SEC Division of Investment Management staff letter: Prudential Investment Management Services LLC

Home | Previous Page

Prudential Investment Management Services LLC

Response of the Division of Investment Management

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

April 19, 2001

RESPONSE OF THE OFFICE OF INVESTMENT COMPANY REGULATION DIVISION OF INVESTMENT MANAGEMENT

Prudential Investment Management Services LLC

Your letter of April 18, 2001 requests our assurance that we would not recommend that the Commission take any enforcement action under the Investment Company Act of 1940 (the "Act") if Prudential Investment Management Services LLC ("PIMS") relies on certain exemptive orders (the "Existing Orders") issued to Prudential Securities Incorporated, formerly known as Prudential-Bache Securities, Inc. ("PSI"), 1 certain unit investment trusts sponsored by PSI (the "Trusts"), certain open-end investment companies ("Funds), and certain other parties, and a no-action letter issued to PSI (the "No-Action Letter"). 2

You state that PSI and PIMS are both wholly owned indirect subsidiaries of The Prudential Insurance Company of America. You state that, in connection with a corporate reorganization, PSI's unit investment trust business will be transferred to PIMS (the "Transfer"). 3 As a result of the Transfer, PIMS will assume all the duties and obligations of the depositor currently imposed on PSI under the trust indenture and agreement pursuant to which each Trust was organized. While a new entity will act as depositor and sponsor of the Trusts, the personnel administering the Trusts will remain the same. PIMS agrees to comply with the terms and conditions of the Existing Orders and the terms of the No-Action Letter as though such terms and conditions were imposed directly on PIMS.

Based on the facts and representations made in your letter, we would not recommend enforcement action to the Commission if PIMS relies on the Existing Orders and the No-Action Letter following completion of the Transfer. This response expresses the Division's position on enforcement action only, and does not purport to express any legal conclusions on the questions presented. Facts or representations different from those presented in your letter might require a different conclusion.

Marilyn Mann Senior Counsel Office of Investment Company Regulation April 19, 2001

Footnotes

1 Until February 25, 1991, PSI was known as Prudential-Bache Securities, Inc.

2 The Existing Orders are: Prudential-Bache Securities Inc., Investment Company Act Release Nos. 15622 (Mar. 13, 1987) (notice) and 15671 (Apr. 8, 1987) (order under section 6(c) of the Act exempting PSI from having to take for its own account or place with others $100,000 worth of units under an investment letter and enabling the Trusts to distribute capital gain dividends within a reasonable time after receipt); Prudential-Bache Unit Trusts, Investment Company Act Release Nos. 15180 (June 27, 1986) (notice) and 15231 (July 29, 1986) (order) (order under sections 6(c), 17(b), and 17(d) of the Act and rule 17d-1 under the Act to permit existing and future series of the Trust to purchase insurance from affiliates of PSI, to accept full settlements arising from claims made upon such insurance, and to allow the trustee of the Trust to make (and deduct as a Trust expense) premium payments for such insurance); Prudential-Bache Securities Inc., Investment Company Act Rel. Nos. 14943 (Feb. 18, 1986) (notice) and 14989 (Mar. 13, 1986) (order under section 11 of the Act amending a prior order (Investment Company Act Rel. No. 14010 (June 26, 1984)) and permitting certain offers of exchange); Prudential-Bache Securities Inc., Investment Company Act Rel. Nos. 13991 (June 4, 1984) (notice) and 14010 (June 26, 1984) (order under sections 6(c) and 11(a) of the Act permitting the exchange of units of any series of certain Trusts for units of any other series at a reduced fixed sales charge); Government Securities Equity Trust, Series I and Subsequent Series, Investment Company Act Rel. Nos. 16915 (Apr. 13, 1989) (notice) and 16959 (May 17, 1989) (order under sections 6(c) and 17(d) of the Act and rule 17d-1 under the Act, permitting series of a Trust to invest in shares of a Fund and zero coupon obligations, exempting PSI from having to take for its own account or place with others $100,000 worth of units, and permitting the Trust to distribute capital gain dividends resulting from redemption of Fund shares within a reasonable time after receipt); Government Securities Equity Trust, Investment Company Act Rel. Nos. 19608 (Aug. 3, 1993) (notice) and 19665 (Aug. 31, 1993) (order under sections 6(c), 11(a) and (c), 17(d) of the Act and rule 17d-1 under the Act permitting series of a Trust to invest in shares of a Fund and zero coupon obligations, exempting PSI from having to take for its own account or place with other $100,000 worth of units in the Trust, permitting the Trust to distribute capital gains resulting from redemptions of Fund shares within a reasonable time after receipt, permitting waiver of any sales load otherwise applicable to Fund shares that the Trust has purchased, permitting certain offers of exchange, and permitting certain affiliated transactions): Government Securities Equity Trust, Investment Company Act Rel. Nos. 18763 (June 8, 1992) (notice) and 18836 (July 7, 1992) (order) (same); Prudential Securities Incorporated, Investment Company
Act Rel. Nos. 20922 (Feb. 27, 1995) (notice) and 20975 (Mar. 29, 1995) (order under sections 6(c) and 11(a) of the Act amending a prior order (Investment Company Act Rel. No. 14989 (Mar. 13, 1986)), permitting PSI to impose sales charges on sales of units of certain Trusts on a deferred basis and waive the deferred sales charge in certain cases, exchange Trust units having deferred sales charges, and exchange units of a terminating series of a Trust for units of the next available series of that Trust); National Equity Trust, Investment Company Act Rel. Nos. 21135 (June 14, 1995) (notice) and 21197 (July 11, 1995) (order under sections 6(c) and 17(b) of the Act permitting a terminating series of a Trust to sell portfolio securities to a new series of the Trust); Government Securities Equity Trust, Investment Company Act Rel. Nos. 20674 (Nov. 1, 1994) (notice) and 20741 (Nov. 29, 1994) (order under sections 6(c), 11(a) and (c), and 17(d) of the Act and rule 17d-1 under the Act permitting series of a Trust to invest in shares of a Fund and zero coupon obligations, exempting PSI from having to take for its own account or place with others $100,000 worth of units in the Trust, permitting the Trust to distribute capital gains resulting from redemptions of Fund shares within a reasonable time after receipt, permitting certain offers of exchange involving the Trust, and permitting certain affiliated transactions involving the Trust); Government Securities Equity Trust Series I and Subsequent Series, Investment Company Act Rel. Nos. 18260 (Aug. 6, 1991) (notice) and 18296 (Sept. 4, 1991) (order under sections 6(c) and 17(d) of the Act and rule 17d-1 under the Act amending a prior order (Rel. No. 16959 (May 17, 1989) to delete a condition that prohibits any series of the Trust from purchasing shares of multi-class Funds and prevents these Funds from establishing additional classes if their shares were held by any of the series of the Trust). The No-Action Letter is: Prudential Securities Incorporated (May 23, 2000) (Division would not recommend enforcement action under sections 2(a)(32), 2(a)(35), 22(c), 22(d) and 26(a)(2)(C) of the Act and rule 22c-1 under the Act if PSI relies on Investment Company Act Rel. No. 20975 (Mar. 29, 1995) (order) to implement a sales charge determined at the inception of a Trust's series that would be calculated at the time of each deduction as a fixed percentage of net asset value).

3 The Transfer is expected to take place on June 1, 2001.

Initial Inquiry

Cahill Gordon & Reindel Eighty Pine Street New York, N.Y. 10005-1702

Telephone 212-701-3000 Facsimile 212-269-5420

Writer's Direct Number, (212) 701-3484

April 18, 2001

1940 Act

Nadya B. Roytblat, Esq. Office of Investment Company Regulation Division of Investment Management Securities and Exchange Commission 450 Fifth Street Washington, DC 20549

Re: Prudential Investment Management Services LLC.

Dear Ms. Roytblat:

On behalf of Prudential Investment Management Services LLC ("PIMS"), we respectfully request that the Division of Investment Management (the "Staff") advise us that it will not recommend that the Securities and Exchange Commission (the "Commission") take enforcement action against PIMS if, under the circumstances described below, PIMS continues to rely upon existing orders set forth herein ("Existing Orders") and a no action position ("No Action Letter") issued to Prudential Securities Incorporated ("PSI"). PSI applied for the Existing Orders and the No Action Letter in connection with its business of sponsoring unit investment trusts (the "Trusts" or the "Trust", as the context requires). PSI and PIMS are each wholly owned indirect subsidiaries of The Prudential Insurance Company of America ("Prudential"). In connection with a corporate reorganization, PSI's unit investment trust business will be transferred to PIMS (the transfer of such business is referred to herein as the "Transfer"), expected to take place on June 1, 2001. PIMS, which was not an applicant to the applications for the Existing Orders, plans to engage in the types of transactions which were the subject of the Existing Orders and No Action Letter. In our view, the Transfer of PSI's Trust sponsorship business to PIMS, an entity that is under common control with PSI, with all essential facts and representations upon which the Existing Orders and No Action Letter are predicated remaining unchanged, should entitle PIMS to rely upon the Existing Orders and No Action Letter. We submit that the granting of a no-action letter in this regard will be consistent with the terms and conditions of the Existing Orders and the protection of investors.

Background

PSI has been a sponsor of unit investment trusts for over fifteen years. In connection with PSI's sponsorship of Trusts, PSI was an applicant on an application for an Existing Order or applied for an Existing Order on behalf of a Trust. The consummation of the Transfer essentially will result in the reorganization within Prudential of an existing business and transfer such business to an affiliated entity under common control. There is no change in the investment objectives of the existing Trusts or the fees and charges in connection therewith. While a new entity will act as depositor and sponsor of the Trusts, the personnel administering such Trusts will remain the same. PIMS will assume all the duties and obligations of the depositor currently imposed on PSI under the trust indenture and agreement pursuant to which each Trust was organized. PIMS agrees to comply with the terms and conditions of the Existing Orders and the terms of the No Action Letter as though such terms and conditions were imposed directly on PIMS.

The Existing Orders are as follows:

Investment Company Act Release No. 15671 (April 8, 1987). Prudential-Bache Securities, Inc. 1 and Prudential Unit Trusts, Prudential Equity Trust Series 1 obtained an order pursuant to Section 6(c) granting exemption from Sections 14(a) and 19(b), and Rule 19b-1 of the Investment Company Act of 1940, as amended (the "Act") to existing and future Trusts from having PSI take for its own account or place with others $100,000 worth of units under an investment letter and enabling such Trusts to distribute capital gain dividends within a reasonable time after receipt.

Investment Company Release No. 15231 (July 29, 1986). Prudential-Bache Unit Trusts consisting of Insured Tax-Exempt Series, Insured Multistate Tax-Exempt Series, Insured Selected Term Tax-Exempt Series, Prudential-Bache Securities, Inc., and Prudential Reinsurance Company ("PruRe") obtained an order pursuant to Sections 6(c) and 17(b) granting exemption from Sections 17(a), 26(a)(2)(C) and pursuant to 17(d) and Rule 17d-1 of the Act to allow existing and future similar series of the Trust to purchase insurance from PruRe and other affiliates of PSI, to accept full settlements arising from claims made upon such insurance and to allow the trustee of the Trust to make (and deduct as a Trust expense) premium payments for such insurance.

Investment Company Release No. 14989 (March 13, 1986). Prudential-Bache Securities, Inc. obtained an order pursuant to Section 11 of the Act amending an existing order (item 4 below) and approving the terms of certain offers of exchange.

Investment Company Release No. 14010 (June 26, 1984). Prudential-Bache Securities, Inc., on behalf of Prudential-Bache Unit Trusts, Financial Guaranty Insurance Company, Insured Long Term Series 1, Prudential-Bache Unit Trusts, Discount Series 1, Prudential-Bache Unit Trusts, Long Term Series 1, and all subsequently issued series of Prudential-Bache Unit Trusts obtained an order pursuant to Section 6(c) granting exemption from Section 22(d) and under Section 11(a) of the Act to permit the exchange of units of any series of the Trusts for units of any other series thereof at a reduced fixed sales charge per unit.

Investment Company Act Release No. 16959 (May 17, 1989). Government Securities Equity Trust, Series I and Subsequent Series, and AIM Convertible Securities, Inc., AIM Equity Funds, Inc., AIM Government Funds, Inc., AIM Tax- Exempt Funds, Inc., High Yield Securities, Inc., Short-Term Investments Co., and Tax-Free Investments Trust, on behalf of themselves and any series or portfolio thereof (other than any of the aforementioned mutual funds or portfolios thereof which are money market or no-load funds ("AIM Funds"), AIM Advisors, Inc., AIM Capital Management, Inc., AIM Distributors, Inc. and PSI obtained an order pursuant to Section 6(c) of the Act granting exemption from Sections 12(d)(1), 14(a) and 19(b) and Rule 19b-1 thereunder, and pursuant to Section 17(d) and Rule 17d-1 thereunder, approving certain affiliated transactions. The order permits series of the Trust to invest in shares of AIM Funds and zero-coupon obligations, exempts PSI from having to take for its own account or place with others $100,000 worth of units in the Trust, and permits the Trust to distribute capital gain dividends resulting from redemption of AIM Fund shares within a reasonable time after receipt.

Investment Company Act Release No. 19665 (August 31, 1993). Government Securities Equity Trust; Templeton, Galbraith & Hansberger Ltd. ("TGH"); Franklin/Templeton Distributors, Inc. (FTD); Templeton Growth Fund, Inc. and any open-end management investment companies, other than money market or no-load funds, advised by TGH or having as their distributor FTD (the "Templeton Funds"); and PSI obtained a conditional order pursuant to Section 6(c) of the Act granting an exemption from Sections 12(d)(1), 14(a), 19(b), 22(d) of the Act and Rule 19b-1 thereunder, under Sections 11(a) and (c) to permit certain offers of exchange; and under Section 17(d) and Rule 17d-1 to permit certain affiliated transactions.

Investment Company Act Release No. 18836 (July 7, 1992). Government Securities Equity Trust, et al. obtained a conditional order pursuant to Sections 6(c), 11(a), 11(c) and 17(d) of the Act and Rule 17d-1 thereunder. The order: (a) permits series of the Trust to invest in shares of one of the funds and zero coupon obligations; (b) exempts PSI from having to take for its own account or place with others $100,000 worth of units in the Trust; (c) permits the Trust to distribute capital gains resulting from redemption of fund shares within a reasonable time after receipt; (d) permits waiver of any sales load otherwise applicable on fund shares that the Trust has purchased; (e) permits certain offers of exchange involving the Trust; and (f) permits certain affiliated transactions involving the Trust.

8. Investment Company Act Release No. 20975 (March 29, 1995). Prudential Securities Incorporated et al. obtained an order pursuant to Section 6(c) of the Act granting exemption from Sections 2(a)(32), 2(a)(35), 22(c), 22(d), and 26(a)(2)(C) of the Act and Rule 22c-1 thereunder, and pursuant to Section 11(a) amending a prior order granting relief from Section 11(c) (IC Release No. 14989, March 13, 1986 - item 3 above). The order permits PSI to impose sales charges on a deferred basis and waive the deferred sales charge in certain cases, exchange Trust units having deferred sales charges, and exchange units of a terminating series of a Trust for units of the next available series of that Trust.

Investment Company Act Release No. 21197 (July 11, 1995). National Equity Trust et al. obtained an order pursuant to Sections 6(c) and 17(b) of the Act granting an exemption from Section 17(a) of the Act. The order permits a terminating series of a Trust to sell portfolio securities to a new series of the Trust.

Investment Company Act Release No. 20741 (November 29, 1994). Government Securities Equity Trust, Prudential Securities Incorporated, Prudential Equity Fund, Inc., Prudential Mutual Fund Management, Inc. and Prudential Mutual Fund Distributors, Inc. obtained an order pursuant to Sections 6(c), 11(a), 11(c) and 17(d) of the Act, and Rule 17d-1 thereunder to permit certain affiliated transactions. The order: (a) permits series of a Trust to invest in shares of an open-end investment company ("Prudential Fund") and U.S. Treasury zero coupon obligations; (b) exempts PSI from having to take for its own account or place with others $100,000 worth of units in the Trust; (c) permits the Trust to distribute capital gains resulting from redemptions of shares of a Prudential Fund within a reasonable time after receipt; (d) permits certain offers of exchange involving the Trust; and (e) permits certain affiliated transactions involving the Trust.

Investment Company Act Release No. 18296 (September 4, 1991). Government Securities Equity Trust, Series 1 and Subsequent Series, et al. obtained an order pursuant to Sections 6(c) and 17(d) of the Act and Rule 17d-1 thereunder amending a prior order (item 5 above) that permits series of the Trust to invest in shares of AIM Funds and zero coupon obligations.

No Action Letter issued to:

Prudential Securities Incorporated (May 23, 2000).

National Equity Trust, National Municipal Trust, Prudential Unit Trusts and Government Securities Equity Trust and any future Trust sponsored by PSI; any existing or future series of the Trusts; and PSI obtained a no action letter pursuant to which they would rely on an order (item No. 8 above) pursuant to Section 6(c) granting exemption from Sections 2(a)(32), 2(a)(35), 22(c), 22(d), and 26(a)(2)(C) of the Act and Rule 22c-1 under the Act to permit PSI to implement a sales charge determined at the inception of a Trust's series which will be calculated at the time of each deduction as a fixed percentage of net asset value.

Rationale

PIMS is an entity affiliated with PSI. The persons operating the Trust business transferred to PIMs will be the same. The continuity of parties under common control will continue to exist subsequent to the Transfer and the business will be operated by the same personnel in the same manner as was the case prior to the Transfer. The Transfer will not impact the investors in the Trusts in that the objectives, structure and fees of the existing Trusts will not change as a result of the Transfer.

Conclusion

We believe that allowing PIMS to rely on the Existing Orders is consistent with the provisions, policies and purposes of the Act and with the Staff's prior no-action positions. In view of the foregoing, we respectfully request that the Staff confirm that it will not recommend enforcement action if PIMS relies on the Existing Orders and No Action Letter following completion of the Transfer.

Thank you in advance for your prompt consideration of this request. Should you have any questions or if I can provide additional information regarding this request, please do not hesitate to call the undersigned at (212) 701-3484.

Very truly yours,

Philip A. Heimowitz

Footnotes

1 Until February 25, 1991, PSI was known as Prudential-Bache Securities, Inc. On that date, Prudential-Bache Securities, Inc. changed its name to Prudential Securities Incorporated.

http://www.sec.gov/divisions/investment/noaction/prudential041901.htm

Home | Previous Page

Modified: 08/31/2001