f-2
provides that each series or class of stock in a series company
affected by a matter must approve such matter if the Act requires
shareholder approval.
2. Applicants assert that the ability to enter into Advisory
Agreements without shareholder approval would permit the Manager more
effectively to perform the functions that the Portfolios are paying it
to perform, namely, selecting Advisers, monitoring their performance,
and changing Advisers when appropriate. Applicants believe that to
require shareholders to approve each new Adviser not only would result
in unnecessary administrative expense to the Portfolios, but also could
result in harmful delays in executing changes in Advisers that the
Manager and the Board have determined are necessary. Eight changes in
Advisers or material changes in Advisory Agreements have been submitted
for shareholder approval since the Portfolios commenced operations.
Applicants submit that these meetings would not have taken place and
shareholders would have been spared the expense and burden of repeat
proxy solicitations, while receiving all relevant information that
would have been included in a proxy statement, had the order requested
in the application been in place.
3. Applicants also assert that the primary responsibility for
management of the Portfolios, in particular, the selection and
supervision of the Advisers, is vested in the Manager, subject to
oversight by the Board. Because of the unusual structure of the Trust,
as well as the Manager's experience, applicants believe that it is
consistent with the protection of investors to vest the selection and
supervision of Advisers in the Manager. Applicants submit that, within
this structure, the Manager is in a better position to make an informed
selection of an Adviser than individual investors.
4. Applicants believe that investors in the Portfolios would be in
a position to make a fully informed decision as to
[[Page 43100]]
purchasing, redeeming, or retaining Portfolio shares. Shareholders will
receive an information statement that includes all the information
about a new Adviser or Adviser Agreement that would be included in a
proxy statement. In addition, applicants state that all fees payable by
the Manager to the Adviser will be disclosed in the prospectus of the
applicable Portfolio in accordance with the requirements of Form N-1A.
5. Applicants believe that investors who seek the investment advice
of Prudential Securities typically have determined that they are
unwilling to assume the burden of selecting an appropriate mix of
investments to attain their investment objectives, or the appropriate
money manager or managers to make specific investments in accord with
those objectives. The Target Program is designed to create an asset
allocation strategy to meet an investor's individual needs as well as
selecting investments within each asset category.
6. Section 6(c) of the Act provides that the SEC may exempt any
person, security, or transaction from any provision of 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 policies and provisions of the Act.
Applicants believe that the requested relief meets this standard.
Applicants' Conditions
Applicants agree that the requested exemption will be subject to
the following conditions:
1. The Manager will provide general management and administrative
services to the Trust, including overall supervisory responsibility for
the general management and investment of the Trust's securities
portfolio, and, subject to review and approval by the Board, will (a)
set the Portfolios' overall investment strategies; (b) select Advisers;
(c) monitor and evaluate the performance of the Advisers; (d) allocate
and, when appropriate, reallocate a Portfolio's assets among its
Advisers in those cases where a Portfolio has more than one Adviser;
and (e) implement procedures reasonably designed to ensure that the
Advisers comply with the Trust's investment objectives, policies, and
restrictions.
2. Before a Portfolio may rely on the order requested hereby, the
operation of the Portfolio in the manner described in the application
will be approved by a majority of its outstanding voting securities, as
defined in the Act, or, in the case of a new Portfolio whose public
shareholders purchased shares on the basis of a prospectus containing
the disclosure contemplated by condition 4 below, by the sole
shareholder before offering of shares of such Portfolio to the public.
3. The Trust will furnish to shareholders all information about a
new Adviser or Advisory Agreement that would be included in a proxy
statement. Such information will include any change in such disclosure
caused by the addition of a new Adviser or any proposed material change
in a Portfolio's Advisory Agreement. The Trust will meet this condition
by providing shareholders with an informal information statement
complying with the provisions of Regulation 14C under the Securities
Exchange Act of 1934, as amended, and Schedule 14C thereunder. With
respect to a newly retained Adviser, or a change in an Advisory
Agreement, this information statement will be provided to shareholders
of the Portfolio a maximum of ninety (90) days after the addition of
the new Adviser or the implementation of any change in an Advisory
Agreement. The information statement will also meet the requirements of
Schedule 14A under the Exchange Act.
4. The Trust will disclose in its prospectus the existence,
substance, and effect of the order granted pursuant to this
application.
5. No trustee or officer of the Trust or director or officer of the
Manager will own directly or indirectly (other than through a pooled
investment vehicle that is not controlled by such director, trustee, or
officer) any interest in any Adviser except for (a) ownership of
interests in the Manager or any entity that controls, is controlled by,
or is under common control with the Manager; or (b) ownership of less
than 1% of the outstanding securities of any class of equity or debt of
a publicly traded company that is either an Adviser or any entity that
controls, is controlled by or is under common control with an Adviser.
6. The Manager will not enter into an Advisory Agreement with any
Adviser that is an ``affiliated person,'' as defined in section 2(a)(3)
of the Act, of the Trust or the Manager other than by reason of serving
as an Adviser to one or more Portfolios (an ``Affiliated Adviser'')
without such agreement, including the compensation to be paid
thereunder, being approved by the shareholders of the applicable
Portfolio.
7. At all times, a majority of the members of the Board will be
persons each of whom is not an ``interested person'' of the Trust as
defined in section 2(a)(19) of the Act (the ``Independent Trustees''),
and the nomination of new or additional Independent Trustees will be
placed within the discretion of the then existing Independent Trustees.
8. When an Adviser change is proposed for a Portfolio with an
Affiliated Adviser, the Board, including a majority of the Independent
Trustees, will make a separate finding, reflected in the Board's
minutes, that such change is in the best interests of the Portfolio and
its shareholders and does not involve a conflict of interest from which
the Manager or the Affiliated Adviser derives an inappropriate
advantage.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21107 Filed 8-19-96; 8:45 am]
BILLING CODE 8010-01-M
