AS FILED WITH THE SEC ON __________. REGISTRATION NO. 333-01031
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED
ON FORM N-8B-2
------------
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2
(Exact Name of Trust)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Depositor)
PRUDENTIAL PLAZA
NEWARK, NEW JERSEY 07102-3777
(201) 802-6000
(Address and telephone number of principal executive offices)
------------
C. CHRISTOPHER SPRAGUE
ASSISTANT GENERAL COUNSEL
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
100 Mulberry Street
3 Gateway Center
NEWARK, NEW JERSEY 07102-4077
(Name and address of agent for service)
------------
It is proposed that this filing will become effective (check appropriate space):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on ______________________________ pursuant to paragraph (b) of Rule 485
(date)
[x] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on __________________ pursuant to paragraph (a)(1) of Rule 485
(date)
<PAGE>
CROSS REFERENCE SHEET
[AS REQUIRED BY FORM N-8B-2]
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
1. Cover Page
2. Cover Page
3. Not Applicable
4. Sale of the Contract and Sales Commissions
5. The Prudential Variable Contract Account GI-2
6. The Prudential Variable Contract Account GI-2
7. Not Applicable
8. Not Applicable
9. Litigation
10. Brief Description of the Group Contract and
Certificate; How Prudential Issues
Certificates; Applicant Owner Provision; A
"Free Look" Period; Procedures; Premiums;
Effective Date of Insurance; How You Can
Change the Way Prudential Allocates Future
Premium Payments; How You Can Transfer
Amounts In Your Certificate Fund From One
Investment Option to Another; Dollar Cost
Averaging; Death Benefits; Changes in Face
Amount; Charges and Expenses; Reduction of
Charges; Dividends or Experience Credits;
Cash Surrender Value; Full Surrenders;
Paid-Up Coverage; Partial Withdrawals; Loans;
Telephone and Electronic Transactions; Lapse;
Termination of a Group Contractholder's
Participation in Group Contract; Participants
Who Are No Longer Eligible Group Members;
Options on Termination of Coverage;
Reinstatement; Tax Treatment of Certificate
Benefits; ERISA Considerations; When Proceeds
Are Paid; Beneficiary; Incontestability;
Misstatement of Age; Suicide Exclusion;
Assignment; Voting Rights; Substitution of
Fund Shares; Additional Insurance Benefits
11. Brief Description of the Group Contract and
Certificate; The Prudential Variable Contract
Account GI-2; The Funds
12. Cover Page; Brief Description of the Group
Contract and Certificate; The Funds; Sale of
the Contract and Sales Commissions
13. Brief Description of the Group Contract and
Certificate; Premiums; Reduction of Charges;
Sale of the Contract
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
and Sales Commissions
14. Brief Description of the Group Contract and
Certificate; How Prudential Issues
Certificates; Procedures
15. Brief Description of the Group Contract and
Certificate; Procedures; How You Can Change
the Way Prudential Allocates Future Premium
Payments; How You Can Transfer Amounts in
Your Certificate Fund From One Investment
Option to Another
16. Brief Description of the Group Contract and
Certificate; Detailed Information About the
Certificates
17. Death Benefits; Full Surrenders; Partial
Withdrawals; Loans; When Proceeds Are Paid
18. The Prudential Variable Contract Account
GI-2; The Funds
19. Reports
20. Not Applicable
21. Loans
22. Not Applicable
23. Not Applicable
24. Incontestability; Misstatement of Age;
Suicide Exclusion; Assignment
25. The Prudential Insurance Company of America
26. The Funds; Charges and Expenses
27. General Information About Prudential; The
Prudential Variable Contract Account GI-2,
and The Variable Investment Options under the
Certificates
28. The Prudential Insurance Company of America;
Directors and Officers of Prudential
29. The Prudential Insurance Company of America
30. Not Applicable
31. Not Applicable
32. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
33. Not Applicable
34. Not Applicable
35. The Prudential Insurance Company of America
36. Not Applicable
37. Not Applicable
38. Sale of the Contract and Sales Commissions
39. Sale of the Contract and Sales Commissions
40. Not Applicable
41. Sale of the Contract and Sales Commissions
42. Not Applicable
43. Not Applicable
44. Brief Description of the Group Contract and
Certificate; The Funds; Premiums; Cash
Surrender Value
45. Not Applicable
46. Brief Description of the Group Contract and
Certificate; The Prudential Variable Contract
Account GI-2; The Funds; Death Benefits; Full
Surrenders; Partial Withdrawals
47. The Prudential Variable Contract Account
GI-2; The Funds
48. Not Applicable
49. Not Applicable
50. Not Applicable
51. Brief Description of the Group Contract and
Certificate; Detailed Information About the
Certificates
52. Substitution of Fund Shares
53. Tax Treatment of Certificate Benefits; ERISA
Considerations
54. Not Applicable
55. Not Applicable
<PAGE>
N-8B-2 ITEM NUMBER LOCATION
- ------------------ --------
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements; Consolidated Financial
Statements of The Prudential Insurance
Company of America and Subsidiaries
<PAGE>
PART I
INFORMATION IN PROSPECTUS
<PAGE>
PROSPECTUS
May 1, 1999
The Prudential Insurance Company of America
The Prudential Variable Contract Account GI - 2
Group Variable Universal Life Insurance
This document is a prospectus. It tells you about Group Variable Universal Life
Insurance contracts offered by The Prudential Insurance Company of America
("Prudential," "we," "our," or "us") for insurance programs that are sponsored
by groups.
We will give a Certificate to each Eligible Group Member or Applicant Owner who
buys coverage under a Group Contract. We will refer to each person who buys
coverage as a "Participant." When we use the terms "you" or "your", we mean a
Participant. Certain Group Contracts may also permit a Participant to apply for
separate insurance coverage for his or her dependents.
The Group Contracts and Certificates provide life insurance protection with
flexible premium payments and a choice of underlying investment options. The
Death Benefit and Cash Surrender Value will change daily, depending on the
performance of the investment options you select. The Death Benefit will usually
not be less than the Face Amount of the Certificate. Surrenders, partial
withdrawals and loans are available but certain rules and limits apply to how
they work.
We have tried to make this prospectus easy to understand. Still, the meaning of
some terms are special because they describe concepts used mostly in insurance
contracts. To help you understand what these terms mean, we added a Definitions
of Special Terms section on page XX. It's easy to recognize a defined term -- we
capitalize them.
A word about replacing your life insurance. You should know that, most times, it
is not in your best interest to replace one life insurance policy with another
one. When you need additional life insurance, it is usually better for you to
add coverage -- either by asking for a new policy or by buying additional
insurance -- than it is for you to replace a policy. In that way, you don't lose
benefits under the policy you already have.
If you are thinking about replacing a life insurance policy you already have so
that you can obtain Group Variable Universal Life Insurance, you should consider
your choices carefully. Compare the costs and benefits of adding coverage to
your current policy against the costs and benefits of Group Variable Universal
Life Insurance. You should also get advice from a tax advisor.
You should read this prospectus carefully and keep it for future reference. This
document will be followed by prospectuses for each of the Funds under the group
program that will be available to you. For some Group Contracts, this prospectus
will be accompanied by a supplement that describes the unique features of the
Group Contract and Certificates. For those Group Contracts, the prospectus and
the supplement together provide all the information you need to know about Group
Variable Universal Life Insurance, and you should read them together.
The U.S. Securities and Exchange Commission has not approved or disapproved
these securities, or determined that this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Telephone (800) 562-9874
The SEC maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference and other information regarding issuers that file
electronically with the SEC.
<PAGE>
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (called the "Separate Account")
has 136 variable investment options. We call each option a "Subaccount." We will
invest the assets of each Subaccount in The Prudential Series Fund, Inc. (called
the "Series Fund") or in certain other mutual fund portfolios. When we refer to
"Funds" in this prospectus, we mean all or any of these funds.
We will permit each Group Contractholder to choose up to 20 of these Funds. The
Series Fund Money Market Portfolio must be one of the selected Funds. Generally,
half of the Funds selected by the Group Contractholder must be from the Series
Fund.
You may then choose as investment options from among the Funds selected by your
Group Contractholder. You may also choose to invest in the Fixed Account. (The
Fixed Account is an investment option for which Prudential guarantees that the
effective annual interest rate will be at least 4%.)
Once you select the investment options you want, Prudential will direct your
premium payments to the Subaccount associated with those Funds or to the Fixed
Account.
We describe the Funds chosen by your Group Contractholder briefly in the section
called "The Funds." It starts on page XX. We will send you a prospectus for each
Fund selected by your Group Contractholder. The Fund prospectuses tell you about
the objectives and policies for each Fund, as well as about the risks of
investing in each Fund.
<PAGE>
Table of Contents
Page
Brief Description of the Group Contract and Certificate...................
Illustrations of Death Benefits and Cash Surrender Values.................
General Information about Prudential, The Prudential
Variable Contract Account GI-2, and The Variable Investment
Options under the Certificates............................................
The Prudential Insurance Company of America......................
The Prudential Variable Contract Account GI-2....................
The Funds........................................................
The Fixed Account................................................
Detailed Information About the Certificates...............................
How Prudential Issues Certificates...............................
A "Free Look" Period.............................................
Procedures.......................................................
Premiums.........................................................
Effective Date of Insurance......................................
How Prudential Will Deposit and Invest Premium Payments..........
How You Can Change the Way Prudential Allocates
Future Premium Payments.....................................
How You Can Transfer Amounts In Your Certificate Fund
From One Investment Option to Another.......................
Dollar Cost Averaging............................................
Death Benefits...................................................
Changes in Face Amount...........................................
Charges and Expenses.............................................
Reduction of Charges.............................................
Dividends or Experience Credits..................................
Cash Surrender Value.............................................
Full Surrenders..................................................
Paid-up Coverage.................................................
Partial Withdrawals..............................................
Loans............................................................
Telephone and Electronic Transactions............................
Lapse............................................................
Termination of a Group Contractholder's Participation
in Group Contract................................................
Participants Who Are No Longer Eligible Group Members............
Options on Termination of Coverage...............................
ii
<PAGE>
Reinstatement....................................................
Tax Treatment of Certificate Benefits............................
ERISA Considerations.............................................
When Proceeds Are Paid...........................................
Beneficiary......................................................
Incontestability.................................................
Misstatement of Age..............................................
Suicide Exclusion................................................
Modes of Settlement..............................................
Assignment.......................................................
Applicant Owner Provision........................................
Voting Rights....................................................
Substitution of Fund Shares......................................
Additional Insurance Benefits....................................
Reports..........................................................
Sale of the Contract and Sales Commissions.......................
Ratings and Advertisements.......................................
Services Performed by Third Parties..............................
State Regulation.................................................
Experts..........................................................
Litigation.......................................................
Year 2000 Compliance.............................................
Definitions of Special Terms Used in this Prospectus......................
Directors and Officers of Prudential......................................
Financial Statements......................................................
Consolidated Financial Statements of The Prudential Insurance
Company of America and Subsidiaries.......................................
You should not consider this prospectus to be an offering in any jurisdiction
where an offering may not be lawfully made. You should rely on the information
contained in this prospectus and any supplement to it. We have not authorized
anyone to provide you with information that is different.
iii
<PAGE>
Brief Description of the Group Contract and Certificate
In this section of the prospectus, we answer some questions that are frequently
asked about Group Variable Universal Life Insurance. You can find more detailed
information on later pages of the prospectus.
The Group Contract and Certificate provide even more detailed information. You
will get a Certificate if you buy the Group Variable Universal Life Insurance.
What is a Group Variable Universal Life Insurance contract?
It is an insurance contract issued by Prudential to the group that sponsors the
Group Variable Universal Life Insurance program. Often, the group that sponsors
a program is an employer. Other groups, such as membership associations, may
also sponsor programs.
The Group Contract states all the terms of the agreement between Prudential and
the sponsoring group. It forms the entire agreement between them. Among other
things, the Group Contract defines which members of the group are eligible to
buy the Group Variable Universal Life Insurance. The Group Contract also says
whether or not Eligible Group Members may also buy coverage for their
dependents.
We will give a Certificate to each Eligible Group Member or Applicant Owner who
buys coverage under the Group Contract. The Certificate provides for a Death
Benefit and a Cash Surrender Value. The Death Benefit and the Cash Surrender
Value can change every day. They change based on the performance of the
investment options you selected.
How does Prudential calculate the Certificate's Death Benefit?
When you buy Group Variable Universal Life Insurance, you will choose a Face
Amount of insurance, based on the amounts available for your group. Prudential
will calculate the Death Benefit like this:
o The Death Benefit is the Face Amount of insurance plus the value of your
Certificate Fund on the date of your death minus any Certificate Debt and
outstanding charges.
(In some cases, we will increase the Death Benefit to an amount that is more
than the Face Amount plus the value of the Certificate Fund. We will do that to
make sure that the Certificate meets the definition of "life insurance" under
the Internal Revenue Code. We will still deduct any Certificate Debt and
outstanding charges.)
1
<PAGE>
The Certificate Fund consists of the Net Premiums that we invest in the
investment options you selected. Prudential will deduct its charges for the
insurance from the Certificate Fund. The value of the Certificate Fund will
change each day based on the performance of those investment options and to
reflect the deduction of daily charges.
See the Death Benefits section on page XX.
How does Prudential calculate the Cash Surrender Value of the Certificate?
Prudential calculates the Cash Surrender Value of a Certificate like this:
o The Cash Surrender Value is the value of the Certificate Fund on the day of
the surrender minus any Certificate Debt and outstanding charges.
(Under the terms of some Group Contracts, Prudential is permitted to also deduct
a charge for the surrender. The charge may be up to $20.)
See the Cash Surrender Value section on page XX.
What premiums must I pay?
You can usually choose how often you pay premiums and the amount of premiums.
Prudential will keep your insurance in force as long as the balance in your
Certificate Fund is enough to pay the charges that are due to Prudential each
month. Prudential may also require you to pay a minimum initial premium.
If the balance in your Certificate Fund is not enough to pay any month's
charges, you must make a premium payment that is enough to bring your
Certificate Fund balance above this minimum amount. You must make that payment
during the grace period. If you don't, your insurance coverage will end.
See the Premiums section on page XX.
What investment options are available?
The Separate Account has Subaccounts. We invest the assets of each Subaccount in
its corresponding Fund.
We permit each Group Contractholder to choose up to 20 of these Funds for the
Group Contractholder's Participants to invest in. The Series Fund Money Market
Portfolio must
2
<PAGE>
be one of the selected Funds. And generally, half of the Funds selected by the
Group Contractholder must be from the Series Fund.
Instead of choosing Funds for itself, a Group Contractholder may ask Prudential
to present it with one or more predetermined groups of Funds for the Group
Contractholder's Participants to invest in.
We will not permit a Group Contractholder to substitute other Funds for Funds it
has already selected (whether the Group Contractholder chose its own Funds or
selected a predetermined group of Funds). But, if a Group Contractholder chooses
fewer than 20 Funds, we will permit that Group Contractholder to select
additional Funds.
You may invest only in the Funds chosen by your Group Contractholder and in the
Fixed Account. (The Fixed Account is an investment option for which Prudential
guarantees that the effective annual interest rate will be at least 4%. See The
Fixed Account section on page XX.)
We recommend that the Group Contractholder get advice from an investment advisor
when choosing the investment options for its Participants.
See The Funds section on page XX. Each Fund prospectus provides more detailed
information about the specific Fund.
Does Group Variable Universal Life Insurance offer choice and flexibility in the
amount of insurance protection I can get?
Yes. The Death Benefit under a Certificate includes, among other things, the
value of your Certificate Fund. The value of your Certificate Fund will vary
with the investment performance of the investment options you select. So, your
Death Benefit could grow more than it could under a certificate that does not
include investment options. But, the Death Benefit may also go down if the
investment options in your Certificate Fund have poor investment performance.
You choose how to invest the amount you have in your Certificate Fund. You may
choose more aggressive Funds or less aggressive Funds. What you choose depends
on your personal circumstances and your investment objectives and how they may
change over time.
If you prefer to avoid or reduce the risks that come with investing in the
Funds, you can choose to direct some or all of the amount in your Certificate
Fund to the Fixed Account. Prudential guarantees that the part of your
Certificate Fund that is directed to the Fixed Account will earn interest daily
at a rate that Prudential declares periodically. That rate
3
<PAGE>
will change from time to time, but it will never be lower than 4%. See The Fixed
Account section on page XX.
What charges does Prudential make?
We deduct certain charges from each premium payment that you make and from the
amounts that are held in each investment option. These charges compensate us for
insurance costs, risks and expenses.
All charges made by Prudential are described in detail in the Charges and
Expenses section on page XX. This chart briefly outlines the charges that may be
made:
- --------------------------------------------------------------------------------
You make a premium payment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Then, Prudential deducts these charges:
o A charge for taxes on premium payments. Currently, this charge is
2.6%, but some Group Contracts may permit a charge up to 5.35%. We
reserve the right to increase this charge if the cost of our taxes
related to premium payments increases. (In some states, this charge is
known as a premium-based administrative charge.)
o A processing charge of up to $2. (Under some Group Contracts, this
charge is waived.)
o A sales charge of up to 3 1/2%. (Under some Group Contracts, this
charge is waived.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The remainder is your Net Premium Amount
This is the amount that you can invest in one or more of the investment
options selected by your Group Contractholder.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Daily Charges
After your Net Premium Amount is directed to your investment option(s),
Prudential deducts these daily charges from the Subaccounts (but not from
the Fixed Account):
o A daily charge for mortality and expense risks. This charge is
deducted from the assets of the Subaccount(s) that correspond to the
Fund(s) you selected.
Currently, this charge is equivalent to an effective annual rate of
0.45%. Prudential guarantees that this charge will not be more than an
effective annual rate of 0.90%.
o A daily charge for investment management fees and expenses. These
charges are deducted from the assets of the Fund(s) you selected. The
Funds set these charges. The charges are described more fully on page
XX.
In 1998, the total expenses (after expense reimbursement) of the Funds
ranged from X.XX% to X.XX% of their average net assets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Charges
Prudential deducts these charges from your Certificate Fund each month:
o A charge for administrative expenses. Currently, this charge may be up
to $3 per month. Prudential guarantees that it will not be more than
$6 per month.
o A charge for the cost of insurance.
o A charge for any additional insurance benefits not already included in
the charge for the cost of insurance.
Under some Group Contracts, Prudential may deduct these charges more or
less frequently.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Possible Additional Charges
Some Group Contracts may also permit Prudential to make the following
transaction charges:
o When you use the Dollar Cost Averaging feature.
o When you ask Prudential to reallocate the way your premium payments
will be invested.
o When you surrender your Certificate Fund or when you make a withdrawal
from it. The charge can be up to $20 or 2% of the amount you surrender
or withdraw, whichever amount is less.
o Each time you take a loan from your Certificate Fund. The charge may
be up to $20.
o Each time you request an additional statement about your Certificate
Fund. The charge may be up to $20.
o When you request more than 12 transfers between investment options in
a Certificate Year. The charge may be up to $20 for each transfer
after the 12th one.
Also, Prudential has the right to make a charge for any taxes that may be
imposed on the operations of the Separate Account.
- --------------------------------------------------------------------------------
Can I make withdrawals from the Certificate Fund?
Yes. You may request a partial withdrawal from the Certificate Fund. You may
also surrender your insurance and receive its Cash Surrender Value. See the
Partial Withdrawals section on page XX and the Full Surrenders section on page
XX.
Can I take loans?
Yes. You may borrow money from your Certificate Fund. The Loan Value, which is
the maximum amount you may borrow, is 90% of your Certificate Fund minus any
existing loan (and its accrued interest), outstanding charges, and the amount of
the next month's charges. In states that require it, you may borrow a greater
amount.
6
<PAGE>
When you take a loan from your Certificate Fund, here's what happens:
o The amount of the loan is transferred from your investment options to a
Loan Account. This Loan Account is still part of your Certificate Fund.
o The Loan Account earns interest at an effective annual rate that is usually
2% less than the rate Prudential charges as interest on the loan.
The term "Certificate Debt" is used to mean any outstanding loan plus its
accrued interest. Certificate Debt is deducted from any amount payable at the
Covered Person's death. It is also deducted from the Certificate's Cash
Surrender Value.
How is my insurance coverage affected when I am no longer a member of the group?
Each Group Contract has different rules. Under some Group Contracts, you may
continue your insurance even though you are no longer part of the group. The
charges for continued insurance may be higher.
You may also surrender the insurance for its Cash Surrender Value, elect to use
the Cash Surrender Value to buy Paid-up Coverage, or convert the insurance to an
individual life insurance policy.
See the Options on Termination of Coverage section on page XX.
What is the Federal income tax status of amounts received under the Certificate?
Variable life insurance contracts receive the same Federal income tax treatment
as conventional life insurance contracts (those where the amount of the death
benefit is fixed instead of variable). Here's what that means:
o First, the Death Benefit is generally not included in the gross income of
the beneficiary.
o Second, increases in the value of the Certificate Fund are generally not
included in the taxable income of the Participant. This is true whether the
increases are from income or capital gains.
7
<PAGE>
o Third, surrenders and partial withdrawals are generally treated first as a
return of your investment in the Certificate and then as a distribution of
taxable income.
o Fourth, loans are not generally treated as distributions.
See the Tax Treatment of Certificate Benefits section on page XX. You should
consult your tax advisor for guidance on your specific situation.
Illustrations of Death Benefits and Cash Surrender Values
On the next two pages, we show you two examples of how the Death Benefit and the
Cash Surrender Value of your Certificate can change as a result of the
performance of the investment options you select. The examples are not our
prediction of how value will grow. They are hypothetical examples and are just
intended to show you how a Certificate works.
We call these examples "illustrations." The illustrations are based on several
assumptions about the age of the Participant, the amount of insurance, and the
rules of the Group Contract that the Participant is covered under.
Assumptions we used for both illustrations
Here's what we assumed about the Certificate in both illustrations:
o The Participant was 40 years old when he or she bought the Group Variable
Universal Life Insurance Certificate.
o The Face Amount of insurance under the Certificate is $100,000.
o The Participant paid a premium of $1,200 when the Certificate was first
issued. He or she pays the same premium amount each year on the Certificate
Anniversary.
8
<PAGE>
Illustration #1
In Illustration #1, here's what we assumed about the charges that Prudential
will deduct from the Certificate:
o The charge deducted from each premium payment for taxes on premium payments
is 2.6%.
o The charge each month for administrative expenses is $3.
o Prudential deducts its current level of charges for sales, mortality and
expense risk, administrative expenses, and processing. We assumed the
current level of charges will stay in effect for the entire time the
Certificate is in effect.
o The Participant has current standardized cost of insurance charges from the
following table, which is excerpted from Table I under Section 79 of the
Internal Revenue Code:
Monthly Current Cost
of Insurance Rates
-------------------------------------------
Age Rate Per Thousand
Dollars of
Insurance
-------------------------------------------
40 to 44 $0.17
-------------------------------------------
45 to 49 $0.29
-------------------------------------------
50 to 54 $0.48
-------------------------------------------
55 to 59 $0.75
-------------------------------------------
60 to 64 $1.17
-------------------------------------------
65 to 69 $2.10
-------------------------------------------
70 to 79 $3.76
-------------------------------------------
Illustration #2
In Illustration #2, we changed our assumptions about the charges Prudential will
deduct from the Certificate -- instead of current charges, we assumed that
maximum charges would be made.
9
<PAGE>
Here's what we assumed:
o The charge deducted from each premium payment for taxes on premium payments
is 2.6%. (Since Prudential would increase this charge only if a state
increases its tax charge to us, we left this charge at the current level.)
o The charge each month for administrative expenses is $6.
o Prudential deducts the maximum level of charges for sales, mortality and
expense risk, administrative expenses, and processing. We assumed the
maximum level of charges will stay in effect for the entire time the
Certificate is in effect.
o The Participant has cost of insurance charges equal to the maximum rates.
(The maximum rates that Prudential can charge are 150% of the 1980
Commissioner's Standard Ordinary Mortality Table [Male], Age Last Birthday
(the "1980 CSO")).
Assumptions about how the Certificate Fund was invested
We assumed that the Certificate Fund was invested in equal amounts in each of
the 136 Funds available under Group Variable Universal Life Insurance. (We used
all 136 only for the purpose of this illustration. As we told you earlier in
this prospectus, Prudential will permit each Group Contractholder to make no
more than 20 Funds available to its Participants.)
Each illustration shows four different assumptions about the investment
performance -- or "investment return" -- of the Funds. The four different
assumptions are:
o gross annual rate of return is 0%
o gross annual rate of return is 4%
o gross annual rate of return is 8%
o gross annual rate of return is 10%
These are only assumptions to show how the Death Benefit and Cash Surrender
Value change depending on the investment return. Actual investment return will
depend on the investment options you select and will vary from year to year.
10
<PAGE>
Walking Through The Illustrations
Here's what to look for in the illustrations:
o The first column shows the Certificate Year.
o The second column gives you some context for comparing the investment
return under the Certificate to the return you might expect from a savings
account. It shows the amount you would accumulate if you invested the same
premiums in a savings account paying a 4% effective annual rate. (Of
course, a savings account does not offer life insurance protection like the
Certificate does.)
o The next four columns show what the Death Benefit would be for each of the
four investment return assumptions (0%, 4%, 8% and 10%).
o The last four columns show what the Cash Surrender Value would be for each
of the four investment return assumptions (0%, 4%, 8%, and 10%).
You should note that:
o Both "gross" and "net" investment returns are shown.
o "Gross" investment return reflects the combined effect of both income on
the investment and capital gains. It is the amount of return before
Prudential takes out any of its charges and before any Fund investment
management fees and other expenses are taken out.
o "Net" investment return is the amount of the investment return after
Prudential takes out its charges and after Fund investment management fees
and other expenses are taken out. Since Illustration #1 and Illustration #2
use different assumptions about charges, the "net" investment returns for
each illustration are different.
o Fund investment management fees and other expenses were assumed to equal
X.XX%, which was the average Fund expense in 1998.
o For Illustration #1, Prudential's mortality and expense risk charges are
0.45% per year. (In Illustration #1, we assumed that Prudential's current
charges are in effect.) So, gross returns of 0%, 4%, 8% and 10% become net
returns of X.XX%, X.XX%, X.XX%, and X.XX%.
11
<PAGE>
o For Illustration #2, Prudential's mortality and expense risk charges are
0.90% per year. (In Illustration #2, we assumed that Prudential's maximum
charges are in effect.) So, gross returns of 0%, 4%, 8% and 10% become net
returns of X.XX%, X.XX%, X.XX%, and X.XX%.
o The Death Benefits and Cash Surrender Values are shown with all of
Prudential's charges and Fund investment management fees and other expenses
taken out.
o We assumed no loans or partial withdrawals were taken.
o Neither illustration reflects Dividends or Experience Credits. (Prudential
may pay Dividends or Experience Credits to Group Contractholders. See the
Dividends or Experience Credits section on page XX.)
If you ask, Prudential will give you a similar illustration for a Certificate
that shows your age, risk class, proposed Face Amount of insurance, and proposed
premium payments. We refer to this as a "personalized illustration."
12
<PAGE>
Illustrations
[To be added by post-effective amendment.]
We show these rates of investment return only to help you understand how
the Certificate works. You should not assume that the investment rates of
return are actual rates of return. You should also not assume that these
rates are examples of past or future investment performance. Neither
Prudential nor the Funds can tell you whether these rates of investment
return can actually be achieved.
The actual rates of investment return for your Certificate will depend on
how the investment options that you choose perform. You may earn more or
less than what is shown in the illustration.
The Death Benefits and Cash Surrender Values would be different from those
shown if the actual rate of return for a Certificate Year varied above or
below the average, hypothetical rates of 0%, 4%, 8%, and 10%.
13
<PAGE>
General Information About:
o Prudential
o The Prudential Variable Contract Account GI-2
o The Variable Investment Options under the Certificates
The Prudential Insurance Company of America
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
years to complete. No plan of demutualization has been adopted yet by
Prudential's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Prudential policyholders and appropriate state insurance
regulators. Throughout the process, there will be continuing evaluation by the
Board of Directors and management of Prudential as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.
Prudential is licensed to sell life insurance and annuities in all states, in
the District of Columbia, and in all United States territories and possessions.
Prudential's consolidated financial statements begin on page XX (following page
XX) and should be considered only as bearing upon Prudential's ability to meet
its obligations under the Group Contracts and the insurance provided thereunder.
Prudential and its affiliates act in a variety of capacities with respect to
registered investment companies including as depositor, adviser, and principal
underwriter.
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (the "Separate Account") was
established on June 14, 1988 under New Jersey law as a separate investment
account. The Separate Account meets the definition of a "separate account" under
the federal securities laws. The Separate Account holds assets that are
segregated from all of Prudential's other assets.
The obligations arising under the Group Contracts and the Certificates are
general corporate obligations of Prudential. Prudential is also the legal owner
of the assets in the Separate Account. Prudential will maintain assets in the
Separate Account with a total market value
14
<PAGE>
at least equal to the liabilities relating to the benefits attributable to the
Separate Account. These assets may not be charged with liabilities which arise
from any other business Prudential conducts. In addition to these assets, the
Separate Account's assets may include funds contributed by Prudential to
commence operation of the Separate Account and may include accumulations of the
charges Prudential makes against the Separate Account. From time to time, these
additional assets will be transferred to Prudential's general account. Before
making any such transfer, Prudential will consider any possible adverse impact
the transfer might have on the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the federal securities laws as a unit investment trust, which is a
type of investment company. This does not involve any supervision by the SEC of
the management or investment policies or practices of the Separate Account. For
state law purposes, the Separate Account is treated as a part or division of
Prudential. There are currently 136 Subaccounts within the Separate Account,
each of which invests in a corresponding Fund. Prudential reserves the right to
take all actions in connection with the operation of the Separate Account that
are permitted by applicable law (including those permitted upon regulatory
approval).
The Funds
Set out below is a list of each Fund, its investment objectives, investment
management fees and other expenses, and its investment advisor/investment
manager. Some Funds also provide information about their principal strategies.
Certain of the Funds have adopted distribution plans pursuant to Rule 12b-1 of
the 1940 Act, and under those plans, the Fund may make payments to Prudential
and/or its affiliate for certain marketing efforts.
The Prudential Series Fund, Inc.
The portfolios of the Series Fund in which the Separate Account may currently
invest and their investment objectives, principal strategies and fees are as
follows:
Conservative Balanced Portfolio: The investment objective is a total investment
return consistent with a conservatively managed diversified portfolio. The
Portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
Diversified Bond Portfolio: The investment objective is a high level of income
over a longer term while providing reasonable safety of capital. The Portfolio
invests primarily in higher grade debt obligations and high quality money market
investments.
15
<PAGE>
Equity Income Portfolio: The investment objective is both current income and
capital appreciation. The Portfolio invests primarily in common stocks and
convertible securities that provide good prospects for returns above those of
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index") or
the NYSE Composite Index.
Equity Portfolio: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established corporations
as well as smaller companies that offer attractive prospects of appreciation.
Flexible Managed Portfolio: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
Global Portfolio: The investment objective is long-term growth of capital. The
Portfolio invests primarily in common stocks (and their equivalents) of foreign
and U.S. companies.
Government Income Portfolio: The investment objective is a high level of income
over the longer term consistent with the preservation of capital. The Portfolio
invests primarily in U.S. Government securities, including intermediate and
long-term U.S. Treasury securities and debt obligations issued by agencies or
instrumentalities established by the U.S. Government.
High Yield Bond Portfolio: The investment objective is a high total return. The
Portfolio invests primarily in high yield/high risk debt securities.
Money Market Portfolio: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity. The
Portfolio invests in short-term debt obligations that mature in 13 months or
less.
Natural Resources Portfolio: The investment objective is long-term growth of
capital. The Portfolio invests primarily in common stocks and convertible
securities of natural resource companies and securities that are related to the
market value of some natural resource.
Prudential Jennison Portfolio: The investment objective is to achieve long-term
growth of capital. The Portfolio invests primarily in equity securities of major
established corporations that offer above average growth prospects.
Small Capitalization Stock Portfolio: The investment objective is long-term
growth of capital. The Portfolio invests primarily in equity securities of
publicly-traded companies with small market capitalization.
Stock Index Portfolio: The investment objective is to achieve an investment
return that corresponds to the performance of publicly-traded common stocks
generally. The Portfolio invests to duplicate the price and yield performance of
the S&P 500 Index.
16
<PAGE>
Two Zero Coupon Bond Portfolios 2000 and 2005: The investment objective of these
two portfolios is the highest predictable compound investment for a specific
period of time, consistent with the safety of invested capital. The Portfolio
invests primarily in debt obligations of the U.S. Treasury and corporations that
have been issued without interest coupons or stripped of their interest coupons,
or interest coupons that have been stripped from the debt obligations.
Prudential is the investment adviser of each of the portfolios of the Series
Fund. Prudential's principal business address is 751 Broad Street, Newark, New
Jersey 07102- 3777. Prudential has a service agreement with its wholly-owned
subsidiary The Prudential Investment Corporation ("PIC"), which provides that,
subject to Prudential's supervision, PIC will furnish investment advisory
services in connection with the management of the Series Fund. In addition,
Prudential has entered into a subadvisory agreement with its wholly-owned
subsidiary Jennison Associates Capital Corp. ("Jennison"), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. Further detail is provided in the prospectus and
statement of additional information for the Series Fund. Prudential, PIC and
Jennison are registered as investment advisers under the Investment Advisers Act
of 1940.
<TABLE>
<CAPTION>
====================================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
(After Expense
Reimbursements)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Series Fund
Conservative Balanced Portfolio (1) _.__% _.__% _.__%
Diversified Bond Portfolio (1) _.__% _.__% _.__%
Equity Income Portfolio (1) _.__% _.__% _.__%
Equity Portfolio (1) _.__% _.__% _.__%
Flexible Managed Portfolio (1) _.__% _.__% _.__%
Global Portfolio (1) _.__% _.__% _.__%
Government Income Portfolio (1) _.__% _.__% _.__%
====================================================================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
(After Expense
Reimbursements)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
High Yield Bond Portfolio (1) _.__% _.__% _.__%
Money Market Portfolio (1) _.__% _.__% _.__%
Natural Resources Portfolio (1) _.__% _.__% _.__%
Prudential Jennison Portfolio (1) _.__% _.__% _.__%
Small Capitalization Stock Portfolio (1) _.__% _.__% _.__%
Stock Index Portfolio (1) _.__% _.__% _.__%
Zero Coupon Bond 2000 Portfolio (1) _.__% _.__% _.__%
Zero Coupon Bond 2005 Portfolio (1) _.__% _.__% _.__%
====================================================================================================================
</TABLE>
(1) Series Fund. With respect to the Series Fund portfolios, except for the
Global Portfolio, Prudential reimburses a portfolio when its ordinary
operating expenses, excluding taxes, interest, and brokerage commissions
exceed _.__% of the portfolio's average daily net assets. The amounts
listed for the portfolios under Other Expenses are based on amounts
incurred in the last fiscal year.
AIM Variable Insurance Funds, Inc.
The portfolios of the AIM Variable Insurance Funds, Inc. in which the Separate
Account may currently invest and their investment objectives and fees are as
follows:
AIM V.I. Capital Appreciation Fund: The Fund's investment objective is to seek
capital appreciation through investments in common stocks, with emphasis on
medium-sized and smaller emerging growth companies.
AIM V.I. Diversified Income Fund: The Fund's investment objective is to seek to
achieve a high level of current income. The Fund will seek to achieve its
investment objective by investing primarily in: (1) foreign government
securities, (2) foreign and domestic corporate debt securities, (3) U.S.
Government securities, including U.S. Government Agency Mortgage-Backed
Securities and (4) lower-rated or unrated high yield debt securities (commonly
known as "junk bonds") of U.S. and foreign companies.
AIM V.I. Global Utilities Fund: The Fund's investment objective is to achieve a
high level of current income, and as a secondary objective the Fund seeks to
achieve capital appreciation, by investing primarily in the common and preferred
stocks of public utility companies (either domestic or foreign).
18
<PAGE>
AIM V.I. Government Securities Fund: The Fund's investment objective is to
achieve a high level of current income consistent with reasonable concern for
safety of principal by investing in debt securities issued, guaranteed or
otherwise backed by the United States Government.
AIM V.I. Growth Fund: The Fund's investment objective is to seek growth of
capital principally through investment in common stocks of seasoned and better
capitalized companies considered by AIM to have strong earnings momentum.
Current income will not be an important criterion of investment selection, and
any such income should be considered incidental.
AIM V.I. Growth and Income Fund: The Fund's investment objective is to seek
growth of capital, with current income as a secondary objective. Although the
amount of the Fund's current income will vary from time to time, it is
anticipated that the current income realized by the Fund will generally be
greater than that realized by mutual funds whose sole objective is growth of
capital.
AIM V.I. International Equity Fund: The Fund's investment objective is to seek
to provide long-term growth of capital by investing in a diversified portfolio
of international equity securities the issuers of which are considered by AIM to
have strong earnings momentum. Any income realized by the Fund will be
incidental and will not be an important criterion in the selection of portfolio
securities.
AIM V.I. Value Fund: The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in equity securities judged by AIM to
be undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative to current market values of assets owned by
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio.
A I M Advisors, Inc. ("AIM") serves as the investment advisor to each Fund.
AIM's principal business address is 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173. The principal underwriter of the funds is A I M Distributors, Inc.,
a subsidiary of AIM, located at 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173.
19
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================
Funds Management Fee Other Total Fund
Expenses Annual Expenses
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund (1) _.__% _.__% _.__%
AIM V.I. Diversified Income Fund (1) _.__% _.__% _.__%
AIM V.I. Global Utilities Fund (1) _.__% _.__% _.__%
AIM V.I. Government Securities Fund (1) _.__% _.__% _.__%
AIM V.I. Growth Fund (1) _.__% _.__% _.__%
AIM V.I. Growth and Income Fund (1) _.__% _.__% _.__%
AIM V.I. International Equity Fund (1) _.__% _.__% _.__%
AIM V.I. Value Fund (1) _.__% _.__% _.__%
====================================================================================================================
</TABLE>
(1) AIM may from time to time voluntarily waive or reduce its respective fees.
The Funds listed above did not have any fee waivers for the year ended
12/31/97. None of the expense ratios have been restated. Effective May 1,
1998, the Funds reimburse AIM in an amount up to _.__% of the average net
asset value of each Fund, for expenses incurred in providing, or assuring
that participating insurance companies provide certain administrative
services. The fee currently only applies to the average net asset value of
each Fund in excess of the net asset value of each Fund as calculated on
April 30, 1998.
Alliance Capital
The portfolios of the Alliance Variable Products Series Fund, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
Global Bond Portfolio: Seeks a high level of return from a combination of
current income and capital appreciation by investing in a globally diversified
portfolio of high quality debt securities denominated in the U.S. Dollar and a
range of foreign currencies.
Global Dollar Government Portfolio: Seeks a high level of current income through
investing substantially all of its assets in U.S. and non-U.S. fixed-income
securities denominated only in U.S. dollars. As a secondary objective, the
Portfolio seeks capital appreciation. Substantially all of the Portfolio's
assets will be invested in high yield, high risk securities that are low-rated
(i.e., below investment grade), or of comparable quality and unrated, and that
are considered to be predominantly speculative as regards the issuer's capacity
to pay interest and repay principal.
Growth Portfolio: Seeks long-term growth of capital by investing primarily in
common stocks and other equity securities.
20
<PAGE>
Growth and Income Portfolio: Seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality.
International Portfolio: Seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States companies
(or United States companies having their principal activities and interests
outside the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
Premier Growth Portfolio: Seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based upon their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. This portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Quasar Portfolio: Seeks growth of capital by pursuing aggressive investment
policies. This portfolio invests in a diversified portfolio of equity securities
of any company and industry and in any type of security which is believed to
offer possibilities for capital appreciation.
Real Estate Investment Portfolio: Seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Technology Portfolio: Seeks growth of capital through investment in companies
expected to benefit from advances in technology. This portfolio will invest
principally in a diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes.
U.S. Government/High Grade Securities Portfolio: Seeks a high level of current
income consistent with preservation of capital by investing principally in a
portfolio of U.S. Government Securities and other high grade debt securities.
Utility Income Portfolio: Seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies in
the "utilities industry." The Portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
21
<PAGE>
Worldwide Privatization Portfolio: Seeks long-term capital appreciation by
investing principally in equity securities issued by enterprises that are
undergoing, or have undergone, privatization. The balance of the Portfolio's
investment portfolio will include equity securities of companies that are
believed by the Fund's Adviser to be beneficiaries of the privatization process.
Alliance Capital Management L.P. ("Alliance") is the investment adviser to each
of the above-mentioned funds. Alliance's principal business address is 1345
Avenue of the Americas, New York, New York 10105. The principal underwriter of
the funds is Alliance Fund Distributors, Inc., a subsidiary of Alliance, located
at 1345 Avenue of the Americas, New York, New York 10105.
<TABLE>
<CAPTION>
=========================================================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Fee Expenses (After Expense
Reimbursements)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio (1) _.__% _.__% _.__%
Global Dollar Government Portfolio (1) _.__% _.__% _.__%
Growth Portfolio (1) _.__% _.__% _.__%
Growth and Income Portfolio (1) _.__% _.__% _.__%
International Portfolio (1) _.__% _.__% _.__%
Premier Growth Portfolio (1) _.__% _.__% _.__%
Quasar Portfolio (1) _.__% _.__% _.__%
Real Estate Investment Portfolio (1)(2) _.__% _.__% _.__%
Technology Portfolio (1) _.__% _.__% _.__%
U.S. Government/High Grade Securities Portfolio (1) _.__% _.__% _.__%
Utility Income Portfolio (1) _.__% _.__% _.__%
Worldwide Privatization Portfolio (1) _.__% _.__% _.__%
=========================================================================================================================
</TABLE>
(1) Net of expense reimbursement. The expenses of the following Portfolios,
before expense reimbursements, would be: Global Bond Portfolio: investment
management fee _.__%, other expenses _.__% and total fund annual expenses
_.__%; Global Dollar Government Portfolio: investment management fee _.__%,
other expenses _.__% and total fund annual expenses _.__%; Growth
Portfolio: investment management fee _.__%, other expenses _.__% and total
fund annual expenses _.__%; Growth and Income Portfolio: investment
management fee _.__%, other expenses _.__% and total fund annual expenses
_.__%; International Portfolio: investment management fee _.__%, other
expenses _.__% and total fund annual expenses _.__%; Premier Growth
Portfolio: investment management fee _.__%, other expenses _.__% and total
fund annual expenses _.__%;
22
<PAGE>
Quasar Portfolio: investment management fee _.__%, other expenses _.__% and
total fund annual expenses _.__%; Real Estate Investment Portfolio:
investment management fee _.__%, other expenses _.__% and total fund annual
expenses _.__%; Technology Portfolio: investment management fee _.__%,
other expenses _.__& and total fund annual expenses _.__%; U.S.
Government/High Grade Securities Portfolio: investment management fee
_.__%, other expenses _.__% and total fund annual expenses _.__%; Utility
Income Portfolio: investment management fee _.__%, other expenses _.__% and
total fund annual expenses _.__%; and Worldwide Privatization Portfolio:
investment management fee _.__%, other expenses _.__% and total fund annual
expenses _.__%.
(2) Annualized.
American Century Variable Portfolios, Inc.
The portfolios of American Century Variable Portfolios, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
VP Balanced Portfolio: The investment objective of the VP Balanced Portfolio is
capital growth and current income. Management of the Portfolio intends to
maintain approximately 60% of the Portfolio's assets in the equity securities
described in the prospectus, and intends to maintain approximately 40% of the
Portfolio's assets in fixed income securities.
VP Capital Appreciation Portfolio: Seeks capital growth over time by investing
primarily in common stocks that are considered by management to have
better-than-average prospects for appreciation.
VP International Portfolio: Seeks capital growth over time by investing in
common stocks of foreign companies considered to have better-than-average
prospects for appreciation.
VP Value Portfolio: Seeks long-term capital growth with income as a secondary
objective. The fund seeks to achieve its objectives by investing primarily in
equity securities of well-established companies that are believed by management
to be undervalued at the time of purchase.
The investment adviser for each fund is American Century Investment Management,
Inc. ("ACIM"). ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. Funds Distributor, Inc. distributes
shares of American Century funds, and all sales of fund shares are subject to
approval by Funds Distributor, Inc.
23
<PAGE>
================================================================================
Funds Total Fund
Annual Expenses
- --------------------------------------------------------------------------------
American Century Variable Portfolios, Inc.
VP Balanced Portfolio (1) _.__%
VP Capital Appreciation Portfolio (1) _.__%
VP International Portfolio (1) _.__%
VP Value Portfolio (1) _.__%
================================================================================
(1) Fees are all-inclusive.
The Berger Funds
The portfolios of the Berger Institutional Products Trust ("Berger IPT") in
which the Separate Account may currently invest and their investment objectives
and fees are as follows:
Berger IPT - 100 Fund: The investment objective of the Berger IPT - 100 Fund is
long term capital appreciation. The Berger IPT - 100 Fund seeks to achieve this
objective by investing primarily in common stocks of established companies which
are believed to offer favorable growth prospects. Current income is not an
investment objective of the Berger IPT - 100 Fund, and any income produced will
be a by-product of the effort to achieve the Fund's objective.
Berger IPT - Growth and Income Fund: The primary investment objective of the
Berger IPT - Growth and Income Fund is capital appreciation. A secondary
objective is to provide a moderate level of current income. The Berger IPT -
Growth and Income Fund seeks to achieve these objectives by investing primarily
in common stocks and other securities, such as convertible securities and
preferred stocks, which the Fund's advisor believes offer favorable growth
prospects and are expected to also provide current income.
Berger IPT - Small Company Growth Fund: The investment objective of the Berger
IPT - Small Company Growth Fund is capital appreciation. The Berger IPT - Small
Company Growth Fund seeks to achieve this objective by investing primarily in
equity securities (including common and preferred stocks, convertible debt
securities and other securities having equity features) of small growth
companies with market capitalization of less than $1 billion at the time of the
initial purchase.
24
<PAGE>
Berger/BIAM IPT - International Fund: The investment objective of the
Berger/BIAM IPT - International Fund is long-term capital appreciation. The
Berger/BIAM IPT International Fund seeks to achieve this objective by investing
primarily in common stocks of well established companies located outside the
United States. The Fund intends to diversify its holdings among several
countries and to have, under normal market conditions, at least 65% of the
Fund's total assets invested in the securities of companies located in at least
five countries, not including the United States.
Berger Associates, Inc. ("Berger") is the investment adviser to the Berger IPT -
100 Fund, Berger IPT - Growth and Income Fund and Berger IPT - Small Company
Growth Fund. BBOI Worldwide LLC ("BBOI"), a joint venture of Berger and Bank of
Ireland Asset Management (U.S.) Limited ("BIAM"), is the adviser to the
Berger\BIAM IPT International Fund, and BIAM serves as the Fund's subadviser.
Berger Distributors, Inc., a wholly-owned subsidiary of Berger, is the principal
underwriter for all of the portfolios of Berger IPT. The principal business
address of Berger, BBOI and Berger Distributors, Inc. is 210 University
Boulevard, Denver, Colorado 80206.
<TABLE>
<CAPTION>
============================================================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Fee Expenses (After Expense
Reimbursements)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Berger Institutional Products Trust
Berger IPT - 100 Fund (1)(2) _.__% _.__% _.__%
Berger IPT - Growth & Income Fund (1)(2) _.__% _.__% _.__%
Berger IPT - Small Company Growth Fund (1)(2) _.__% _.__% _.__%
Berger/BIAM IPT - International Fund (1)(2) _.__% _.__% _.__%
============================================================================================================================
</TABLE>
(1) Other Expenses primarily include transfer agency fees, shareholder report
expenses, registration fees and custodian fees.
(2) After fee waivers and expense reimbursements. The Funds' investment advisor
has voluntarily agreed to waive its advisory fee and has voluntarily
reimbursed the Funds for additional expenses to the extent that normal
operating expenses in any fiscal year, including the investment fee but
excluding brokerage commissions, interest, taxes and extraordinary
expenses, of each of the Berger IPT - 100 Fund and the Berger IPT Growth
and Income Fund exceed _.__%, the normal operating expenses in any fiscal
year of the Berger IPT - Small Company Growth Fund exceed _.__%, and the
normal operating expenses in any fiscal year of the Berger/BIAM IPT -
International Fund exceed _.__% of the respective Fund's average daily net
assets. Absent the voluntary waiver and reimbursement, the investment
management fee for the Berger IPT - 100 Fund, Berger IPT - Growth and
Income Fund, Berger IPT - Small Company Growth Fund and the Berger/BIAM IPT
- International Fund would have been _.__%, _.__%,
25
<PAGE>
_.__% and _.__%, respectively, and the funds' total operating expenses
would have been _.__%, _.__%, _.__% and _.__%, respectively.
Dreyfus Corporation Funds
The portfolios of the Dreyfus Variable Investment Fund, The Dreyfus Socially
Responsible Growth Fund, Inc., and the Dreyfus Stock Index Fund in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
Capital Appreciation Portfolio: Seeks to provide long-term capital growth
consistent with the preservation of capital; current income is a secondary
investment objective. This portfolio invests primarily in the common stocks of
domestic and foreign issuers.
Disciplined Stock Portfolio: Seeks to provide investment results that are
greater than the total return performance of publicly-traded common stocks in
the aggregate, as represented by the Standard & Poor's 500 Composite Stock
Index. This portfolio will use quantitative statistical modeling techniques to
construct a portfolio in an attempt to achieve its investment objective, without
assuming undue risk relative to the broad stock market.
Growth and Income Portfolio: Seeks to provide long-term capital growth, current
income and growth of income, consistent with reasonable investment risk. This
portfolio invests primarily in equity securities of domestic and foreign
issuers. The portfolio also may invest in debt securities and money market
instruments of domestic and foreign issuers.
International Equity Portfolio: Seeks to maximize capital growth. This portfolio
invests primarily in equity securities of foreign issuers located throughout the
world.
International Value Portfolio: Seeks long-term capital growth. This portfolio
invests primarily in a portfolio of publicly-traded equity securities of foreign
issuers which would be characterized as "value" companies according to criteria
established by The Dreyfus Corporation.
Special Value Portfolio: Seeks to maximize total return, consisting of capital
appreciation and current income. This portfolio follows an asset allocation
strategy by investing in equity securities, debt securities and money market
instruments of domestic and foreign issuers.
Quality Bond Portfolio: Seeks to provide the maximum amount of current income to
the extent consistent with the preservation of capital and the maintenance of
liquidity. This portfolio invests principally in the debt obligations of
corporations, the U.S. Government and its agencies and instrumentalities, and
U.S. major banking institutions.
26
<PAGE>
Small Cap Portfolio: Seeks to maximize capital appreciation. This portfolio
invests primarily in common stocks of domestic and foreign issuers. This
portfolio will be particularly alert to companies that The Dreyfus Corporation
considers to be emerging smaller-sized companies which are believed to be
characterized by new or innovative products, services, or processes which should
enhance prospects for growth in future earnings.
Small Company Stock Portfolio: Seeks to provide investment results that are
greater than the total return performance in publicly-traded common stocks in
the aggregate, as represented by the Russell 2500(TM) Index. This portfolio
invests primarily in a portfolio of equity securities of small to medium-sized
domestic issuers, while attempting to maintain volatility and diversification
similar to that of the Russell 2500(TM) Index.
Socially Responsible Growth Fund: The Fund's primary goal is to provide capital
growth through equity investment in companies that, in the opinion of the Fund's
management, not only meet traditional investment standards but which also show
evidence that they conduct their business in a manner that contributes to the
enhancement of the quality of life in America. Current income is secondary to
the primary goal.
Zero Coupon 2000 Portfolio: Seeks to provide as high an investment return as is
consistent with the preservation of capital. This portfolio invests primarily in
debt obligations of the U.S. Treasury that have been stripped of their unmatured
interest coupons, interest coupons that have been stripped from debt obligations
issued by the U.S. Treasury, receipts and certificates for such stripped debt
obligations, and stripped coupons and zero coupon securities issued by domestic
corporations, which will mature on or about December 31, 2000.
The Dreyfus Corporation ("Dreyfus") is the investment adviser to each of the
above-mentioned portfolios and funds. Dreyfus' principal business address is 200
Park Avenue, New York, New York 10166. The principal underwriter of the
portfolios and funds is Premier Mutual Fund Services, Inc., located at 60 State
Street, Boston, Massachusetts 02109.
27
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Funds
Capital Appreciation Portfolio _.__% _.__% _.__%
Disciplined Stock Portfolio _.__% _.__% _.__%
Growth and Income Portfolio _.__% _.__% _.__%
International Equity Portfolio _.__% _.__% _.__%
International Value Portfolio _.__% _.__% _.__%
Quality Bond Portfolio _.__% _.__% _.__%
Small Cap Portfolio _.__% _.__% _.__%
Small Company Stock Portfolio _.__% _.__% _.__%
Socially Responsible Growth Portfolio _.__% _.__% _.__%
Special Value Portfolio _.__% _.__% _.__%
Zero Coupon 2000 Portfolio _.__% _.__% _.__%
========================================================================================================================
</TABLE>
Franklin Templeton
The Class 2 portfolios of the Templeton Variable Products Series Fund in which
the Separate Account may currently invest and their investment objectives and
fees are as follows:
Templeton Asset Allocation Fund: The fund's investment goal is high total
return. Under normal market conditions, the fund will invest in equity and debt
securities of any nation, including emerging markets, and in money market
instruments.
Templeton Bond Fund: The fund's investment goal is high current income. Capital
appreciation is a secondary consideration. Under normal market conditions, the
fund will invest at least 65% of its total assets in the debt securities of
governments and their political subdivisions and agencies, supranational
organizations, and companies located anywhere in the world, including emerging
markets.
Templeton Developing Markets Fund: The fund's investment goal is long-term
capital appreciation. Under normal market conditions, the fund will invest at
least 65% of its total assets in equity securities that trade in emerging
markets and are issued by companies that have their principal activities in
emerging market countries.
Templeton International Fund: The fund's investment goal is long-term capital
growth. Under normal market conditions, the fund will invest at least 65% of its
total assets in the equity securities of companies located outside the U.S.,
including emerging markets.
Templeton Stock Fund: The fund's investment goal is long-term capital growth.
Under normal market conditions, the fund will invest at least 65% of its total
assets in the equity
28
<PAGE>
securities of companies located anywhere in the world, including in the U.S. and
emerging markets.
Templeton Investment Counsel, Inc. ("TICI") serves as the investment manager for
the Asset Allocation Fund, Bond Fund, International Fund, and Stock Fund. TICI
is a Florida corporation with offices at Broward Financial Centre, Fort
Lauderdale, Florida 33394-3091. The Investment Manager for the Developing
Markets Fund is Templeton Asset Management Ltd., a Singapore corporation with
offices at 7 Temasek Blvd., #38- 03, Suntec Tower One, Singapore 038987. The
principal underwriter of the Funds is Franklin Templeton Distributors, Inc., 100
Fountain Parkway, St. Petersburg, Florida 33716-1205.
<TABLE>
<CAPTION>
=============================================================================================================================
Funds Investment 12b-1 Other Total Fund
Management Fee Fees Expenses Annual Expenses
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Variable Products Series
Fund (Class 2 Shares)
Asset Allocation Fund (1) _.__% _.__% _.__% _.__%
Bond Fund (2) _.__% _.__% _.__% _.__%
Developing Markets Fund (2) _.__% _.__% _.__% _.__%
International Fund (1) _.__% _.__% _.__% _.__%
Stock Fund (1) _.__% _.__% _.__% _.__%
=============================================================================================================================
</TABLE>
(1) Class 2 of the Fund has a distribution plan or "Rule 12b-1 plan" which is
described in the Fund's prospectus. Because Class 2 shares were not offered
until May 1, 1997, figures (other than "12b-1 Fees") are estimates for 1998
based on the historical expenses of the Fund's Class 1 shares for the
fiscal year ended December 31, 1997, except that Management Fees and Total
Fund Operating Expenses have also been restated to reflect the management
fee schedule approved by shareholders and effective May 1, 1997. Actual
Management Fees and Total Fund Operating Expenses during 1997 were lower.
See fund prospectus for details.
(2) Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan" which is
described in the Fund's prospectus. Because Class 2 shares were not offered
until May 1, 1997, figures (other than "Rule 12b-1 Fees") are estimates for
1998 based on the historical expenses of the Fund's Class 1 shares for the
fiscal year ended December 31, 1997.
INVESCO Funds
The portfolios of the INVESCO Variable Investment Funds, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
29
<PAGE>
Dynamics Portfolio: Seeks long-term appreciation of capital through aggressive
investment policies. The Dynamics Portfolio invests primarily in common stocks
of U.S. companies traded on national securities exchanges and over-the-counter.
Growth Portfolio: Seeks long-term capital growth. The Portfolio also seeks, as a
secondary objective, to obtain investment income through the purchase of
securities of carefully selected companies representing major fields of business
and industrial activity. In pursuing its objectives, the Portfolio invests
primarily in common stocks, but may also invest in other kinds of securities,
including convertible and straight issues of debentures and preferred stock.
Health Sciences Portfolio: Seeks long-term capital appreciation by normally
investing at least 80% of its total assets in equity securities of companies
that develop, produce, or distribute products or services related to health
care.
High Yield Portfolio: Seeks a high level of current income by investing
substantially all of its assets in lower-rated bonds and other debt securities
and in preferred stock. The Portfolio pursues its investment objective through
investment in a variety of long-term, intermediate-term, and short-term bonds.
Potential capital appreciation is a factor in the selection of investments, but
is secondary to the Portfolio's primary objective.
Industrial Income Portfolio: Seeks the best possible current income. Capital
growth potential is an additional consideration in the selection of portfolio
securities. The Portfolio normally invests at least 65% of its total assets in
dividend-paying common stocks. Up to 10% of the Portfolio's total assets may be
invested in equity securities that do not pay regular dividends. The remaining
assets are invested in other income-producing securities, such as corporate
bonds. The Portfolio also has the flexibility to invest in other types of
securities.
Small Company Growth Portfolio: Seeks long-term capital growth. The Small
Company Growth Portfolio invests primarily in equity securities of
small-capitalization U.S. companies traded "over-the-counter."
Technology Portfolio: Seeks long-term capital appreciation. The Technology
Portfolio normally invests at least 80% of its total assets in equity securities
of companies in technology-related industries such as computers, communications,
video, electronics, oceanography, office and factory automation, and robotics.
Total Return Portfolio: Seeks a high total return on investment through capital
appreciation and current income. The Total Return Portfolio seeks to achieve its
investment objective by investing in a combination of equity securities
(consisting of common stocks and, to a lesser degree, securities convertible
into common stock) and fixed income securities.
30
<PAGE>
Utilities Portfolio: Seeks capital appreciation and income. The assets of the
Utilities Portfolio are invested primarily in equity securities of companies
principally engaged in business as public utilities.
INVESCO Funds Group, Inc. ("INVESCO") serves as the investment adviser and
principal underwriter of each of the above-mentioned funds. INVESCO's principal
business address is 7800 E. Union Avenue, Denver, Colorado 80237.
<TABLE>
<CAPTION>
======================================================================================================================
Total Fund
Investment Other Annual Expenses (After
Funds Management Fee Expenses Expense
Reimbursements)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESCO Variable Investment Funds, Inc.
Dynamics Portfolio (1)(2) _.__% _.__% _.__%
Growth Portfolio (1)(2) _.__% _.__% _.__%
Health Sciences Portfolio (1)(2) _.__% _.__% _.__%
High Yield Portfolio (1)(2) _.__% _.__% _.__%
Industrial Income Portfolio (1)(2) _.__% _.__% _.__%
Small Company Growth Portfolio (1)(2) _.__% _.__% _.__%
Technology Portfolio (1)(2) _.__% _.__% _.__%
Total Return Portfolio (1)(2) _.__% _.__% _.__%
Utilities Portfolio (1)(2) _.__% _.__% _.__%
======================================================================================================================
</TABLE>
(1) Various expenses of the Portfolios were voluntarily absorbed by INVESCO
Funds Group, Inc. for the year ended December 31, 1997. If such expenses
had not been voluntarily absorbed, the ratio of expenses to average net
assets for Dynamics, Growth, Health Sciences, High Yield, Industrial
Income, Small Company Growth, Technology, Total Return and Utilities
Portfolios would have been __.__%, __.__%, __.__%, _.__%, _.__%, __.__%,
__.__%, _.__% and _.__%, respectively.
(2) It should be noted that the Portfolios' actual total fund annual expenses
were lower than the figures shown because the Portfolios' custodian and
pricing expenses were reduced under an expense offset arrangement. However,
as a result of an SEC requirement, the figures shown above do not reflect
these reductions.
Investors Fund -- Kemper Series
The portfolios of Investors Fund Series in which the Separate Account may
currently invest (the "Kemper Series") and their investment objectives and fees
are as follows:
Blue Chip Portfolio: Seeks growth of capital and of income by investing
primarily in common stocks of well capitalized, established companies having
potential for growth of capital, earnings and dividends.
31
<PAGE>
Contrarian Value Portfolio: Seeks to achieve a high rate of total return from a
portfolio primarily of value stocks of larger companies.
Global Income Portfolio: Seeks high current income consistent with prudent total
return asset management by investing primarily in a portfolio of investment
grade foreign and domestic fixed income securities.
Government Securities Portfolio: Seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
Growth Portfolio: Seeks maximum appreciation of capital through diversification
of investment securities having potential for capital appreciation.
High Yield Portfolio: Seeks to provide a high level of current income by
investing in fixed-income securities.
Horizon 5 Portfolio: Designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.
Horizon 10+ Portfolio: Designed for investors with approximately a 10+ year
investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.
Horizon 20+ Portfolio: Designed for investors with approximately a 20+ year
investment horizon, seeks growth of capital, with income as a secondary
objective.
International Portfolio: Seeks total return, a combination of capital growth and
income, principally through an internationally diversified portfolio of equity
securities.
Investment Grade Bond Portfolio: Seeks high current income by investing
primarily in a diversified portfolio of investment grade debt securities.
Small Cap Growth Portfolio: Seeks maximum appreciation of investors' capital
from a portfolio primarily of growth stocks of smaller companies.
Small Cap Value Portfolio: Seeks long-term capital appreciation from a portfolio
primarily of value stocks of smaller companies.
Total Return Portfolio: Seeks a high total return, a combination of income and
capital appreciation, by investing in a combination of debt securities and
common stocks.
Value+Growth Portfolio: Seeks growth of capital through professional management
of a portfolio of growth and value stocks.
32
<PAGE>
The asset manager of the portfolios is Scudder Kemper Investments, Inc.
("Scudder Kemper"). Scudder Kemper's principal business address is Two
International Place, Boston, Massachusetts 02110-4103.
<TABLE>
<CAPTION>
=================================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investors Fund Series
Blue Chip Portfolio _.__% _.__% _.__%
Contrarian Value Portfolio _.__% _.__% _.__%
Global Income Portfolio _.__% _.__% _.__%
Government Securities Portfolio _.__% _.__% _.__%
Growth Portfolio _.__% _.__% _.__%
High Yield Portfolio _.__% _.__% _.__%
Horizon 5 Portfolio _.__% _.__% _.__%
Horizon 10+ Portfolio _.__% _.__% _.__%
Horizon 20+Portfolio _.__% _.__% _.__%
International Portfolio _.__% _.__% _.__%
Investment Grade Bond Portfolio _.__% _.__% _.__%
Small Cap Growth Portfolio _.__% _.__% _.__%
Small Cap Value Portfolio _.__% _.__% _.__%
Total Return Portfolio _.__% _.__% _.__%
Value+Growth Portfolio _.__% _.__% _.__%
=================================================================================================================
</TABLE>
Janus Aspen Series
The portfolios of the Janus Aspen Series in which the Separate Account may
currently invest and their investment objectives and fees are as follows:
Aggressive Growth Portfolio: The investment objective of this Portfolio is
long-term growth of capital. It is a nondiversified portfolio that pursues its
investment objective by normally investing at least 50% of its equity assets in
securities issued by medium-sized companies.
Balanced Portfolio: The investment objective of this Portfolio is long-term
capital growth, consistent with preservation of capital and balanced by current
income. It is a diversified portfolio that, under normal circumstances, pursues
its objective by investing 40-60% of its assets in securities selected primarily
for their growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
Flexible Income Portfolio: The investment objective of this Portfolio is to
obtain maximum total return, consistent with preservation of capital. The
Portfolio pursues its objective primarily through investments in
income-producing securities. Total return is expected to result from a
combination of current income and capital appreciation, although income will
normally be the dominant component of total return. The Portfolio
33
<PAGE>
invests in many types of income-producing securities and may have substantial
holdings in debt securities rated below investment grade.
Growth Portfolio: The investment objective of this Portfolio is long-term growth
of capital in a manner consistent with the preservation of capital. It is a
diversified portfolio that pursues its objective by investing in common stocks
of issuers of any size. This Portfolio generally invests in larger, more
established issuers.
High-Yield Portfolio: The primary investment objective of this Portfolio is to
obtain high current income. Capital appreciation is a secondary objective when
consistent with its primary objective.
International Growth Portfolio: The investment objective of this Portfolio is
long-term growth of capital. It is a diversified portfolio that pursues its
objective primarily through investments in common stocks of issuers located
outside the United States.
Worldwide Growth Portfolio: The investment objective of this Portfolio is
long-term growth of capital in a manner consistent with the preservation of
capital. It is a diversified portfolio that pursues its objective primarily
through investments in common stocks of foreign and domestic issuers.
Janus Capital Corporation ("Janus Capital") serves as the investment adviser and
principal underwriter to each of the above-mentioned portfolios. Janus Capital's
principal business address is 100 Fillmore Street, Denver, Colorado 80206-4928.
<TABLE>
<CAPTION>
=================================================================================================================
Total Operating
Other Expenses (After Fee
Funds Management Fee Expenses Waivers and
Reductions)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Aspen Series
Aggressive Growth Portfolio (1) _.__% _.__% _.__%
Balanced Portfolio (1) _.__% _.__% _.__%
Flexible Income Portfolio (1) _.__% _.__% _.__%
Growth Portfolio (1) _.__% _.__% _.__%
High-Yield Portfolio (1) _.__% _.__% _.__%
International Growth Portfolio (1) _.__% _.__% _.__%
Worldwide Growth Portfolio (1) _.__% _.__% _.__%
=================================================================================================================
</TABLE>
(1) Management fees for Aggressive Growth, Balanced, Growth, International
Growth and Worldwide Growth Portfolios reflect a reduced fee schedule
effective July 1, 1997. The management fee for each of these Portfolios
reflects the new rate applied to net assets as of December 31, 1997. Other
expenses are based on gross expenses of
34
<PAGE>
the Shares before expense offset arrangements for the fiscal year ended
December 31, 1997. The information for each Portfolio other than the
Flexible Income Portfolio is net of fee waivers or reductions from Janus
Capital. Fee reductions for the Aggressive Growth, Balanced, Growth,
International Growth and Worldwide Growth Portfolios reduce the management
fee to the level of the corresponding Janus retail fund. Other waivers, if
applicable, are first applied against the management fee and then against
other expenses. Without such waivers or reductions, the Management Fee,
Other Expenses and Total Operating Expenses for the Shares would have been
_.__%, _.__% and _.__% for Aggressive Growth Portfolio; _.__%, _.__% and
_.__% for Balanced Portfolio; _.__%, _.__% and _.__% for Growth Portfolio;
_.__%, _.__% and _.__% for High-Yield Portfolio; _.__%, _.__% and _.__% for
International Growth Portfolio; and _.__%, _.__% and _.__% for Worldwide
Growth Portfolio, respectively. Janus Capital may modify or terminate the
waivers or reductions at any time upon at least 90 days' notice to the
Trustees.
J.P. Morgan Series Trust II
The portfolios of the J.P. Morgan Series Trust II in which the Separate Account
may currently invest and their investment objectives and fees are as follows:
J.P. Morgan Bond Portfolio: Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. Total return will consist
of realized and unrealized capital gains and losses plus income less expenses.
Although the net asset value of the Portfolio will fluctuate, the Portfolio
attempts to preserve the value of its investments to the extent consistent with
its objective.
J.P. Morgan Equity Portfolio: Seeks to provide a high total return from a
portfolio comprised of selected equity securities. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests primarily in the common stock of U.S. corporations with market
capitalizations above $1.5 billion.
J.P. Morgan International Opportunities Portfolio: Seeks to provide a high total
return from a portfolio of equity securities of foreign corporations. Total
return will consist of realized and unrealized capital gains and losses plus
income less expenses.
J.P. Morgan Small Company Portfolio: Seeks to provide a high total return from a
portfolio of equity securities of small companies. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests at least 65% of the value of its total assets in the common
stock of small U.S. companies primarily with market capitalizations less than $1
billion.
35
<PAGE>
J.P. Morgan Investment Management Inc. ("Morgan" or the "Adviser") serves as the
investment adviser to each of the above-mentioned portfolios. Morgan's principal
business address is 522 Fifth Avenue, New York, New York 10036. The Trust's
distributor is Funds Distributor, Inc. located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
<TABLE>
<CAPTION>
=================================================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Expenses (After Expense
Fee Reimbursements)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J.P. Morgan Series Trust II
J.P. Morgan Bond Portfolio (1) _.__% _.__% _.__%
J.P. Morgan Equity Portfolio (1) _.__% _.__% _.__%
J.P. Morgan International _.__% _.__% _.__%
Opportunities Portfolio (1)
J.P. Morgan Small Company Portfolio (1) _.__% _.__% _.__%
=================================================================================================================
</TABLE>
(1) The information in the foregoing table has been restated to reflect an
agreement by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"),
an affiliate of Morgan, to reimburse the Trust to the extent certain
expenses exceed in any fiscal year _.__%, _.__%, _.__% and _.__% of the
average daily net assets of J.P. Morgan Bond Portfolio, J.P. Morgan Equity
Portfolio, J.P. Morgan International Opportunities Portfolio and J.P.
Morgan Small Company Portfolio, respectively. Without such reimbursements,
total fund annual expenses would have been _.__% for the J.P. Morgan Bond
Portfolio, _.__% for the J.P. Morgan Equity Portfolio, _.__% for the J.P.
Morgan International Opportunities Portfolio and _.__% for the J.P. Morgan
Small Company Portfolio.
Lazard Retirement Series, Inc.
The portfolios of the Lazard Retirement Series, Inc. in which the Separate
Account may currently invest and their investment objectives and fees are as
follows:
Lazard Retirement Emerging Markets Portfolio: Seeks long-term capital
appreciation by investing primarily in equity securities of non-U.S. companies
whose principal activities are in emerging market countries that the Investment
Manager believes are undervalued based on their return on total capital or
equity.
Lazard Retirement Equity Portfolio: Seeks long-term capital appreciation by
investing primarily in equity securities of relatively large U.S. companies that
the Investment Manager believes are undervalued based on their return on total
capital or equity.
36
<PAGE>
Lazard Retirement International Equity Portfolio: Seeks long-term capital
appreciation by investing primarily in equity securities of relatively large
non-U.S. companies that the Investment Manager believes are undervalued based on
their return on total capital or equity.
Lazard Retirement Small Cap Portfolio: Seeks long-term capital appreciation by
investing in equity securities of small U.S. companies in the range of the
Russell 2000 Index that the Investment Manager believes are undervalued based on
their return on total capital or equity.
Lazard Asset Management, a division of Lazard Freres & Co. LLC ("Lazard Freres")
and a New York limited liability company, serves as the investment manager and
principal underwriter to each of the above-mentioned portfolios. Lazard Freres'
principal business address is 30 Rockefeller Plaza, New York, New York 10112.
<TABLE>
<CAPTION>
===============================================================================================================================
Investment 12b-1 Total Fund
Funds Management Fee Fees Other Annual Expenses
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lazard Retirement Series, Inc.
Emerging Markets Portfolio (1) _.__% _.__% _._-% _.__%
Equity Portfolio (1) _.__% _.__% _.__% _.__%
International Equity Portfolio (1) _.__% _.__% _.__% _.__%
Small Cap Portfolio (1) _.__% _.__% _.__% _.__%
===============================================================================================================================
</TABLE>
(1) The other expenses noted above are based on estimated amounts for the
current fiscal year.
MFS Variable Insurance Trust
The portfolios of the MFS Variable Insurance Trust in which the Separate Account
may currently invest and their investment objectives and fees are as follows:
MFS Bond Series: Seeks primarily to provide as high a level of current income as
is believed consistent with prudent investment risk and secondarily to protect
shareholders' capital.
MFS Emerging Growth Series: Seeks to provide long-term growth of capital.
MFS Growth with Income Series: Seeks to provide reasonable current income and
long-term growth of capital and income.
MFS High Income Series: Seeks high current income by investing primarily in a
professionally managed diversified portfolio of fixed income securities, some of
which may involve equity features.
37
<PAGE>
MFS Research Series: Seeks to provide long-term growth of capital and future
income.
MFS Total Return Series: Seeks primarily to provide above-average income
(compared to a portfolio invested entirely in equity securities) consistent with
the prudent employment of capital, and secondarily to provide a reasonable
opportunity for growth of capital and income.
MFS Utilities Series: Seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities).
MFS Capital Opportunities Series: Seeks capital appreciation.
MFS Global Government Series: Seeks income and capital appreciation.
The investment adviser for each series is Massachusetts Financial Services
Company ("MFS"). MFS' principal business address is 500 Boylston Street, Boston,
Massachusetts 02116. The principal underwriter of the series is MFS Fund
Distributors, Inc. located at 500 Boylston Street, Boston, Massachusetts 02116.
<TABLE>
<CAPTION>
===============================================================================================================================
Investment Total Fund
Management and Other Annual Expenses (After
Funds Fund Expenses Expense
Administration Fee Reimbursements)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Variable Insurance Trust
MFS Bond Series (1)(2) _.__% _.__% _.__%
MFS Emerging Growth Series (2) _.__% _.__% _.__%
MFS Growth with Income Series (1)(2) _.__% _.__% _.__%
MFS High Income Series (1)(2) _.__% _.__% _.__%
MFS Research Series (2) _.__% _.__% _.__%
MFS Total Return Series (1)(2) _.__% _.__% _.__%
MFS Utilities Series (1)(2) _.__% _.__% _.__%
MFS Capital Opportunities Series (1)(2) _.__% _.__% _.__%
MFS Global Government Series (1)(2) _.__% _.__% _.__%
===============================================================================================================================
</TABLE>
(1) MFS has agreed to bear expenses for the Series, subject to reimbursement by
the Series, such that each Series' "Other Expenses" shall not exceed the
following percentages of the average daily net assets of the Series during
the current fiscal year: _.__% for the Bond Series and _._-% for each
remaining Series. Otherwise, "Other Expenses" for the Bond Series, Growth
with Income Series, High Income Series, Total Return Series, Utilities
Series, Value Series and World Government Series would be _.__%, _.__%,
_.__%, _.__%, _.__%, _.__%, and _.__%, respectively, and total fund annual
expenses would be _.__%, _.__%, _.__%, _.__%, _.__%, _.__%, and _.__%,
respectively, for these Series.
(2) Each Series has an expense offset arrangement which reduces the Series'
custodian fees based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and
38
<PAGE>
may enter into other such arrangements and directed brokerage arrangements
(which also have the effect of reducing the Series' expenses). Any such fee
reductions are not reflected under "Other Expenses."
Neuberger Berman Management Inc. ("NBMI")
The portfolios of the Neuberger Berman Advisers Management Trust ("AMT") in
which the Separate Account may currently invest and their investment objectives
and fees are as follows:
AMT Balanced Portfolio: Seeks long-term capital growth and reasonable current
income without undue risk to principal.
AMT Growth Portfolio: Seeks capital appreciation without regard to income, and
can invest in securities of small-, medium-, and large-capitalization companies.
The portfolio has a current intention to focus primarily on the stocks of
medium-cap companies believed to have the maximum potential for long-term
capital appreciation.
AMT Limited Maturity Bond Portfolio: Seeks the highest current income consistent
with low risk to principal and liquidity; and secondarily, total return.
Investments are made in a diversified portfolio primarily consisting of U.S.
Government and Agency securities and investment grade debt securities issued by
financial institutions, corporations, and others.
AMT Partners Portfolio: Invests principally in common stocks of medium- to
large-capitalization established companies, using the value-oriented investment
approach. Capital growth is sought through an investment approach that is
designed to increase capital with reasonable risk. NB Management looks for
securities believed to be undervalued based on strong fundamentals such as a low
price-to-earnings ratio, consistent cash flow, and the company's track record
through all parts of the market cycle.
Neuberger Berman Management Inc. ("NBMI") serves as the investment manager of
the portfolios and is also the principal underwriter of the portfolios. NBMI's
principal business address is 605 Third Avenue, New York, New York 10158-0180.
39
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
Investment
Management/ Other Total Fund
Funds Administrative Expenses Annual Expenses
Fees
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Neuberger Berman Advisers Management Trust
("AMT") (1)
AMT Balanced Portfolio (2) _.__% _.__% _.__%
AMT Growth Portfolio (2) _.__% _.__% _.__%
AMT Limited Maturity Bond Portfolio (2) _.__% _.__% _.__%
AMT Partners Portfolio (2) _.__% _.__% _.__%
===============================================================================================================================
</TABLE>
(1) Shares of the separate Portfolios of Neuberger Berman Advisers Management
Trust are sold only through the currently effective prospectus and are not
available to the general public. Shares of the AMT Portfolios may be
purchased only by life insurance companies to be used with their separate
accounts which fund variable annuity and variable life insurance policies,
and shares of the AMT Balanced Portfolio are also available as an
underlying investment fund for certain qualified retirement plans.
(2) Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust ("Managers
Trust"), an open-ended management investment company. The figures reported
under "Investment Management/Administrative Fees" include the aggregate of
the administration fees paid by the Portfolio and the management fees paid
by its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
The Royce Portfolios
The portfolios of Royce Capital Fund (Series Trust) in which the Separate
Account may currently invest and their investment objectives and fees are as
follows:
Royce Micro-Cap Portfolio: Seeks long-term capital appreciation, primarily
through investments in common stocks and convertible securities of small and
micro-cap companies. Production of income is incidental to this objective.
Royce Premier Portfolio: Investment objectives are primarily long-term growth
and secondarily current income. It seeks to achieve these objectives through
investments in a limited portfolio of common stocks and convertible securities
of companies viewed by Royce as having superior financial characteristics and/or
unusually attractive business prospects.
Royce Total Return Portfolio: Seeks to have an equal focus on both long term
growth of capital and current income by investing in a broadly diversified
portfolio of dividend paying common stocks of companies selected on a value
basis.
40
<PAGE>
Royce & Associates, Inc. ("Royce") serves as the investment manager of the
portfolios. Royce's principal business address is 1414 Avenue of the Americas,
New York, New York 10019. The principal underwriter of the portfolios is Royce
Fund Services, Inc., 1414 Avenue of the Americas, New York, New York 10019.
<TABLE>
<CAPTION>
=================================================================================================================
Total Fund
Investment Other Annual Expenses (After
Funds Management Fee Expenses Expense
Reimbursements)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Royce Portfolios
Royce Micro-Cap Portfolio (1) _.__% _.__% _.__%
Royce Premier Portfolio (1) _.__% _.__% _.__%
Royce Total Return Portfolio (1) _.__% _.__% _.__%
=================================================================================================================
</TABLE>
(1) Investment management fees would be _.__%, _.__% and _.__% and total fund
annual expenses would be _.__%, _.__% and _.__% for the Micro-Cap
Portfolio, the Premier Portfolio, and the Total Return Portfolio,
respectively, without the waivers of investment management fees by Royce.
Royce has voluntarily committed to waive its fees and reimburse fund
expenses through December 31, 1998 to the extent necessary to maintain
total fund annual expenses of each Fund at or below _.__%.
Scudder Variable Life Investment Fund
The portfolios of the Scudder Variable Life Investment Fund in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
Balanced Portfolio: Seeks a balance of growth and income, as well as long-term
preservation of capital, from a diversified portfolio of equity and fixed income
securities.
Bond Portfolio: Seeks high income from a high quality portfolio of bonds.
Capital Growth Portfolio: Seeks to maximize long-term capital growth from a
portfolio consisting primarily of equity securities.
Global Discovery Portfolio: Seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located around the world.
Growth & Income Portfolio: Seeks long-term growth of capital, current income and
growth of income from a portfolio consisting of primarily common stocks and
securities convertible into common stocks.
International Portfolio: Seeks long-term growth of capital principally from a
diversified portfolio of foreign equity securities.
41
<PAGE>
The investment adviser for each portfolio is Scudder Kemper Investments, Inc.
("Scudder Kemper"). Scudder Kemper's principal business address is Two
International Place, Boston, Massachusetts 02110- 4103. The principal
underwriter of the portfolios is Scudder Investor Services, Inc., a Scudder
Kemper subsidiary, located at Two International Place, Boston, Massachusetts
02110-4103.
<TABLE>
<CAPTION>
==============================================================================================================================
12b-1 Total Fund
Funds Management Fee Fee Other Annual Expenses
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Variable Life Investment Fund-
(Class B Shares)
Balanced Portfolio _.__% _.__% _.__% _.__%
Bond Portfolio _.__% _.__% _.__% _.__%
Capital Growth Portfolio _.__% _.__% _.__% _.__%
Global Discovery Portfolio (1) _.__% _.__% _.__% _.__%
Growth & Income Portfolio _.__% _.__% _.__% _.__%
International Portfolio _.__% _.__% _.__% _.__%
==============================================================================================================================
</TABLE>
(1) The Adviser agreed to waive all or a portion of its management fee to limit
the expenses of the Global Discovery Portfolio to _.__% of average daily
net assets. Had the fee been imposed, the management fee would have been
_.__% and the total operating expenses would have been _.__%.
The Strong Funds
The Strong Funds in which the Separate Account may currently invest and their
investment objectives and fees are as follows:
Strong Discovery Fund II: Seeks capital growth by investing primarily in equity
securities that are believed to represent attractive growth opportunities. The
Fund also has the flexibility to invest in debt obligations and short-term fixed
income securities. The fund's investment advisor seeks companies, regardless of
size or maturity, that are poised for accelerated earnings growth due to
innovative products or services, new management, or favorable economic or market
cycles.
Strong Growth Fund II: Seeks capital growth by investing primarily in equity
securities that are believed to have above-average growth prospects. The fund
will generally invest in companies whose earnings are believed to be in a
relatively strong growth trend, and to a lesser extent, in companies in which
significant further growth is not anticipated but whose market value is thought
to be undervalued.
Strong International Stock Fund II: Seeks capital growth by investing primarily
in equity securities of issuers located outside the United States. The fund will
normally invest in securities of issuers in at least three different countries.
42
<PAGE>
Strong Opportunity Fund II: Seeks capital growth by investing in equity
securities emphasizing investments in medium-sized companies that the investment
advisor believes are under-researched and attractively valued. The fund's
investment advisor looks for companies with fundamental value or growth
potential that is not yet reflected in their current market prices.
The Strong Funds are not available to California residents.
The investment adviser for each fund is Strong Capital Management, Inc.
("Strong"). Strong's principal business address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. The principal underwriter of the funds is Strong Funds
Distributors, Inc., located at P.O. Box 2936, Milwaukee, Wisconsin 53201.
<TABLE>
<CAPTION>
======================================================================================================================
Investment Total Fund
Funds Management Fee Other Annual Expenses
Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Strong Funds
Strong Discovery Fund II (1)
Strong Growth Fund II (1)(2)
Strong International Stock Fund II (1)
Strong Opportunity Fund II (1)
======================================================================================================================
</TABLE>
(1) Calculated on an annualized basis as of December 31, 1997 through the
fiscal year end.
(2) The Fund's advisor is currently absorbing expenses of _.__%. Without the
absorptions, total fund annual expenses would have been _.__%.
T. Rowe Price Variable Funds
The portfolios of the T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc., and the T. Rowe Price Fixed Income Series, Inc. in
which the Separate Account may currently invest and their investment objectives
and fees are as follows:
Equity Income Portfolio: Seeks to provide substantial dividend income as well as
long-term growth of capital by investing primarily in the common stocks of
established companies paying above-average dividends, with favorable prospects
for both increasing dividends and capital appreciation.
International Stock Portfolio: Seeks to provide long-term growth of capital
through investments primarily in the common stocks of established companies
based outside the United States.
43
<PAGE>
Limited-Term Bond Portfolio: Seeks a high level of income consistent with
moderate fluctuations in principal value by investing primarily in short- and
intermediate-term investment-grade, corporate bonds.
Mid-Cap Growth Portfolio: Seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of common stocks of medium-sized
(mid-cap) companies whose earnings T. Rowe Price expects to grow at a faster
rate than the average company. Mid-cap companies are defined as those with a
market capitalization within the range of companies in the S&P 400 Mid-Cap
Index.
New America Growth Portfolio: Seeks to provide long-term growth of capital by
investing primarily in common stocks of U.S. growth companies operating in
service industries. The portfolio invests in stocks that range from large to
small service companies expected by the fund's investment adviser to show
superior earnings growth and that are above-average performers in their fields.
Personal Strategy Balanced Portfolio: Seeks the highest total return over time,
with an emphasis on both capital growth and income by investing in a diversified
portfolio typically consisting of 60% stocks, 30% bonds, and 10% money market
securities.
The investment manager for each portfolio, except the International Stock
Portfolio, is T. Rowe Price Associates, Inc. ("T. Rowe Price"). T. Rowe Price's
principal business address is 100 East Pratt Street, Baltimore, Maryland 21202.
Rowe Price-Fleming International Inc. ("Price-Fleming"), an affiliate of T. Rowe
Price, serves as investment adviser to the International Stock Portfolio and its
U.S. office is located at 100 East Pratt Street, Baltimore, Maryland 21202. T.
Rowe Price also serves as the principal underwriter of the portfolios.
<TABLE>
<CAPTION>
======================================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price Variable Funds
Equity Income Portfolio (1) _.__% _.__% _.__%
International Stock Portfolio (1) _.__% _.__% _.__%
Limited-Term Bond Portfolio (1) _.__% _.__% _.__%
Mid-Cap Growth Portfolio (1) _.__% _.__% _.__%
New America Growth Portfolio (1) _.__% _.__% _.__%
Personal Strategy Balanced Portfolio (1) _.__% _.__% _.__%
======================================================================================================================
</TABLE>
(1) The investment management fee includes the ordinary expenses of operating
the Funds.
44
<PAGE>
Warburg Pincus Portfolios
The portfolios of Warburg Pincus Trust I and Warburg Pincus Trust II in which
the Separate Account may currently invest and their investment objectives and
fees are as follows:
Emerging Markets Portfolio: Seeks long-term growth of capital by investing
primarily in equity securities of non-U.S. issuers consisting of companies in
emerging securities markets.
Fixed Income Portfolio: Seeks total return consistent with prudent investment
management.
Global Fixed Income Portfolio: Seeks total return consistent with prudent
investment management, consisting of a combination of interest income, currency
gains and capital appreciation.
International Equity Portfolio: Seeks long-term capital appreciation by
investing primarily in a broadly diversified portfolio of equity securities of
non-U.S. issuers.
Post-Venture Capital Portfolio: Seeks long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy.
Small Company Growth Portfolio: Seeks capital growth by investing in equity
securities of small-sized domestic companies.
The investment adviser for each portfolio is Warburg Pincus Asset Management,
Inc. ("Warburg"). Warburg's principal business address is 466 Lexington Avenue,
New York, New York 10017-3147. The principal underwriter of the portfolios is
Counsellors Securities, Inc., a Warburg subsidiary, located at 466 Lexington
Avenue, New York, New York 10017-3147.
<TABLE>
<CAPTION>
======================================================================================================================
Total Fund
Investment Other Annual Expenses (After
Portfolios Management Fee Expenses Expense
Reimbursements)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warburg Pincus Trust I
Emerging Markets Portfolio (1) _.__% _.__% _.__%
International Equity Portfolio (2) _.__% _.__% _.__%
Post-Venture Capital Portfolio (2) _.__% _.__% _.__%
Small Company Growth Portfolio (2) _.__% _.__% _.__%
Warburg Pincus Trust II
Fixed Income Portfolio (3) _.__% _.__% _.__%
Global Fixed Income Portfolio (3) _.__% _.__% _.__%
======================================================================================================================
</TABLE>
(1) Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, the investment management fee for the Emerging Markets
Portfolio would equal _.__%; other expenses would
45
<PAGE>
equal _.__%; and total fund annual expenses would equal _.__%. Other
expenses for the Portfolio are based on annualized estimates of expenses
for the fiscal year ending December 31, 1997, net of any fee waivers or
expense reimbursements. The investment adviser and co-administrator have
undertaken to limit the Portfolio's total fund annual expenses to the
limits shown in the table above through December 31, 1999.
(2) Investment management fees, other expenses and total fund annual expenses
are based on actual expenses for the fiscal year ended December 31, 1997,
net of any fee waivers or expense reimbursements. Without such waivers or
reimbursements, investment management fees would have equalled _.__%, _.__%
and _.__%; other expenses would have equalled _.__%, _.__% and _.__%; and
total fund annual expenses would have equalled _.__%, _.__% and _.__% for
the International Equity, Post-Venture Capital and Small Company Growth
Portfolios, respectively. The investment adviser and co-administrator have
undertaken to limit total fund annual expenses to the limits shown in the
table above through December 31, 1999.
(3) Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, investment management fees would equal _.__% and _.__%,
other expenses would equal __.__% and _.__% and total portfolio annual
expenses would equal __.__% and _.__% for the Fixed Income and Global Fixed
Income Portfolios, respectively. Other expenses are based upon annualized
estimates of expenses for the fiscal year ending December 31, 1997, net of
any fee waivers or expense reimbursements. The investment adviser and
co-administrator have undertaken to limit each portfolio's total annual
expenses to the limits shown in the table above through December 31, 1999.
Certain of the Funds have investment objectives and policies closely resembling
those of mutual funds within the same complex that are sold directly to
individual investors. Despite such similarities, there can be no assurance that
the investment performance of any such Fund will resemble that of its retail
fund counterpart.
You will receive a prospectus for each available Fund. That prospectus will
describe the Fund, its investment objective and strategies, its risks, and its
management fees and other expenses. You should read the Fund prospectuses
together with this prospectus. As with all mutual funds, a Fund may not meet its
investment objective. Subject to applicable law, Prudential may stop offering
one or more funds or may substitute a different mutual fund for any Fund.
Each Fund has provided Prudential with information about its management fees and
other expenses. Except for the Series Fund, Prudential has not verified that
information independently.
46
<PAGE>
The Fixed Account
You may invest all or part of your Certificate Fund in the Fixed Account. The
amount invested in the Fixed Account becomes part of Prudential's general
assets, commonly referred to as the general account. The part of the Certificate
Fund that you invest in the Fixed Account will accrue interest daily at a rate
that Prudential declares periodically. This rate will not be less than an
effective annual rate of 4%. Prudential may in its sole discretion sometimes
declare a higher rate. At least annually and anytime you ask, we will tell you
what interest rate currently applies. Under some Group Contracts, Prudential may
determine interest rates based on the contract year we receive the premium
payments.
We strictly limit your right to make transfers out of the Fixed Account. See the
Transfers section on page XX. Prudential has the right to delay payment of any
Cash Surrender Value attributable to the Fixed Account for up to 6 months. See
the When Proceeds Are Paid section on page XX.
Because of exemptive and exclusionary provisions, Prudential has not registered
the Fixed Account or the general account under the federal securities laws.
Prudential has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosure in this Prospectus relating to the
Fixed Account. Disclosures concerning the Fixed Account may, however, be subject
to certain provisions of the federal securities laws relating to the accuracy of
statements made in a prospectus.
Detailed Information About the Certificates
How Prudential Issues Certificates
To apply for coverage under a Group Variable Universal Life Insurance Contract,
an Eligible Group Member must fill out an enrollment form. Prudential may ask
questions about the health of the person whose life is to be covered, and may
ask that person to have a medical exam. If Prudential approves the person for
coverage, that person will become a Covered Person under the Group Variable
Universal Life Insurance.
Coverage on the life of a spouse. Usually, the Eligible Group Member buys
coverage on his or her own life. But, some Group Contracts allow an Eligible
Group Member to also apply for coverage on his or her spouse's life. No matter
whose life is covered, the Participant is the person who "owns" the right to
make decisions about the coverage (for example, deciding who the beneficiary
will be). When we use the term "Participant" or "you," we mean the person who
owns those rights. When we use the term "Covered Person," we mean the person
whose life is covered.
The Eligible Group Member is usually the Participant. But, under some Group
Contracts, an Eligible Group Member may allow another person the right to make
decisions about the coverage. When that
47
<PAGE>
happens, Prudential considers the other person to be a Participant. See the
Assignment and Applicant Owner sections on pages XX and XX.
Prudential will issue a Certificate to each Participant. Prudential will issue a
separate Certificate for spouse coverage. The Certificate tells you about the
rights, benefits, coverage, and obligations of the Group Variable Universal Life
Insurance. The minimum Face Amount of insurance for a Certificate is $10,000.
Maximum ages. Generally, Prudential will not issue Certificates for a person who
is older than age 74. And, Prudential will generally end a Participant's
coverage at the maximum age shown in the Certificate (usually, that is age 100).
When a Participant reaches the maximum age, we make available these three
options:
o You may ask to receive the Cash Surrender Value of the Certificate.
(Prudential believes that a cash surrender upon termination of coverage
will be subject to the same tax treatment as other surrenders. See the Tax
Treatment of Certificate Benefits on page XX.
o You may use some or all of the Certificate Fund to buy Paid-up Coverage.
See the Paid-up Coverage section on page XX.
o You can remain invested in your investment options. Under this option, we
will no longer deduct monthly charges for the cost of insurance and for
additional insurance benefits. The Death Benefit will change. Specifically,
the Death Benefit will be equal to the amount of the Certificate Fund,
minus any Certificate Debt and outstanding charges. The Death Benefit will
no longer include the Face Amount of insurance. Also, we will no longer
allow you to make premium contributions. You can still make loan
repayments.
Under some Group Contracts, coverage may end at an age less than 100. You should
refer to your particular Certificate and Group Contract to learn when coverage
under your Certificate will end.
A "Free Look" Period
Generally, you may return a Certificate for a refund within 10 days after you
receive it. This 10 day period is known as the "free look" period. Some states
allow a longer period. You can ask for a refund by mailing the Certificate back
to Prudential.
If you cancel your coverage during the free look period, we will generally
refund the premium payments you made, minus any loans or withdrawals that you
took. We will not add or subtract any gain or loss that would have come from the
investment options you chose (unless a state law requires that we take
48
<PAGE>
those gains or losses into account when we make a refund). When we make a
refund, we will not deduct any charges.
During the first 20 days after the Certificate Date, your premium payments will
be invested in the Fixed Account (or, under some Group Contracts, in the Series
Fund Money Market Portfolio). Prudential reserves the right to limit
contributions and transactions during the free look period.
Procedures
Each Group Contract has different procedures for how you will conduct
transactions under your Group Variable Universal Life Insurance - for example,
how you will submit an enrollment form, make premium payments, take loans and
withdrawals, and transfer or reallocate money in your Certificate Fund. Your
Group Contractholder can tell you what those procedures are.
Under some Group Contracts, Participants will be required to make transactions
through the Group Contractholder. Under other Group Contracts, Participants will
be required to deal directly with Prudential. Either way, Prudential will
consider enrollment forms, payments, orders and other documents to be "received"
when Prudential receives them in good order. When Prudential reconciles
financial transactions. Prudential usually reconciles financial transactions at
the end of the day, when most banks and financial institutions have closed for
the evening. As a result, some transactions (for example, premium payments, loan
repayments, or withdrawals) cannot be completed until the next business day.
Usually, this will result in a one-day delay in the movement of money from one
investment option to another. During any delay, Prudential may place this money
in an unallocated account owned by Prudential that pays a market rate of
interest. The short term interest ("float") earned on this money will be
retained by Prudential as compensation for services rendered. This interest will
not be paid from a Participant's Certificate Fund, and will not reduce the value
of the Certificate Fund. Transfers among the Funds and dollar cost averaging are
not subject to this possible delay.
Premiums
Routine premium payments. You will usually be able to decide when to make
premium payments and how much each premium payment will be. You just have to
make sure that there is enough money in your Certificate Fund -- minus
Certificate Debt and outstanding charges -- to cover each month's charges. If
there is not, your insurance will end (in insurance terms, it will "lapse"). See
the Lapse section on page XX to learn how your insurance will end and what you
can do to stop it from ending.
Under some Group Contracts, you may also be required to pay a minimum initial
premium to become a Participant. The minimum initial premium will vary for each
Group Contract, but it will not be more
49
<PAGE>
than 50% of the Guideline Annual Premium. We define Guideline Annual Premium in
the Definitions of Special Terms section on page XX.
Additional premium payments. In addition to routine premium payments, you may
make additional premium payments at any time. Each additional premium payment
must be at least $100. Prudential reserves the right to limit the amount of
additional premiums.
How you will pay premiums. Your Group Contractholder sets up the premium payment
method. Some Participants will make payments through the Group Contractholder
(who will pass them on to us). Other Participants will pay us directly. Monthly
charges may be higher when premium payments are made directly to Prudential. See
the Charges and Expenses section on page XX.
Deducting premiums from your paycheck. Some Group Contractholders might set up a
way for you to make routine premium payments by deducting them from your
paycheck. Each Group Contractholder's rules for paycheck deduction will be
different and some may require your premium payment to meet a minimum before the
automatic deduction will be allowed. If that's the case, you may still make
premium payments below the minimum directly to Prudential.
Effect of premium payments on tax status. If you pay additional premiums, we may
need to increase your Death Benefit (and corresponding cost of insurance
charges) to continue to qualify it as life insurance for federal tax purposes.
Also, if you make premium payments above certain limits, the tax status of the
insurance may change to that of a Modified Endowment Contract under the Internal
Revenue Code. That status could have significant disadvantages from a tax
standpoint.
We reserve the right to return any premium payment that would cause your
insurance to fail to qualify as life insurance under applicable tax laws, or
that would increase the Death Benefit by more than it increases the Certificate
Fund.
See the Tax Treatment of Certificate Benefits section on page XX.
Effective Date of Insurance
When your insurance begins depends on what day of the month Prudential approves
your completed enrollment form. If we approve your completed enrollment form
prior to the 20th day of a month, your insurance will begin on the first day of
the next month. If we receive your completed enrollment form on or after the
20th day of a month, your insurance will begin on the first day of the month
after the next month.
50
<PAGE>
How Prudential Will Deposit and Invest Premium Payments
Prudential will deposit premium payments in your Certificate Fund after we
deduct any charges that apply. The amount of your premium after we deduct those
charges is called "Net Premiums." See the Charges and Expenses section on page
XX.
Here's how Prudential will deposit and invest your Net Premiums. We generally
will make deposits to your investment options at the end of the Business Day on
which Prudential receives the payment. Any payments received before the
Certificate Date will be deposited as of the Certificate Date.
o Before the Certificate Date. Prudential will hold any premium payment that
it receives before the Certificate Date in our general account (on your
behalf). We will not pay interest on those amounts.
o During the first 20 days that your Certificate is in effect. We will invest
any Net Premiums that we receive during the first 20 days in the Fixed
Account. We will leave the Net Premiums in the Fixed Account for those
first 20 days. After that, we will allocate the Net Premiums plus any
interest earned to the investment options you selected. (Under some Group
Contracts, we would use the Series Fund Money Market Portfolio instead of
the Fixed Account.)
o After your Certificate has been in effect for 20 days. After your
Certificate has been in effect for 20 days, Prudential will invest Net
Premiums in your Certificate Fund and allocate them to the investment
options you selected.
If you have not given us complete instructions on how you want Net Premiums to
be invested, we will leave your Net Premiums invested in the Fixed Account until
you furnish complete information. (Again, under some Group Contracts, we would
use the Series Fund Money Market Portfolio, rather than the Fixed Account.)
How You Can Change the Way Prudential Allocates Future Premium Payments
You may ask Prudential to change the way your future premium payments will be
allocated among the available investment options. Prudential will give you a
form to use for this purpose. We will start to allocate premium payments in the
new way as of the end of the Business Day on which we receive your request form
in good order.
The minimum percent that you may allocate to an available investment option is
5%. All allocations must be in whole percents.
51
<PAGE>
You may not change the way Prudential allocates future premiums if, at the time
we receive your request, there is not enough money in your Certificate Fund --
minus Certificate Debt and outstanding charges -- to cover each month's charges.
See the Lapse section on page XX.
We do not currently charge for changing the allocation of your future premiums.
But, we may charge for it in the future.
How You Can Transfer Amounts In Your Certificate Fund From One Investment
Option To Another
You may transfer amounts from one investment option to another. You may request
a transfer in terms of dollars (such as transfer of $10,000 from one available
option to another) or in terms of a percent reallocation (such as a reallocation
to put 25% of the Certificate Fund in each available option).
There are some rules about how transfers can be made:
o The minimum amount you may transfer from one option to another is $100 (or
the entire balance in the investment option, if it is less than $100).
o The minimum percent that you may allocate to an available investment option
is 5%. All allocations must be in whole percents.
o We limit the number of times you may transfer amounts out of the Fixed
Account. You may make only one transfer from the Fixed Account to one of
the available Funds each Certificate Year. The transfer cannot be for more
than $5,000 or 25% of the amount you have invested in the Fixed Account,
whichever is greater. We may change these limits in the future.
Transfers will take effect as of the end of the Business Day in which a proper
transfer request is received by Prudential (or Prudential's designee) on the
form we require you to use for this purpose. Prudential will give you a form to
use to request a transfer.
Under some Group Contracts, if you make more than twelve transfers in a
Certificate Year, Prudential may charge up to $20 for each transfer after the
twelfth.
Group Variable Universal Life Insurance was not designed for professional market
timing organizations or for other organizations or persons that use programmed,
large or frequent transfers. We will discourage a pattern of exchanges that
coincides with a "market timing" strategy, since they may be disruptive to the
Separate Account and the Funds. If we were to find such a pattern, we might
modify the transfer procedures, including not accepting transfer requests of an
agent acting under a power of attorney on behalf of more than one Certificate
owner.
52
<PAGE>
Dollar Cost Averaging
Dollar Cost Averaging (which we refer to as "DCA") lets you systematically
transfer specified dollar amounts from the Series Fund Money Market Portfolio to
the other available Funds at monthly intervals. You can request that a
designated number of transfers be made under the DCA feature. When we make
transfers under the DCA feature, the transfers are effective as of the end of
the first Business Day following the first of the month.
You may use DCA at any time after your Certificate becomes effective. But, to
start the DCA feature, you usually have to make a premium payment of at least
$1,000 to the Series Fund Money Market Portfolio. And, the minimum transfer
amount is $100.
Prudential will give you a form to request DCA. If we receive your request form
in good order by the tenth of a month, we will start DCA processing during the
next month. If we receive it after the tenth day of a month, we will start DCA
processing during the month after the next month.
We will terminate the DCA arrangement when any of the following events occurs:
o We have completed the designated number of transfers.
o The amount you have invested in the Series Fund Money Market Portfolio is
not enough to complete the next transfer.
o Prudential receives your written request to end the DCA arrangement. (If we
receive your request by the tenth of a month, we will cancel the transfer
scheduled for the next following month. If we receive it after the tenth
day of a month, we will cancel the transfer scheduled for the month after
the next month.)
o You no longer have coverage under the Group Variable Universal Life
Insurance.
Currently, we do not charge for the DCA arrangement but we may in the future.
Transfers made under the DCA arrangement do not count against the number of
transfers that may be subject to the transfer charge described in the How You
Can Transfer Amounts In Your Certificate Fund From One Investment Option To
Another section on page XX.
The main objective of DCA is to shield investments from short-term price
fluctuations. Since the same dollar amount is transferred to an available Fund
with each transfer, you buy more of the Fund when its price is low and less of
the Fund when its price is high. Therefore, you may achieve a lower than
53
<PAGE>
average cost over the long term. This plan of investing does not assure a profit
or protect against a loss in declining markets.
Death Benefits
Prudential will pay a Death Benefit to the beneficiary when the Covered Person
dies.
Amount of the Death Benefit. The Death Benefit is the Face Amount of Insurance
plus the value of the Certificate Fund as of the date of death minus any
Certificate Debt and any past due monthly charges.
Adjustment in the Death Benefit. The Certificate Fund may have grown to the
point where we would need to increase the Death Benefit to be certain that the
insurance will meet the Internal Revenue Code's definition of life insurance. If
that were the case for your Certificate, we would use one of two methods to
increase the Death Benefit. Each Group Contract will use one method or the
other.
Under the first method, we would increase the Death Benefit (before we deduct
any Certificate Debt and outstanding charges) to make it equal to the following
"corridor percentage" of the Certificate Fund based on your Attained Age:
54
<PAGE>
COVERED PERSON'S CORRIDOR COVERED PERSON'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------ ----------
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
---- ---- --- ----
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
---- ---- --- ----
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
---- ---- --- ----
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
---- ---- --- ----
60 130 90 105
61 128 91 104
62 126 92 103
63 124 93 102
64 122 94 101
---- ---- --- ----
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
Under the second method, we would increase the Death Benefit (before we deduct
any Certificate Debt and outstanding charges) to make it equal the Certificate
Fund divided by the "Net Single Premium" per dollar of insurance for the Covered
Person's Attained Age. For this purpose, we base the "Net Single Premium" on the
1980 CSO Table.
55
<PAGE>
How your beneficiary may receive the Death Benefit: Your beneficiary may receive
the Death Benefit in the following ways:
o Prudential's Alliance Account. The Alliance Account is an interest-bearing
account that holds the Death Benefit while your beneficiary takes time to
consider other options. Your beneficiary has complete ownership of funds
held in the Alliance Account, and may draw on all or part of the funds by
writing a draft. Interest earnings in the Alliance Account are compounded
daily and credited monthly. Your beneficiary can transfer proceeds from the
Alliance Account to other modes of settlement at any time. Proceeds in the
Alliance Account are part of Prudential's general account. If your
beneficiary does not want the money to go to the Alliance Account, he or
she can ask Prudential to issue a check instead.
o Other Options. Your beneficiary can arrange with Prudential for the Death
Benefit to be paid in a different way (known as "modes of settlement"), if
the Death Benefit is $1,000 or more. (You can also elect a different mode
of settlement for your beneficiary while you are living). See the Modes of
Settlement section on page XX.
Changes in Face Amount
The rules for changing the Face Amount of Insurance will be different for each
Group Contract, depending on the options selected by the Group Contractholder
and on Prudential's rules.
The Face Amount of Insurance may increase or decrease. The increase or decrease
may happen automatically, or when you ask. Here are some general statements
about changes in your Face Amount of Insurance. But you should read your
Certificate to learn how changes work in your case.
Increases in the Face Amount of Insurance
o Some Group Contracts allow Participants to ask for an increase in the Face
Amount of Insurance at certain times.
o Some Group Contracts provide for automatic increases in the Face Amount of
Insurance when a Participant's salary increases.
o Some Group Contracts may not allow increases at all.
56
<PAGE>
o Whenever the Face Amount of Insurance increases, Prudential may ask
questions about the Covered Person's health, or require the Covered Person
to have a medical exam, before the increase can become effective. Based on
the answers to the questions or on the exam, Prudential may not allow the
increase.
o An increase in the Face Amount will result in higher monthly insurance
charges because our net amount at risk will increase.
Decreases in the Face Amount of Insurance
o Some Group Contracts allow Participants to decrease the Face Amount of
Insurance at certain times.
o A Participant may not decrease the Face Amount to less than $10,000 or
below the minimum amount required to maintain status as life insurance
under federal tax laws.
o Some Group Contracts allow Prudential to automatically decrease the Face
Amount when certain "triggering events" occur. "Triggering events" are
events like reaching a certain age, retiring, or having a Certificate in
effect for a certain number of years.
Generally, Prudential will make the automatic decrease at latest of: the Covered
Person's 70th birthday, retirement, and the tenth Certificate Anniversary. We
will calculate the amount of the deduction at the end of the first Business Day
on or after the triggering event. The actual decrease will generally take effect
on the first Monthly Deduction Date after that. Sometimes it may take an
additional month before the charges change. If that happens, we will adjust the
amount we deduct the first month after the decrease takes effect to credit you
for any extra monthly charges we deducted the previous month.
When your Face Amount of Insurance changes - whether it increases or decreases -
the change may cause your insurance to be treated as a Modified Endowment
Contract under the Internal Revenue Code. Also, a decrease in coverage may limit
the amount of premiums that you may contribute in the future. See the Tax
Treatment of Certificate Benefits on page XX. You should consult your tax
advisor before you change the Face Amount of your insurance.
Charges and Expenses
For a Certificate that is in effect, Prudential reserves the right to increase
the charges that we currently make, but we currently have no intention to do so.
We will not in any case increase charges above the maximum charges described
below. You should refer to your particular Certificate to learn what charges
apply to you.
57
<PAGE>
Charges Deducted From Each Premium Payment. We will deduct the charges listed
below from each premium payment you make before we invest the payment in the
investment options you selected.
1. Charge for taxes on premium payments. We will deduct a charge for taxes we
must pay on premiums. These taxes include federal, state or local income,
premium, excise, business or any other type of tax (or part of one) that is
based on the amount of premium we receive.
This charge is currently made up of two parts:
o The first part is for state and local premium taxes. Currently, it is 2.25%
of the premium Prudential receives. For some Group Contracts, the charge
may be up to 5%. (In some states, this charge is called a premium-based
administrative charge.)
o The second part is for federal income taxes that are based on premiums.
Currently, it is 0.35% of premiums received by Prudential. We believe that
this second charge is a reasonable estimate of the increased cost for
premium-based federal income taxes resulting from a 1990 change in the
Internal Revenue Code.
We may increase this charge if the cost of our taxes related to premiums is
increased.
2. Charge for processing premiums. We may deduct up to $2 to cover the costs
of collecting and processing premiums. We may reduce or eliminate this
charge under certain Group Contracts. See the Reduction of Charges section
on page XX.
3. Charge for sales expenses. We may deduct a charge to pay part of the costs
we incur in selling the Group Contract and Certificates. These costs
include commissions, advertising, and publishing prospectuses and sales
literature. The maximum sales charge is 3.5% of each premium payment. We
may reduce or eliminate this charge under certain Group Contracts.
See the Reduction of Charges section on page XX.
Monthly Certificate Fund Charges. Prudential will deduct the following charges
from your Certificate Fund each month. We will take the charges from each
investment option you selected, in the same proportion that the value of your
Certificate Fund is invested.
Generally, we will deduct these charges on the Monthly Deduction Date. Under
some Group Contracts, we may deduct them when we receive the premium payments
from the Group Contractholder. But, we will never deduct them later than 45 days
past the Monthly Deduction Date.
58
<PAGE>
1. Charge for the cost of insurance. We will deduct a charge for the cost of
your insurance.
To calculate the cost of insurance charge, we multiply:
your Certificate's "net amount at risk" by
the "cost of insurance rate" for the Covered Person.
"Net amount at risk" means the amount by which your Certificate's Death Benefit
(computed as if there were no Certificate Debt) exceeds your Certificate Fund.
The "cost of insurance rate" is based on many factors, including:
o the Covered Person's age;
o the Covered Person's rate class (such as classes for smokers and
non-smokers, or for active employees and retired employees);
o the life expectancy of the people covered under your Group Contract;
o whether The Group Contractholder elected to buy any of the additional
insurance benefits shown in the Additional Insurance Benefits section on
page XX; and
o whether or not the Certificate is provided on a Portable basis.
The cost of insurance rate will generally increase as the Covered Person ages.
The cost of insurance charges are generally lower than the 1980 CSO Table.
We may adjust the actual cost of insurance rates from time to time. The changes
in cost of insurance rates for each Group Contractholder are based on many
factors, including:
o the number of Certificates in effect;
o the number of new Certificates issued;
o the number of Certificates surrendered or becoming Portable;
o the expected claims (death benefits, living benefits and surrenders);
o the expected cost of any additional insurance benefits that the Group
Contractholder elected to buy;
59
<PAGE>
o the expected expenses; and
o administrative services provided by the Group Contractholder, if any.
In addition to the list above, the past claims, expenses and the costs of
additional insurance benefits, if any, of the group are reviewed since they are
an important factor in calculating the expected claims, expenses and costs.
However, we are prohibited from recovering past losses by state insurance law.
If we change the cost of insurance rates, we will change them the same way for
all persons of the same age, rate class and group. We will not change them to be
higher than the guaranteed cost of insurance rates shown in your Certificate.
The guaranteed rates may be up to 150% of the 1980 CSO Table. The guaranteed
rates are based on many factors, including:
o guaranteed issue procedures, if any;
o simplified underwriting that may not require a medical exam, blood tests or
urine tests;
o groups with substandard risks characteristics; and
o the expected maximum cost of any additional insurance benefits that the
Group Contractholder elected to buy.
2. Charge for additional insurance benefits. The Additional Insurance Benefits
section on page XX tells you about benefits that you may be able to buy in
addition to the Group Variable Universal Life Insurance and the additional
insurance benefits that the Group Contractholder elected to buy. We will
deduct a separate charge for any additional insurance benefits that you
elect to buy from your Certificate Fund.
3. Charge for administrative expenses. We may deduct a charge for
administrative expenses. This charge pays for maintaining records and for
communicating with Participants and Group Contractholders. Currently, it is
not more than $3 per month and it is guaranteed not to be more than $6 per
month. We may reduce or eliminate this charge under certain Group
Contracts. See the Reduction of Charges section on page XX.
4. Charge for other taxes. We reserve the right to deduct a charge to cover
federal, state or local taxes that are imposed on the operations of the
Separate Account. These are taxes other than those described under "Charge
for taxes on premium payments" section above. Currently, we do not charge
for these other taxes.
60
<PAGE>
Daily Deduction from the Separate Account: Each day, Prudential deducts a charge
from the assets of the Separate Account in an amount currently equal to an
effective annual rate of 0.45%. We guarantee that the charge will not be more
than an effective annual rate of 0.90%.
This charge compensates us for assuming the mortality and expense risks of the
insurance provided under the Group Contract. The "mortality risk" is the risk
that Covered Persons may live for shorter periods of time than Prudential
estimated when we determined the mortality charge. The "expense risk" is the
risk that expenses for issuing and administering the insurance will be more than
Prudential estimated when we determined the charge for administrative expenses.
We will earn a profit from this risk charge to the extent we do not need it to
provide benefits and pay expenses under the Certificate. We do not assess this
charge on amounts allocated to the Fixed Account.
Transaction Charges. Under some Group Contracts, we may deduct a charge for
surrenders, partial withdrawals, loans, transfers, reinstatements and additional
statement requests. See the sections of this prospectus that describe each of
those transactions. Those sections also describe the charges that Prudential may
deduct.
Expenses Incurred by the Funds. Participants indirectly bear the charges and
expenses of the Funds. To find out details about the management fees and other
underlying Fund expenses, you should see The Funds section on page XX. You
should also read the prospectuses for the available Funds.
Reduction of Charges
Prudential may reduce or waive the charge for sales expenses, the charge for
processing premiums, or other charges under certain Group Contracts where we
expect that the Group Contract will involve reduced sales or administrative
expenses. In deciding whether to reduce such charges, and by how much, we
consider the following factors:
o The size of the group.
o The total amount of premium payments we expect to receive.
o How long Participants will hold their Certificates.
o The purpose for which the Group Contractholder bought the Group Contract
and whether that purpose makes it likely that expenses will go down.
61
<PAGE>
o Any other circumstances Prudential believes to be relevant in determining
whether sales or administrative expenses will go down.
In some cases, we may guarantee the reduction or waivers of charges in the Group
Contract. In other cases, we may decide to discontinue the reductions or
waivers. Prudential's reductions and waivers of charges will not be unfairly
discriminatory to the interests of any individual Participants.
Dividends or Experience Credits
The Group Contract is eligible to receive Dividends or Experience Credits. But,
we have set the premium rates in such a way that we will not generally pay a
dividend or experience credit.
If there is a Dividend or Experience Credit, Prudential will pay it to the Group
Contractholder.
You should refer to your particular Group Contract for details on Dividends or
Experience Credits.
Cash Surrender Value
The Cash Surrender Value of your Certificate is equal to your Certificate Fund
minus any Certificate Debt, outstanding charges, and any transaction charge that
may apply. On any day, your Certificate Fund equals the sum of the amounts in
the Funds, the amount invested in the Fixed Account, and the Loan Account (see
the Loans section on page XX).
The Cash Surrender Value will change daily to reflect:
o Net Premiums;
o withdrawals;
o increases or decreases in the value of the Funds you selected;
o interest credited on any amounts allocated to the Fixed Account and on the
Loan Account;
o interest accrued on any loan;
62
<PAGE>
o the daily asset charge for mortality and expense risks assessed against the
variable investment options; and
o monthly charges that Prudential deducts from your Certificate Fund.
If you ask Prudential, we (or our designee) will tell you what the Cash
Surrender Value of your Certificate is. Prudential does not guarantee a minimum
Cash Surrender Value. It is possible for the Cash Surrender Value of your
Certificate to go down to zero.
The tables on pages XX and XX (following page XX) of this prospectus give
examples of what Cash Surrender Values would be for two sample Certificates. The
examples assume there would be uniform investment results in the selected
Subaccount portfolios. The examples are only hypothetical and are only meant to
help you understand how the Certificate works.
Full Surrenders
You may surrender your Certificate for its Cash Surrender Value at any time. If
you do, all insurance coverage will end. Prudential will calculate the Cash
Surrender Value as of the end of the Business Day on which we receive your
request form in good order.
We will pay the proceeds as described in the When Proceeds Are Paid section on
page XX. Under certain Group Contracts, Prudential may charge a transaction
charge for the surrender of up to the lesser of $20 or 2% of the amount that you
receive.
A surrender may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
Paid-up Coverage
At any time, you may elect to use the Cash Surrender Value of your Certificate
to buy Paid-up Coverage. The minimum amount of Cash Surrender Value that you can
exchange is $1,000. Under certain Group Contracts, Prudential may impose a
transaction charge of up to $20 for the exchange.
The amount of Paid-up Coverage that you can have will be limited to the amount
that you can buy with your Certificate's Cash Surrender Value. Also, it cannot
be more than the Death Benefit under your Certificate at the time you make the
exchange.
63
<PAGE>
Paid-up coverage will start as of the end of the Business Day on which we
receive your request form in good order. Once the Paid-up coverage starts, all
other coverage under your Certificate, including any additional insurance
benefits, will end.
If you did not use your entire Cash Surrender Value to buy the Paid-up coverage,
Prudential will pay you the remaining amount as of the end of the first Business
Day after we receive your request form. We will pay it as described in the When
Proceeds are Paid section on page XX. This withdrawal may affect the way you are
taxed. See the Tax Treatment of Certificate Benefits section on page XX.
The purchase of Paid-up coverage could make your Certificate a Modified
Endowment Contract. See the Tax Treatment of Certificate Benefits section on
page XX.
Partial Withdrawals
While your Certificate is in effect, you may withdraw part of your Certificate's
Cash Surrender Value. We will take it from each investment option you selected
in the same proportions as the value of your Certificate Fund is invested,
unless your request tells us to take the withdrawal from only selected
investment options.
Partial withdrawals will be effective as of the end of the Business Day on which
we receive your request form. We will pay you the withdrawn money as described
in the When Proceeds Are Paid section on page XX.
You must withdraw at least $200 in any partial withdrawal. You may withdraw any
amount that is more than $200, but you must leave enough in your Certificate
Fund (less any Certificate Debt and outstanding charges) to pay the next month's
charges. We will tell you the maximum amount you may withdraw.
Some Group Contracts may have a limit on the number of partial withdrawals you
can make in a year. Some Group Contracts may impose a transaction charge for
each partial withdrawal. The charge can be up to the lesser of $20 or 2% of the
amount you withdraw. We will deduct the transaction charge from the amount you
withdraw.
You may not repay any amount that you withdraw.
Withdrawals may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
64
<PAGE>
Loans
You may borrow up to the Loan Value of your Certificate Fund. The Loan Value is
90% of your Certificate Fund minus any existing loan (and its accrued interest),
outstanding charges, and the amount of the next month's charges. In states that
require it, you may borrow a greater amount.
Under certain Group Contracts, Prudential may make a charge of up to $20 for
each loan. The charge will be added to the principal amount of your loan.
The minimum amount that you can borrow at any one time is $200. You cannot take
a loan if Certificate Debt exceeds the Loan Value. Prudential will pay loan
proceeds as described in the When Proceeds Are Paid section on page XX.
Interest on the loan will accrue daily at a rate that Prudential sets each year.
Interest payments are due the day before the Contract Anniversary. If you do not
pay the interest when it is due, we will add it to the principal amount of the
loan. When this happens, we will take an amount out of your investment options
to make the Loan and the Loan Account equal in value.
When you take a loan from your Certificate Fund, here's what happens:
o We will take an amount equal to the loan out of each of your investment
options on a pro-rata basis unless you tell us to take it only from
selected investment options.
o We will start a Loan Account for you and will credit the Loan Account with
an amount equal to the loan.
o We will generally credit interest to the amount in the Loan Account at an
effective annual rate that is usually 2% less than the rate Prudential
charges as interest on the loan. The crediting rate will generally be equal
to the Fixed Account crediting rate.
You may repay all or part of a loan at any time. We will apply a loan repayment
first against any unpaid loan interest and then to reduce the principal amount
of the loan. You may repay a loan either by repayment or by withdrawing amounts
from the Certificate Fund. When you send us a payment, you should tell us
whether the payment is intended as a premium payment or as a loan repayment. If
you do not indicate whether it is a premium or loan repayment, we will assume it
is a loan repayment.
If you repay a loan by using the Certificate Fund, we will treat the repayment
as a partial withdrawal from the Certificate Fund. A partial withdrawal may have
tax consequences. See the Partial Withdrawals section on page XX and the Tax
Treatment of Certificate Benefits section on page XX.
65
<PAGE>
Your Loan Account plus accrued interest (together, these are called "Certificate
Debt") may not exceed the value of your Certificate Fund. If Certificate Debt
exceeds the value of your Certificate Fund, you will not have enough money in
your Certificate Fund to cover the month's charges. See the Lapse section on
page XX.
If you still have Certificate Debt outstanding when you surrender your
Certificate or when you allow your Certificate to lapse, the amount you borrowed
may become taxable. Also, loans from Modified Endowment Contracts may be treated
for tax purposes as distributions of income. See the Tax Treatment of
Certificate Benefits section on page XX.
If we pay the Death Benefit or the Cash Surrender Value while a loan is
outstanding, we will reduce the Death Benefit or the Cash Surrender Value by the
amount of the loan plus any accrued interest.
A loan will have a permanent effect on your Certificate's Cash Surrender Value.
It may also have a permanent effect on the Death Benefit. This happens because
the investment results of the investment options you selected will apply only to
the amount remaining in those investment options after the loan amount is
transferred to the Loan Account. The longer a loan is outstanding, the greater
the effect is likely to be.
Telephone and Electronic Transactions
Under some Group Contracts, you may be able to perform some transactions by
telephone or electronically. These transactions include: transferring amounts
among available investment options, making surrenders and partial withdrawals,
and requesting loans.
Prudential will not be liable when we follow instructions that we receive by
telephone or electronically, if we reasonably believe the instructions were
genuine. We have adopted security procedures that are reasonably designed to
verify that such communications are genuine. We cannot guarantee that you will
be able to get through to complete a telephone or electronic transaction during
peak periods such as periods of drastic economic or market change or during
system failures or power outages.
Lapse
In general, your Certificate will remain in force as long as the balance in your
Certificate Fund (less any Certificate Debt and outstanding charges) is enough
to pay the monthly charges when
66
<PAGE>
due. If it is not enough, Prudential will send you a notice to tell you that
your insurance is going to end, how much you must pay to stop it from ending,
and when you must pay it.
In insurance terms, we call it a lapse when insurance ends because the charges
for it are not paid.
How you can stop your insurance from lapsing. You must make a payment that is
enough to pay outstanding charges. Prudential must receive the payment by the
later of:
o 61 days after the Monthly Deduction Date; or
o 30 days after the date we mailed you the notice.
If you do not, your insurance will lapse and your Certificate will no longer
have any value. A Certificate that lapses with Certificate Debt may affect the
way you are taxed. See the Tax Treatment of Certificate Benefits section on page
XX.
We will send the notice to the last known address we have on file for you. If
the Covered Person dies during the grace period, we will reduce the Death
Benefit by any past due monthly charges and by any Certificate Debt.
Termination of a Group Contractholder's Participation in Group Contract
The Group Contractholder may decide to terminate the Group Contract with
Prudential, by giving Prudential 90 days' written notice.
In addition, Prudential may terminate a Group Contract:
o If the aggregate Face Amount of all Certificates, or the number of
Certificates issued, falls below the permitted minimum, by giving the Group
Contractholder 90 days' written notice.
o If the Group Contractholder fails to remit premium payments to Prudential
in a timely way, at the end of the grace period.
o For any other reason, effective on a Contract Anniversary, by giving the
Group Contractholder 31 days' written notice.
Termination of the Group Contract means that the Group Contractholder will not
remit premiums to Prudential. In that event, no new Certificates will be issued
under the Group Contract. How the termination affects you is described in the
Options on Termination of Coverage section on
67
<PAGE>
page XX. The options that are available to you from Prudential may depend on
what other insurance options are available to you. You should refer to your
particular Certificate to find out more about your options at termination of
coverage.
Participants Who Are No Longer Eligible Group Members
Each Group Contract has different rules for what happens when a Participant is
no longer an Eligible Group Member.
Under some Group Contracts, Participants may be able to continue insurance
coverage even though they are no longer an Eligible Group Member. This is called
Portable Coverage. With Portable Coverage, you will start to make premium
payments directly to Prudential (or to Prudential Mutual Fund Services, Inc.).
We will start to send premium reminders directly to you. We will let you know
about this change in the way premiums are paid within 61 days after you are no
longer eligible under the Group Contract. We might impose certain rules and
limits on the continued insurance. The rules and limits are shown in your
Certificate. The notice that we send you will also tell you what the charges and
expenses are for Portable Certificates. See also the Charges and Expenses
section on page XX. Charges and expenses for Portable Certificates may be higher
than those you paid while you were still an Eligible Group Member. But the
charges and expenses will not be higher than the maximums described in this
prospectus. Prudential may require that you keep a specified minimum amount in
your Certificate Fund to continue as a Portable Certificate holder.
Under other Group Contracts, Participants will not be able to continue insurance
coverage when no longer an Eligible Group Member. Those Participants have the
options of Conversion, Paid-up Coverage, and payment of Cash Surrender Value,
which are described in the Options on Termination of Coverage section on page
XX.
Options on Termination of Coverage
Your insurance coverage under the Group Contract will end when the Group
Contract itself ends. Under some Group Contracts, insurance coverage will also
end when a Participant is no longer an Eligible Group Member.
When the Group Contractholder ends a Group Contract, the effect on Participants
depends on whether or not the Group Contractholder replaces the Group Contract
with another life insurance contract that allows for the accumulation of cash
value. Generally, here is what will happen:
68
<PAGE>
o If the Group Contractholder does replace the Group Contract with another
life insurance contract that allows for the accumulation of cash value,
Prudential will terminate your Certificate. We will also transfer the Cash
Surrender Value of your Certificate directly to that new contract, unless
you elect to receive the Cash Surrender Value.
Under some Group Contracts, you may continue your insurance coverage on a
Portable basis. Prudential might impose certain rules and limits on the
continued insurance. The rules and limits are shown in your Certificate.
You should read your Certificate to find out what rules and limits apply
when you want to continue your insurance on a Portable basis.
o If the Group Contractholder does not replace the Group Contract with
another life insurance contract that allows for the accumulation of cash
value, you will have the options listed below. Under some Group Contracts,
you may also have the option of continuing your insurance coverage on a
Portable basis, as stated above.
Conversion. You may elect to convert your Certificate to an individual life
insurance policy without giving Prudential evidence that the Covered Person is
in good health, if your Certificate has been in force for at least 5 years
(under some Group Contracts, the requirement may be less than 5 years). To elect
this option, you must apply for it within 31 days (or longer, depending on the
state law that applies) after your Certificate ends. You may select any form of
individual life insurance policy (other than term insurance) that Prudential
normally makes available to persons who are the same age as you and who are
asking for the same amount of life insurance. Your premiums for the individual
life insurance policy will be based on the type and amount of life insurance you
select, your age and your risk class.
If your Certificate ended because you are no longer an Eligible Group Member,
you may not convert more than the Face Amount of your Certificate. If your
Certificate ended because the Group Contract ended, the amount you are able to
convert may, depending on the state law that applies, be limited to the lesser
of:
o $10,000 or
o the Face Amount of your Certificate minus the amount of any group insurance
that you become eligible for within 45 days after your Certificate ends.
If a Covered Person dies within 31 days (or longer, depending on the state law
that applies) after the Certificate ends and you had the right to convert to an
individual policy, we will pay a Death Benefit under the Certificate. But, the
Death Benefit will be equal to the amount of individual insurance you could have
had if you had actually made the conversion to the individual policy.
69
<PAGE>
Paid-up Coverage. You may elect to use your Certificate's Cash Surrender Value
to buy fixed Paid-up Coverage on the Covered Person. To use this option, you
must have at least $1,000 of Cash Surrender Value on the day your Certificate
ends. The insurance amount will depend on how much the Cash Surrender Value is
and on the age of the Covered Person. But, the amount of Paid-up Coverage cannot
be more than your Certificate's Death Benefit right before you buy the Paid-up
Coverage. You may elect this option within 61 days of the date your Certificate
ended. Prudential will make the Paid-up Coverage effective as of the end of the
Business Day on which we (or our designee) receive your request on the form we
require you to use for this purpose. If you elect this option, your insurance
may become a Modified Endowment Contract under the Internal Revenue Code. See
the Tax Treatment of Certificate Benefits section on page XX.
Payment of Cash Surrender Value. You may receive the Cash Surrender Value by
surrendering your Certificate. To do this, you must make a request to Prudential
on the form that we require you to use for this purpose.
If you do not choose one of the options described above within 61 days of the
date the Certificate ends, we will exchange your Certificate Fund for Paid-up
Coverage if your Certificate Fund value is at least $1,000. If it does not have
that much value, we will pay the Cash Surrender Value.
Reinstatement
You may request reinstatement of a lapsed Certificate any time within 3 years
after the end of the grace period. But, you must be less than the maximum age at
which a Certificate may be held. We will not reinstate a lapsed Certificate if
the Group Contract under which the Certificate was issued ended and you did not
have the right to continue your insurance on a Portable basis.
To reinstate your Certificate, you must send the following items to Prudential
(or our designee):
o A written request for reinstatement.
o Evidence of the good health of the Covered Person. The evidence must be
satisfactory to Prudential.
o A premium payment (less any charges that apply) that is at least enough to
pay the monthly charges for the grace period and for two more months. See
the Charges and Expenses section on page XX.
70
<PAGE>
o We will make your Certificate effective again on the Monthly Deduction Date
that occurs after we approve your request. The terms of your original
Certificate will still apply. We will apply a new 2-year period of
incontestability, and the period during which the suicide exclusion applies
will start over again. See the Incontestability section on page XX and the
Suicide Exclusion section on page XX. When the original Certificate lapsed,
we would have required you to pay off any outstanding Certificate Debt. We
will not allow you to continue the loan under the reinstated Certificate.
o Currently, we do not charge for a reinstatement. But, we reserve the right
to charge for reinstatements in the future.
Tax Treatment of Certificate Benefits
Introduction
This summary provides general information on the federal income tax treatment of
a Certificate under the Group Contract. It is not a complete statement of what
the federal income taxes will be in all circumstances. It is based on current
law and interpretations, which may change. It does not cover state taxes or
other taxes. It is not intended as tax advice. You should consult your own tax
advisor for complete information and advice.
Treatment as Life Insurance and Investor Control
The Certificate must meet certain requirements to qualify as life insurance for
tax purposes. These requirements include certain definitional tests and rules
for diversification of investments. For further information on the
diversification requirements, see Dividends, Distributions and Taxes in the
applicable Fund prospectuses.
We believe we have taken adequate steps to insure that the Certificate qualifies
as life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Certificate Fund,
unless you receive a distribution,
o the Certificate's Death Benefit will be tax free to your beneficiary.
Although we believe that the Certificate should qualify as life insurance for
tax purposes, there are some uncertainties, particularly because the Secretary
of Treasury has not yet issued permanent regulations that bear on this question.
Moreover, regulations issued to date do not provide guidance concerning the
extent to which Participants may direct their investments to the
71
<PAGE>
particular available subaccounts of a separate account without causing the
Participants (instead of Prudential) to be considered the owners of the
underlying assets. The ownership rights under the Certificate are similar to,
but different in certain respects from, those addressed by the Internal Revenue
Service in rulings holding that the insurance company was the owner of the
assets. For example, Participants have the choice of more funds and the ability
to reallocate amounts among available Subaccounts more frequently than in the
rulings. While we believe that Prudential will be treated as the owner of the
Separate Account assets, it is possible that the Participants may be considered
to own the assets.
Because of these uncertainties, we reserve the right to make changes -- which
will be applied uniformly to all Participants after advance written notice --
that we deem necessary to insure that the Certificates under the Group Contract
will qualify as life insurance and that Prudential will be treated as the owner
of the underlying assets.
Distributions
The tax treatment of any distribution you receive before the Covered Person's
death depends on whether your Certificate is classified as a Modified Endowment
Contract.
Certificates Not Classified as Modified Endowment Contracts
o If you surrender your Certificate or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will be
treated as receiving any portion of the Cash Surrender Value used to repay
Certificate Debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Certificate less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Certificate Years, all or a portion of a
withdrawal may be taxed if the Certificate Fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Certificate for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Certificate are ordinarily treated as debt and
are not considered distributions subject to tax.
72
<PAGE>
Modified Endowment Contracts
o The rules change if the Certificate is classified as a Modified Endowment
Contract. The Certificate could be classified as a Modified Endowment
Contract if premiums substantially in excess of scheduled premiums are paid
or a decrease in the Face Amount of insurance is made (or a rider removed).
The addition of a rider or an increase in the Face Amount of insurance may
also cause the Certificate to be classified as a Modified Endowment
Contract. You should first consult a tax advisor if you are contemplating
any of these steps.
o If the Certificate is classified as a Modified Endowment Contract, then
amounts you receive under the Certificate before the Covered Person's
death, including loans and withdrawals, are included in income to the
extent that the Certificate Fund before surrender charges exceeds the
premiums paid for the Certificate increased by the amount of any loans
previously included in income and reduced by any untaxed amounts previously
received other than the amount of any loans excludible from income. An
assignment of a Modified Endowment Contract is taxable in the same way.
These rules also apply to loans, withdrawals, and full surrenders made
during the two-year period before the time that the Certificate became a
Modified Endowment Contract.
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty tax of 10 percent unless the amount is received on
or after age 59 1/2 , on account of your becoming disabled or as a life
annuity.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Certificate for purposes of applying
these rules.
Any dividends or Experience Credits applied to reduce premiums due will
effectively reduce the premiums paid for purposes of these rules.
Treatment as Group Term Life Insurance
In most cases, employee-pay-all coverage under the Group Contract will not
qualify as group term life insurance under the Internal Revenue Code, or be
deemed to be part of a group term life insurance plan. The Certificate will
therefore be treated the same as any individually purchased life insurance
policy for tax purposes. However, under certain circumstances, a portion of the
coverage under the Group Contract may qualify as group term life insurance and,
in addition, Participants may be taxed on certain increases in cash values under
an IRS-prescribed formula.
73
<PAGE>
Withholding
You must affirmatively elect that no taxes be withheld from a pre-death
distribution. Otherwise, the taxable portion of any amounts you receive will be
subject to withholding. You are not permitted to elect out of withholding if you
do not provide a social security number or other taxpayer identification number.
You may be subject to penalties under the estimated tax payment rules if your
withholding and estimated tax payments are insufficient to cover the tax due.
Other Tax Considerations
If you transfer or assign the Certificate to someone else, there may be gift,
estate and/or income tax consequences. If you transfer the Certificate to a
person two or more generations younger than you (or designate such a younger
person as a beneficiary), there may be Generation Skipping Transfer tax
consequences. Deductions for interest paid or accrued on Certificate Debt or on
other loans that are incurred or continued to purchase or carry the Certificate
may be denied. Your individual situation or that of your beneficiary will
determine the federal estate taxes and the state and local estate, inheritance
and other taxes due if you or the Covered Person dies.
The earnings of the Separate Account are taxed as part of Prudential's
operations. The Separate Account does not intend to qualify as a regulated
investment company under the Internal Revenue Code.
ERISA Considerations
If the Group Contract is treated as or acquired by an "employee benefit plan,"
as defined under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), certain legal requirements may apply.
Definition of An Employee Benefit Plan
An "employee benefit plan" includes two broad categories of arrangements that
are established by certain entities (employers or unions) to cover employees --
"pension" plans or "welfare" plans.
A "pension plan" includes any program that provides retirement income to
employees, or results in a deferral of income by employees for periods extending
to the termination of covered employment or beyond. For these purposes, the term
"pension plan" includes, but is not limited
74
<PAGE>
to, retirement plans that meet tax qualification requirements (for example, a
"401(k) plan"), as well as other arrangements which, by their operation, are
intended to provide retirement income or deferrals beyond termination of
employment.
A "welfare plan" includes a program established or maintained for the purposes
of providing to employees, among other things, medical, accident, disability,
death, vacation, and unemployment benefits.
Group Contracts as Employee Benefit Plans
Regulations issued by the United States Department of Labor ("Labor") clarify
when specific plans, programs or other arrangements will not be either pension
or welfare plans (and thus not considered "employee benefit plans" for purposes
of ERISA). Among other exceptions, "group" or "group-type insurance programs"
offered by an insurer to employees of an employer will not be a "plan" where:
o no contributions are made by the employer for the coverage;
o participation in the program is completely voluntary for employees;
o the "sole" function of the employer with respect to the program is, without
endorsing the arrangement, to permit the insurer to publicize the program,
to collect premiums through payroll deductions and to remit them to the
insurer; and
o the employer does not receive any consideration in connection with the
program, other than reasonable compensation (excluding any profit) for
administrative services actually provided in connection with payroll
deductions.
Whether or not a particular group insurance arrangement satisfies these
conditions is a question of fact depending on the particular circumstances. You
should consult counsel and other advisors to determine whether, under the facts
of the particular case, a particular Group Contract might be treated as an
"employee benefit plan" (either a pension or a welfare plan) subject to the
requirements of ERISA.
Investment of Plan Assets in a Group Contract
The decision to invest employee benefit plan assets in a Group Contract is
subject to rules under ERISA and/or tax law. Any plan fiduciary, which proposes
to cause a plan to acquire a Group Contract, should consult with its counsel
with respect to the potential legal consequences of the plan's acquisition and
ownership of such Contract.
75
<PAGE>
Fiduciary/Prohibited Transaction Requirements under ERISA
If applicable, ERISA and tax law impose certain restrictions on employee benefit
plans and on persons who are (1) "parties in interest" (as defined under ERISA)
or "disqualified persons" (as defined under tax law) and (2) "fiduciaries" with
respect to such plans. These restrictions may, in particular, prohibit certain
transactions in connection with a Group Contract, absent a statutory or
administrative exemption. You should consult counsel and other advisors to
determine the application of ERISA under these circumstances. For example,
administrative exemptions issued by Labor under ERISA permit transactions
(including the sale of insurance contracts like the Group Contract) between
insurance agents and employee benefit plans. To be able to rely upon such
exemptions, certain information must be disclosed to the plan fiduciary
approving such purchase on behalf of the plan. The information that must be
disclosed includes:
o the relationship between the agent and the insurer;
o a description of any charges, fees, discounts, penalties or adjustments
that may be imposed in connection with the purchase, holding, exchange or
termination of the Group Contract; and
o the commissions received by the agent.
Information about any applicable charges, fees, discounts, penalties or
adjustments may be found in the Charges and Expenses section on page XX.
Information about sales representatives and commissions may be found in the Sale
of the Contract and Sales Commissions section on page XX.
Execution of a Group Contract by a Group Contractholder and an enrollment form
by a Participant will be deemed an acknowledgment of receipt of this information
and approval of transactions under the Group Contract.
When Proceeds Are Paid
Prudential will generally pay any Death Benefit, Cash Surrender Value, partial
withdrawal or loan proceeds within 7 days after we receive the request for
payment at the office specified in our request form. We will determine the
amount of the Death Benefit as of the date of the Covered Person's death. For
other types of redemptions, we will determine the amount of the proceeds as of
the end of the Business Day on which we received the request in good order.
There are certain circumstances when we delay payment of proceeds:
o We may delay payment of proceeds that come from the Funds and the variable
part of the
76
<PAGE>
Death Benefit if any of the following events occurs: the New York Stock
Exchange is closed (other than for a regular holiday or a weekend), trading
is restricted by the SEC, or the SEC declares that an emergency exists.
o We expect to pay proceeds that come from the Fixed Account or from Paid-up
Coverage promptly upon request. But, we do have the right to delay these
payments (other than the Death Benefit) for up to six months (or a shorter
period, if required by state law). We will pay interest at the Fixed
Account rate if we delay payment for more than 30 days (or a shorter
period, if required by state law).
Beneficiary
You have the right to name the beneficiary who will receive the Death Benefit
from your Certificate. You must use the form that Prudential requires you to
use. You may change the beneficiary at any time. You do not need the consent of
the present beneficiary. If you have more than one beneficiary at the time the
Covered Person dies, we will pay the Death Benefit in equal parts to each
beneficiary, unless you have given us other instructions.
Incontestability
After your Certificate has been in force for two years or more during the
Covered Person's lifetime, Prudential will not contest liability under the
Certificate. We will also not contest liability for any change in your
Certificate that required our approval after the change has been in force for
two years or more during the Covered Person's lifetime.
Misstatement of Age
If the Covered Person's age is stated incorrectly in the Certificate, we will
adjust the amount of the Death Benefit to reflect the correct age, as permitted
by law.
Suicide Exclusion
Generally, if the Covered Person dies by suicide within two years from the
Certificate Date, Prudential will not pay the Death Benefit described in other
sections of this prospectus. Instead, we will pay your beneficiary an amount
equal to your premium payments minus any Certificate Debt,
77
<PAGE>
outstanding charges, and any partial withdrawals. This limit will apply whether
the suicide occurred while the Covered Person was sane or insane.
If the Covered Person dies by suicide within two years after the effective date
of an increase in the Face Amount of your Certificate that required our
approval, we will not pay the increased amount of insurance. Instead of the
amount of the increase, we will pay your beneficiary the monthly charges that
were attributable to the increased amount. Again, this limit will apply whether
the suicide occurred while the Covered Person was sane or insane.
Modes of Settlement
The Death Benefits section describes how your beneficiary may receive the Death
Benefit. In addition to the methods described in the Death Benefits section,
Prudential also makes these methods available. They are known as "modes of
settlement":
Option 1: Payments for a Fixed Period
The Death Benefit plus interest is paid over a fixed number of years (1 -
25). The payment may be received monthly, quarterly, semi-annually or
annually. The payment amount will be higher or lower depending on the
period selected.
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that your beneficiary will
receive. Your beneficiary may withdraw the total present value of payments
not yet made at any time.
Option 2: Payment in Installments for Life
The Death Benefit provides monthly payments in installments for as long as
your beneficiary lives. Your beneficiary may choose a guaranteed minimum
payment period (5,10 or 20 years) or an installment refund, which will
guarantee that the sum of the payments equals the amount of the Death
Benefit payable under this option. If your beneficiary dies before
Prudential has made all guaranteed payments, Prudential will pay the
present value of the remaining guaranteed payments to a payee your
beneficiary designated.
Option 3: Interest Income
The Death Benefit remains with Prudential and earns interest. This option
allows you or your beneficiary to leave the Death Benefit with Prudential
and choose another settlement option at a
78
<PAGE>
later time. Withdrawals of $100 or more (including the entire unpaid Death
Benefit) can be made at any time. The interest income may be received monthly,
quarterly, semi-annually or annually.
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that you or your beneficiary will
receive.
Option 4: Payments of a Fixed Amount
You or your beneficiary receives a guaranteed specified sum for a limited
number of years. This guaranteed specified sum represents a return of the
principal (Death Benefit) and interest paid over the selected number of
years. The payment may be received monthly, quarterly, semi-annually, or
annually.
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that you or your beneficiary will
receive. Any interest credited will be used to extend the payment period.
Option 5: Certificate of Deposit
The Death Benefit is used to purchase a certificate of deposit that is
issued by The Prudential Bank. Certificates of Deposit (CDs) are
investments that allow you or your beneficiary to choose a variety of
short- and long-term deposit options. They are designed to pay interest
monthly, quarterly, semi-annually, annually or at maturity. Interest rates
are guaranteed for the term of the CD. There is generally a $10,000 minimum
amount for this option.
Under each of the above options, each payment must generally be at least $20.
If your beneficiary elects one of these settlement options, the tax treatment of
the Death Benefit may be different than it would have been had the option not
been elected. Your beneficiary should get advice from a tax advisor.
Assignment
You may assign your Certificate, including all rights, benefits and privileges
that you have. Prudential will honor the assignment only if: (1) you make the
assignment in writing; (2) you sign it; and (3) Prudential receives a copy of
the assignment at the Prudential office shown in your Certificate. We are not
responsible for determining whether the assignment is legal or valid.
79
<PAGE>
Throughout this prospectus, we describe various rights that you have. You may
assign those rights to someone else. If you do, you should consider the
references to "you" in this prospectus as applying to the person to whom you
validly assigned your Certificate.
If you assign a Certificate that is a Modified Endowment Contract, it might
affect the way you are taxed. It might also affect the way the person to whom
you assign the Certificate is taxed. See the Tax Treatment of Certificate
Benefits section on page XX.
Applicant Owner Provision
Some Group Contracts have an "applicant owner" provision. An "applicant owner"
is a person who may apply for coverage on the life of an Eligible Group Member.
And, as with an assignment, if a Participant agrees to let another person be the
applicant owner of the Certificate, that person would have all of the rights to
make decisions about the coverage. References to "Participant" and "you" in this
prospectus also apply to an applicant owner.
When naming an applicant owner, the Eligible Group Member must agree to have his
or her life covered. Examples of people who may be applicant owners are the
Eligible Group Member's spouse, child, parent, grandparent, grandchild, sister,
brother, or the trustee of any trust set up by the Eligible Group Member. At any
one time, only one person may be an "eligible applicant owner" under a
Certificate.
An "applicant owner" must fill out an enrollment form. The Eligible Group Member
must sign the enrollment form to show his or her agreement. Prudential may
require the Eligible Group Member to answer questions about his or her health,
or to have a medical examination. If we approve the enrollment form, we will
issue the Certificate to the applicant owner.
Voting Rights
The assets that are held in the Separate Account are invested in the Funds.
Prudential is the legal owner of those shares. Because we are the owner, we have
the right to vote on any matter that shareholders of the Funds vote on. The
voting happens at regular and special shareholder meetings. We will (as required
by law) vote in accordance with voting instructions we receive from
Participants. A Fund may not hold annual shareholder meetings when not required
to do so under the laws of the state of its incorporation or under the federal
securities laws.
If we do not receive timely voting instructions for Fund shares from
Participants, we will vote those shares in the same proportion as shares in the
Funds for which we do receive instructions. We will do the same thing for shares
held as general account investments of Prudential. If federal securities laws
80
<PAGE>
change so that Prudential is allowed to vote on Fund shares in our own right, we
may decide to do so.
Generally, you may give us voting instructions on matters that would be changes
in fundamental policies of the Funds. You may also give us voting instructions
on any matter that requires a vote of the Fund's shareholders. But, if a Fund
that you participate in has a vote on approval of the investment advisory
agreement or any change in a Fund's fundamental investment policy, you will vote
separately by Fund. This practice is dictated by the federal securities laws.
Here's how we will determine the number of Fund shares and votes for which you
may give instructions:
o To determine the number of Fund shares, we will divide the part of your
Certificate Fund that is derived from participation in a Subaccount by the
value of one share in the corresponding portfolio of the applicable Fund.
o The number of votes will be determined as of the record date chosen by the
Board of Directors of the applicable Fund.
We will give you the proper forms and proxies to give these instructions. We
reserve the right to change the way in which we calculate the weight we give to
voting instructions. We would make such a change to comply with federal
regulations.
If we are required by state insurance regulations, we may disregard voting
instructions in certain instances. We may disregard instructions if: (1) the
instructions would require shares to be voted in a way that would cause a change
in the sub-classification or investment objectives of one or more of the Funds'
portfolios, or (2) the instruction would approve or disapprove an investment
advisory contract for a Fund. Also, Prudential itself may disregard voting
instructions that would require changes in the investment policy or investment
advisor of one or more of the Funds' portfolios, provided that Prudential
reasonably disapproves such changes in accordance with applicable federal
regulations. If Prudential does disregard voting instructions, we will tell you
that we did and our reasons for it in the next annual or semi-annual report to
Participants.
Substitution of Fund Shares
If Prudential's management thinks that an available portfolio of the Funds
becomes unsuitable for investment by Participants, we may substitute the shares
of another portfolio or of an entirely different mutual fund. Our management
might find a portfolio to be unsuitable because of investment policy changes,
tax law changes or considerations, the unavailability of shares for investment
or other reasons, including our discretion. Before Prudential can substitute
shares, the
81
<PAGE>
SEC, and possibly one or more state insurance departments, must approve the
substitution. We would notify Group Contractholders and Participants if we were
to make such a substitution.
Additional Insurance Benefits
One or more of the following additional insurance benefits may be available to
you. These benefits may be provided to all Participants under a Group Contract.
Or, the Group Contract may require you to pay an additional charge to receive
the benefits. Each Group Contract will have different rules about how the
additional benefits are made available. You should refer to the Group Contract
and your Certificate to find out what additional insurance benefits are
available to you.
Accelerated Death Benefit. Under an accelerated death benefit, you can elect to
receive an early payment of part of the Certificate's Death Benefit when the
Covered Person is diagnosed as being terminally ill. "Terminally ill" means the
Covered Person has a life expectancy of 12 months or less (under some Group
Contracts, the number of months might be higher or lower). You must give
Prudential satisfactory evidence that the Covered Person is terminally ill. You
may receive the accelerated payment in a lump sum.
When we pay the Death Benefit under this option, it will be adjusted to reflect
its present value. The adjusted Death Benefit will always be less than the Death
Benefit, but will generally be greater than the Certificate's Cash Surrender
Value. Under some Group Contracts, the accelerated death benefit may be
discounted for interest. Prudential may charge a fee of up to $350 when we pay
an accelerated death benefit.
We will not pay an accelerated death benefit if you are required to elect it to
meet the claims of creditors or to obtain a government benefit. We can furnish
details about the amount of accelerated death benefit that is available to you.
Unless required by law, you can no longer request an increase in the Face Amount
of your Certificate once you have elected to receive an accelerated death
benefit. The amount of future premium payments you can make will also be
limited.
Adding the Accelerated Death Benefit to your Certificate will not affect the way
you are taxed. This income tax exclusion may not apply if the benefit is paid to
someone other than the Participant. But, if you actually receive proceeds from
the Accelerated Death Benefit, it could have tax consequences and may affect
your eligibility for certain government benefits or entitlements. In general,
the accelerated death benefit is excluded from income if the Covered Person is
terminally ill or chronically ill as defined in the tax law (although the
exclusion in the latter case may be limited). You should consult a tax advisor
before you elect to receive this benefit.
Accidental Death and Dismemberment Benefit. An Accidental Death and
Dismemberment Benefit provides you insurance for accidental loss of life, sight,
hand, or foot. This benefit excludes
82
<PAGE>
certain types of losses. For example, losses due to suicide or attempted
suicide, diseases and infirmities, medical or surgical treatments, and acts of
war are not covered. The benefit may be subject to other exclusions from
coverage, age limitations, and benefit limitations. You should refer to your
Certificate and the Group Contract to learn the details of any benefit that may
be available to you.
Extended Death Protection During Total Disability. An extended death benefit
provides protection during your total disability. Under this provision, even if
your insurance would have ended because of your total disability, Prudential
will extend your insurance coverage if you became totally disabled prior to age
60. The amount of insurance that will be extended is your Face Amount of
insurance. We will extend your insurance coverage for successive one-year
periods, generally until age 65. You must provide satisfactory proof of
continued total disability.
Dependent Life Benefits. Dependent life benefits provide insurance on the life
of a qualified dependent. A qualified dependent may be the Participant's spouse
and/or unmarried child.
Seat Belt Coverage. Seat belt coverage provides a death benefit for the loss of
life while driving or riding in a motor vehicle while wearing a seat belt.
"Motor vehicle" means a private automobile, van, four-wheel drive vehicle,
self-propelled motor home and truck. It does not mean a motor vehicle used for
farming, military, business, racing, or any other type of competitive speed
event. Certain exclusions will apply.
Reports
At least once each Certificate Year, Prudential will send you a statement that
gives you certain information about your insurance. These statements will give
you details about the value of your Certificate Fund, about transactions that
you made, and specific insurance data about your coverage.
If you make a request, we will also send you a current statement about your
insurance. It will give you the same kind of information as the annual statement
does. We may limit the number of current statements you may request or may
charge you for additional statements. Any such charge will not exceed $20 for an
additional report.
We will also send to you and to the Group Contractholder, annual and semi-annual
reports that list the securities held in each available portfolio of the Funds.
The federal securities laws require these reports. Prudential keeps records
about the Separate Account according to the federal securities laws.
83
<PAGE>
If you invest in the Series Fund through more than one variable insurance
contract, you will receive only one copy of each annual and semi-annual report
issued by the Series Fund. But, if you want another copy of a report, you may
ask us for one by calling the telephone number listed on the inside cover page
of this prospectus.
Sale of the Contract and Sales Commissions
Prudential Investment Management Services LLC (referred to as "PIMS") acts as
the principal underwriter of the Group Contracts and Certificates. PIMS is a
direct, wholly-owned subsidiary of Prudential.
PIMS, organized in 1996 under Delaware law, is registered as a broker-dealer
under the federal securities laws. PIMS is also a member of the National
Association of Securities Dealers, Inc. PIMS's principal business address is 751
Broad Street, Newark, New Jersey 07102. PIMS also acts as principal underwriter
with respect to the securities of other Prudential investment companies.
The Group Contracts and Certificates are sold by persons who are registered
representatives of PIMS and who are also authorized by state insurance
departments. The Group Contracts and Certificates may also be sold through other
broker-dealers authorized by PIMS and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than the basis described below.
The maximum commission that Prudential will pay to the representative upon the
purchase of the Contract is 15% of the premium payment received. The amount
Prudential will pay to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 15%
of the premium payment. Prudential may require the representative to return all
of the first year commission if the Group Contract is not continued through the
first year. Sales representatives who meet certain productivity, profitability,
and persistency standards with regard to the sale of the Group Contract will be
eligible for additional bonus compensation from Prudential. Generally,
Prudential will pay PIMS a commission of no more than 15% of the premium
payment. The commission and distribution percentages will depend on factors such
as the size of the group involved and the amount of sales and administrative
effort required in connection with the particular Group Contract. In total, they
will not exceed 15% of the premium payment.
The distribution agreement between PIMS and Prudential will terminate
automatically upon its assignment (as that term is defined in the federal
securities laws). But, PIMS may transfer the agreement, without the prior
written consent of Prudential, under the circumstances set forth in the federal
securities laws. Either party may terminate the agreement at any time if the
party gives 60 days' written notice to the other party.
84
<PAGE>
Sales expenses in any year are not equal to the sales charge in that year.
Prudential may not recover its total sales expenses for some or all Group
Contracts over the periods the Certificates for such Group Contracts are in
effect. To the extent that the sales charges are insufficient to cover total
sales expenses, the sales expenses will be recovered from Prudential's surplus,
which may include amounts derived from the mortality and expense risk charge and
the monthly cost of insurance charge. See the Charges and Expenses section on
page XX.
Ratings and Advertisements
Independent financial rating services -- including Moody's, Standard & Poors,
Duff & Phelps and A.M. Best Company - rate Prudential. These ratings reflect our
financial strength and claims-paying ability. They are not intended to rate the
investment experience or financial strength of the Separate Account. We may
advertise these ratings from time to time. Furthermore, we may include in
advertisements comparisons of currently taxable and tax-deferred investment
programs, based on selected tax brackets, or discussions of alternative
investment vehicles and general economic conditions.
Services Performed by Third Parties
Throughout this prospectus, we describe how Prudential and the Group
Contractholder will perform transactions with you and how you will perform
transactions with them. Prudential has the right to ask another party (referred
to as a "third party") to perform or receive transactions in its place. The
Group Contractholder has the same right. That means that, for a particular Group
Contract, you may conduct transactions via a third party rather than directly
with Prudential or the Group Contractholder.
In some cases, the third party might be another part of Prudential. (For
example, when you make premium payments to Prudential, they could be received by
Prudential Mutual Fund Services, Inc., a wholly-owned subsidiary of Prudential).
In other cases, the third party might be a third party administrator or even the
group that sponsors the Group Contract.
Prudential may make payments to third party administrators or groups sponsoring
the Group Contracts for their services related to administration and sponsorship
of the Group Contracts.
85
<PAGE>
State Regulation
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. We
reserve the right to change the Group Contract and Certificate to comply with
applicable state insurance laws and interpretations thereof.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, we are required to file
with New Jersey and other jurisdictions a separate statement with respect to the
operations of all our variable contract accounts, in a form promulgated by the
National Association of Insurance Commissioners.
Experts
The financial statements in this registration statement for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996 have been audited by
________________________, independent accountants, as stated in their reports
appearing in this prospectus. Prudential is relying on
__________________________'s reports, which are given on their authority as
accounting and auditing experts. _________________________'s principal business
address is ___________________________________________________________________.
[Actuarial expert sentence to be added by post-effective amendment.]
Litigation
On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales practices. (In re Prudential Insurance Company
of America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate, and later issued a Final Order and Judgement in the
consolidated class actions before the court, 962 F. Supp. 450 (March 17, 1997,
as amended April 14, 1997). The Court's Final Order and Judgement approving the
class Settlement was appealed to the United States Court of Appeals for the
Third Circuit, which upheld the district court's approval of the Stipulation of
Settlement on July 23, 1998. As of now no further appeal has been taken.
86
<PAGE>
Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance contracts. As of December 31, 1997, based on a reasonable estimate of
losses associated with ADR claims, management estimated the cost, before taxes,
of remedying policyholder claims in the ADR process to be approximately $2.05
billion. While management believed these to be reasonable estimates based on
information then available, further estimates are currently being developed in
connection with the availability of more recent data. The ultimate amount of the
total cost of remedied policyholder claims is dependent on complex and varying
factors, including actual claims by eligible policyholders, the relief options
chosen and the dollar value of those options. There are also additional elements
of the ADR process which cannot be fully evaluated at this time (e.g., claims
which may be successfully appealed) which could increase this estimate.
In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class Settlement.
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted. It is also not possible to
predict the likely results of any regulatory inquiries or their effect on
litigation which might be initiated in response to widespread media coverage of
these matters.
Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods, could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not have a material adverse effect on Prudential's
financial position, after consideration of applicable reserves.
87
<PAGE>
Year 2000 Compliance
The services provided to the Group Contractholders by Prudential depend on the
smooth functioning of its computer systems. The year 2000, however, holds the
potential for significant disruption in the operation of these systems. Many
computer systems are programmed to recognize only the last two digits in a date.
As a result, any computer system that has date-sensitive programming may
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem can affect non-information technology systems that include embedded
technology, such as microprocessors included in "infrastructure" equipment used
for telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly, which could in turn affect the
accuracy and compromise the integrity of business records. Business operations
could be interrupted when companies are unable to process transactions, send
invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide progress of each component of Prudential's
program for conversion and upgrading of systems for Year 2000 compliance.
Business Applications
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000 compliant
systems, and the remaining 17% are being retired from production. At December
31, 1998, the percentage of business applications (based on application count)
in the implementation phase for Year 2000 compliance for renovation, replacement
and retirement are 99%, 96% and 99%, respectively. The interim target date for
completing renovations and retirements is March 1999, with an overall completion
date for Business Applications of June 1999.
88
<PAGE>
Infrastructure
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The interim target date for
completion of certain Infrastructure components is March 1999 with an overall
completion date for Infrastructure of June 1999.
Business Partners
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of our business
partners have been identified as highly critical and the remaining 70% as less
critical. Project phases include inventory, risk assessment, and contingency
planning activities. All project phases for highly critical business partner
readiness were achieved in December 1998; we have an overall completion date for
less critical business partner readiness of June 1999.
The Cost of Year 2000 Readiness
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including those businesses not engaged in
providing services to Group Contractholders. Accordingly, while the expense is
substantial in the aggregate, it is not expected to have a material impact on
Prudential's ability to meet its contractual commitments to Group
Contractholders.
Year 2000 Risks and Contingency Planning
The major portion of Prudential's transactions are of such volume that they can
only be effectively processed through the use of automated systems. Therefore,
substantially all of Prudential's contingency plans include the ultimate
resolution of any causative technology failures that may be encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
89
<PAGE>
significant impact on the timing of the project as a whole. During the course of
the Year 2000 program, some discretionary technology projects have been delayed
in favor of the completion of Year 2000 projects. However, this impact has been
minimized by Prudential's strategic decision to outsource most of the Year 2000
renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, Prudential is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the results of operations, liquidity or financial condition. In the worst case,
it is possible that any technology failure, including an internal or external
Year 2000 failure, could have a material impact on Prudential's results of
operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature.
90
<PAGE>
Definitions of Special Terms
used in this Prospectus
Attained Age -- Your age as defined by the Group Contract.
Business Day -- A day on which the New York Stock Exchange is open for trading.
Cash Surrender Value -- The amount you receive upon surrender of the
Certificate. The Cash Surrender Value is equal to your Certificate Fund on the
date of surrender, less any Certificate Debt, outstanding charges, and any
applicable transaction charge.
Certificate -- A document issued to you, as a Participant under a Group
Contract, setting forth or summarizing your rights and benefits.
Certificate Anniversary -- The same date each year as the Certificate Date.
Certificate Date -- The effective date of coverage under a Certificate.
Certificate Debt -- The principal amount of any outstanding loans you borrowed
under your Certificate plus any accrued interest.
Certificate Fund -- The total amount credited to you under your Certificate. On
any date it is equal to the sum of the amounts under that Certificate allocated
to: (1) the Subaccounts, (2) the Fixed Account, and (3) the Loan Account.
Certificate Year -- The year from the Certificate Date to the first Certificate
Anniversary or from one Certificate Anniversary to the next.
Contract Anniversary -- The same date each year as the Contract Date.
Contract Date -- The date as of which the Group Contract is issued.
Covered Person -- The person whose life is insured under the Group Contract. The
Covered Person is generally the Participant. Some Group Contracts may permit a
Participant to apply for insurance under a second Certificate naming the
Participant's spouse as the Covered Person.
Death Benefit -- The amount payable upon the death of the Covered Person (before
the deduction of any Certificate Debt or any outstanding charges).
Dividend -- A portion of Prudential's divisible surplus attributable to the
Group Contract that may be credited to the Group Contract as determined annually
by Prudential's Board of Directors.
Eligible Group Members -- The persons specified in the Group Contract as
eligible to apply for insurance protection under the Group Contract.
Experience Credit -- A refund that Prudential may provide under certain Group
Contracts based on favorable experience.
Face Amount -- The amount of life insurance in your Certificate. The Face
Amount, along with your Certificate Fund, is a part of your
Death Benefit.
Fixed Account -- An investment option under which Prudential guarantees that
interest will be
91
<PAGE>
added to the amount deposited at a rate we declare periodically.
Funds -- The Series Fund portfolios and other mutual fund portfolios in which
the Separate Account invests. Your investment options include the Funds and the
Fixed Account.
Group Contract -- A Group Variable Universal Life insurance contract that
Prudential issues to the Group Contractholder. The term Group Contract also
includes a participating employer's participation in a
multi-employer trust.
Group Contractholder -- The employer, association, sponsoring organization or
trust that is issued a Group Contract. In the case of an employer that joins a
multiple employer trust, the employer exercises the rights accorded to a Group
Contractholder as described throughout this prospectus.
Guideline Annual Premium -- A level annual premium that would be payable
throughout the duration of a Certificate to fund the future benefits if the
Certificate were a fixed premium contract, based on certain assumptions set
forth in a rule of the SEC. Upon request, Prudential will advise you of the
guideline annual premium under the Certificate.
Issue Age -- The Covered Person's Attained Age on the date that the insurance on
that Covered Person goes into effect as defined by the Group Contract.
Loan Account -- An account within Prudential's general account to which we
transfer from the Separate Account and/or the Fixed Account an amount equal to
the amount of any loan.
Loan Value -- The amount (before any applicable transaction charge) that you may
borrow at any given time under your Certificate. We calculate the Loan Value by
multiplying the Certificate Fund by 90% (or higher where required by state law)
and then subtracting any existing loan with accrued interest, outstanding
charges, and the amount of the next month's charges.
Modified Endowment Contract -- A type of life insurance contract or Certificate
under the Internal Revenue Code which has been funded in excess of certain IRS
limits. In general, a Certificate may be classified as a Modified Endowment
Contract (or "MEC") if premiums substantially in excess of scheduled premiums
are paid or a decrease in the Face Amount of insurance is made (or an additional
insurance benefit removed). Less favorable tax rules, and in some cases a
penalty tax, apply if you take distributions (such as withdrawals, loans or
assignments) from a MEC. Regardless of classification as a MEC, cash value
accrues on a tax deferred basis and the Death Benefit is generally received free
of income tax. See Tax Treatment of Certificate Benefits for a more complete
description of the MEC rules.
Monthly Deduction Date -- Generally, the Contract Date and the first day of each
succeeding month, except that whenever the Monthly Deduction Date falls on a
date other than a Business Day, the Monthly Deduction Date will be the next
Business Day. Some Group Contracts may define Monthly Deduction Date slightly
differently, in which case a supplement to this prospectus will define Monthly
Deduction Date.
Net Premium -- Your premium payment minus any charges for taxes attributable to
premiums, any processing fee, and any sales
92
<PAGE>
charge. Net Premiums are the amounts that we allocate to the Separate Account
and/or the Fixed Account.
Paid-up Coverage -- This type of life insurance coverage pays a Death Benefit of
a specific amount that does not change. You make one initial premium payment to
begin the coverage and never make any additional payments.
Participant -- An Eligible Group Member or "applicant owner" under a Group
Contract who obtains insurance under the Group Contract and is eligible to
exercise the rights described in the Certificate. The Participant will be the
person entitled to exercise all rights under a Certificate, regardless of
whether the Covered Person under the Certificate is the Participant or his or
her spouse. We refer to Participants as "you" in this prospectus. If you validly
assign your rights as a Participant to someone else, then that person may
exercise those rights.
Portable -- Under some Group Contracts, you may continue your insurance coverage
even if you are no longer an Eligible Group Member. This type of insurance
coverage is called Portable. Cost of insurance rates and charges may increase
under a Portable Certificate since the Covered Person under a Portable
Certificate may no longer be considered to be a member of the Group
Contractholder's group for purposes of determining those rates and charges.
Separate Account -- Prudential Variable Contract Account GI-2, a separate
investment account registered as a unit investment trust under the federal
securities laws and established by Prudential to receive some or all of the Net
Premiums and to invest them in the Funds.
Series Fund -- The Prudential Series Fund, Inc., a mutual fund with separate
portfolios, some of which are available as investment options for the Group
Contract.
Subaccount -- A division of the Separate Account. Each Subaccount invests its
assets in the shares of a corresponding Fund.
We -- The Prudential Insurance Company of America.
You -- A Participant.
93
<PAGE>
Directors and Officers of Prudential
DIRECTORS OF PRUDENTIAL
Franklin E. Agnew - Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc. John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address: 600
Grant Street, Suite 660, Pittsburgh, PA 15219.
Frederick K. Becker - Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.
James G. Cullen - Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
Carolyne K. Davis - Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102.
Roger A. Enrico - Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.
Allan D. Gilmour - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995.
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool Corporation,
USWest, Inc., The Dow Chemical Company and DTE Energy Company. Age 63. Address:
751 Broad Street, 23rd Floor, Newark, NJ 07102.
William H. Gray, III - Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since
94
<PAGE>
1991. Mr. Gray served in Congress from 1979 to 1991. Mr. Gray is also a director
of Chase Manhattan Corporation, The Chase Manhattan Bank, Lotus Development
Corporation, Municipal Bond Investors Assurance Corporation, Rockwell
International Corporation, Union-Pacific Corporation, Warner-Lambert Company,
Westinghouse Electric Corporation, and Electronic Data Systems. Age 56. Address:
8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.
Jon F. Hanson - Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
Glen H. Hiner Jr. - Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.
Constance J. Horner - Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
Gaynor N. Kelley - Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.
Burton G. Malkiel - Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65. Address: Princeton University, 110 Fisher Hall,
Prospect Avenue, Princeton, NJ 08544-1021.
Arthur F. Ryan - Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.
Ida F.S. Schmertz - Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994. Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
95
<PAGE>
Charles R. Sitter- Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.
Donald L. Staheli - Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.
Richard M. Thomson - Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.
James A. Unruh - Director since 1996 (current term expires April, 2000). Member,
Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.
P. Roy Vagelos, M.D. - Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.
Stanley C. Van Ness - Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.
Paul A. Volcker - Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
Bankers
96
<PAGE>
Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite 420, New
York, NY 10020.
Joseph H. Williams - Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74172.
PRINCIPAL OFFICERS OF PRUDENTIAL
Arthur F. Ryan - Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.
E. Michael Caulfield - Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.
Michele S. Darling - Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.
Robert C. Golden- Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.
Mark B. Grier- Executive Vice President, Financial Management since 1997; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 44.
Rodger A. Lawson - Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.
John V. Scicutella- Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.
John R. Strangefeld - Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
R. Brock Armstrong - Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.
James J. Avery, Jr. - Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.
97
<PAGE>
Martin A. Berkowitz - Senior Vice President and Comptroller since 1995; prior to
1995, Senior Vice President and CFO, Prudential Investment Corporation. Age 48.
William M. Bethke - Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.
Richard J. Carbone - Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.
Mark R. Fetting - President, Prudential Retirement Services since 1996; prior to
1996, President, Prudential Defined Contribution Services. Age 43.
William D. Friel - Senior Vice President and Chief Information Officer since
1993. Age 59.
Jean D. Hamilton - President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.
Ronald P. Joelson - Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.
Ira J. Kleinman - Executive Vice President, International Insurance Group, since
1997; prior to 1997, Senior Vice President. Age 51.
Neil A. McGuinness - Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.
Priscilla A. Myers - Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.
I. Edward Price - Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.
Kiyofumi Sakaguchi - President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.
Brian M. Storms - President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.
Robert J. Sullivan - Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.
Susan J. Blount - Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.
98
<PAGE>
C. Edward Chaplin - Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
Prudential officers are elected annually.
99
<PAGE>
FINANCIAL STATEMENTS
[Financial statements to be added by post-effective amendment.]
100
<PAGE>
PROSPECTUS
May 1, 1999
The Prudential Insurance Company of America
The Prudential Variable Contract Account GI - 2
Group Variable Universal Life Insurance
This document is a prospectus. It tells you about Group Variable Universal Life
Insurance contracts offered by The Prudential Insurance Company of America
("Prudential," "we," "our," or "us") for insurance programs that are sponsored
by groups.
We will give a Certificate to each Eligible Group Member or Applicant Owner who
buys coverage under a Group Contract. We will refer to each person who buys
coverage as a "Participant." When we use the terms "you" or "your", we mean a
Participant. Certain Group Contracts may also permit a Participant to apply for
separate insurance coverage for his or her dependents.
The Group Contracts and Certificates provide life insurance protection with
flexible premium payments and a choice of underlying investment options. The
Death Benefit and Cash Surrender Value will change daily, depending on the
performance of the investment options you select. The Death Benefit will usually
not be less than the Face Amount of the Certificate. Surrenders, partial
withdrawals and loans are available but certain rules and limits apply to how
they work.
We have tried to make this prospectus easy to understand. Still, the meaning of
some terms are special because they describe concepts used mostly in insurance
contracts. To help you understand what these terms mean, we added a Definitions
of Special Terms section on page XX. It's easy to recognize a defined term -- we
capitalize them.
A word about replacing your life insurance. You should know that, most times, it
is not in your best interest to replace one life insurance policy with another
one. When you need additional life insurance, it is usually better for you to
add coverage -- either by asking for a new policy or by buying additional
insurance -- than it is for you to replace a policy. In that way, you don't lose
benefits under the policy you already have.
If you are thinking about replacing a life insurance policy you already have so
that you can obtain Group Variable Universal Life Insurance, you should consider
your choices carefully. Compare the costs and benefits of adding coverage to
your current policy against the costs and benefits of Group Variable Universal
Life Insurance. You should also get advice from a tax advisor.
You should read this prospectus carefully and keep it for future reference. This
document will be followed by prospectuses for each of the Funds under the group
program that will be available to you. This prospectus will be accompanied by a
supplement that describes the unique features of the Group Contract and
Certificates. The prospectus and the supplement together provide all the
information you need to know about Group Variable Universal Life Insurance, and
you should read them together.
The U.S. Securities and Exchange Commission has not approved or disapproved
these securities, or determined that this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Telephone (800) 562-9874
The SEC maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference and other information regarding issuers that file
electronically with the SEC.
<PAGE>
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (called the "Separate Account")
has 136 variable investment options. We call each option a "Subaccount." We will
invest the assets of each Subaccount in The Prudential Series Fund, Inc. (called
the "Series Fund") or in certain other mutual fund portfolios. When we refer to
"Funds" in this prospectus, we mean all or any of these funds.
We will permit each Group Contractholder to choose up to 20 of these Funds. The
Series Fund Money Market Portfolio must be one of the selected Funds. Generally,
half of the Funds selected by the Group Contractholder must be from the Series
Fund.
You may then choose as investment options from among the Funds selected by your
Group Contractholder. You may also choose to invest in the Fixed Account. (The
Fixed Account is an investment option for which Prudential guarantees that the
effective annual interest rate will be at least 4%.)
Once you select the investment options you want, Prudential will direct your
premium payments to the Subaccount associated with those Funds or to the Fixed
Account.
We describe the Funds chosen by your Group Contractholder briefly in the section
called "The Funds" that appears in the accompanying supplement. We will send you
a prospectus for each Fund selected by your Group Contractholder. The Fund
prospectuses tell you about the objectives and policies for each Fund, as well
as about the risks of investing in each Fund.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Brief Description of the Group Contract and Certificate...................................................
Illustrations of Death Benefits and Cash Surrender Values.................................................
General Information about Prudential, The Prudential Variable Contract Account GI-2, and
The Variable Investment Options under the Certificates....................................................
The Prudential Insurance Company of America......................................................
The Prudential Variable Contract Account GI-2....................................................
The Funds........................................................................................
The Fixed Account................................................................................
Detailed Information About the Certificates...............................................................
How Prudential Issues Certificates...............................................................
A "Free Look" Period.............................................................................
Procedures.......................................................................................
Premiums.........................................................................................
Effective Date of Insurance......................................................................
How Prudential Will Deposit and Invest Premium Payments..........................................
How You Can Change the Way Prudential Allocates Future Premium Payments..........................
How You Can Transfer Amounts In Your Certificate Fund
From One Investment Option to Another.......................................................
Dollar Cost Averaging............................................................................
Death Benefits...................................................................................
Changes in Face Amount...........................................................................
Charges and Expenses.............................................................................
Reduction of Charges.............................................................................
Dividends or Experience Credits..................................................................
Cash Surrender Value.............................................................................
Full Surrenders..................................................................................
Paid-up Coverage.................................................................................
Partial Withdrawals..............................................................................
Loans............................................................................................
Telephone and Electronic Transactions............................................................
Lapse............................................................................................
Termination of a Group Contractholder's Participation in Group Contract..........................
Participants Who Are No Longer Eligible Group Members............................................
Options on Termination of Coverage...............................................................
Reinstatement....................................................................................
Tax Treatment of Certificate Benefits............................................................
ERISA Considerations.............................................................................
When Proceeds Are Paid...........................................................................
Beneficiary......................................................................................
Incontestability.................................................................................
Misstatement of Age..............................................................................
Suicide Exclusion................................................................................
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Modes of Settlement..............................................................................
Assignment.......................................................................................
Applicant Owner Provision........................................................................
Voting Rights....................................................................................
Substitution of Fund Shares......................................................................
Additional Insurance Benefits....................................................................
Reports..........................................................................................
Sale of the Contract and Sales Commissions.......................................................
Ratings and Advertisements.......................................................................
Services Performed by Third Parties..............................................................
State Regulation.................................................................................
Experts..........................................................................................
Litigation.......................................................................................
Year 2000 Compliance.............................................................................
Definitions of Special Terms Used in this Prospectus......................................................
Directors and Officers of Prudential......................................................................
Financial Statements......................................................................................
Consolidated Financial Statements of The Prudential Insurance
Company of America and Subsidiaries..............................................................
</TABLE>
You should not consider this prospectus to be an offering in any jurisdiction
where an offering may not be lawfully made. You should rely on the information
contained in this prospectus and the accompanying supplement. We have not
authorized anyone to provide you with information that is different.
iii
<PAGE>
Brief Description of the Group Contract and Certificate
In this section of the prospectus, we answer some questions that are frequently
asked about Group Variable Universal Life Insurance. You can find more detailed
information on later pages of the prospectus.
The Group Contract and Certificate provide even more detailed information. You
will get a Certificate if you buy the Group Variable Universal Life Insurance.
What is a Group Variable Universal Life Insurance contract?
It is an insurance contract issued by Prudential to the group that sponsors the
Group Variable Universal Life Insurance program. Often, the group that sponsors
a program is an employer. Other groups, such as membership associations, may
also sponsor programs.
The Group Contract states all the terms of the agreement between Prudential and
the sponsoring group. It forms the entire agreement between them. Among other
things, the Group Contract defines which members of the group are eligible to
buy the Group Variable Universal Life Insurance. The Group Contract also says
whether or not Eligible Group Members may also buy coverage for their
dependents.
We will give a Certificate to each Eligible Group Member or Applicant Owner who
buys coverage under the Group Contract. The Certificate provides for a Death
Benefit and a Cash Surrender Value. The Death Benefit and the Cash Surrender
Value can change every day. They change based on the performance of the
investment options you selected.
How does Prudential calculate the Certificate's Death Benefit?
When you buy Group Variable Universal Life Insurance, you will choose a Face
Amount of insurance, based on the amounts available for your group. Prudential
will calculate the Death Benefit like this:
o The Death Benefit is the Face Amount of insurance plus the value of your
Certificate Fund on the date of your death minus any Certificate Debt and
outstanding charges.
(In some cases, we will increase the Death Benefit to an amount that is more
than the Face Amount plus the value of the Certificate Fund. We will do that to
make sure that
1
<PAGE>
the Certificate meets the definition of "life insurance" under the Internal
Revenue Code. We will still deduct any Certificate Debt and outstanding
charges..) The Certificate Fund consists of the Net Premiums that we invest in
the investment options you selected. Prudential will deduct its charges for the
insurance from the Certificate Fund. The value of the Certificate Fund will
change each day based on the performance of those investment options and to
reflect the deduction of daily charges.
See the Death Benefits section on page X.
How does Prudential calculate the Cash Surrender Value of the Certificate?
Prudential calculates the Cash Surrender Value of a Certificate like this:
o The Cash Surrender Value is the value of the Certificate Fund on the day of
the surrender minus any Certificate Debt and outstanding charges.
(Under the terms of some Group Contracts, Prudential is permitted to also deduct
a charge for the surrender. The charge may be up to $20.)
See the Cash Surrender Value section on page X.
What premiums must I pay?
You can usually choose how often you pay premiums and the amount of premiums.
Prudential will keep your insurance in force as long as the balance in your
Certificate Fund is enough to pay the charges that are due to Prudential each
month. Prudential may also require you to pay a minimum initial premium.
If the balance in your Certificate Fund is not enough to pay any month's
charges, you must make a premium payment that is enough to bring your
Certificate Fund balance above this minimum amount. You must make that payment
during the grace period. If you don't, your insurance coverage will end.
See the Premiums section on page X.
What investment options are available?
The Separate Account has Subaccounts. We invest the assets of each Subaccount in
its corresponding Fund.
2
<PAGE>
We permit each Group Contractholder to choose up to 20 of these Funds for the
Group Contractholder's Participants to invest in. The Series Fund Money Market
Portfolio must be one of the selected Funds. And generally, half of the Funds
selected by the Group Contractholder must be from the Series Fund.
Instead of choosing Funds for itself, a Group Contractholder may ask Prudential
to present it with one or more predetermined groups of Funds for the Group
Contractholder's Participants to invest in.
We will not permit a Group Contractholder to substitute other Funds for Funds it
has already selected (whether the Group Contractholder chose its own Funds or
selected a predetermined group of Funds). But, if a Group Contractholder chooses
fewer than 20 Funds, we will permit that Group Contractholder to select
additional Funds.
You may invest only in the Funds chosen by your Group Contractholder and in the
Fixed Account. (The Fixed Account is an investment option for which Prudential
guarantees that the effective annual interest rate will be at least 4%. See The
Fixed Account section on page X.)
We recommend that the Group Contractholder get advice from an investment advisor
when choosing the investment options for its Participants.
See The Funds section in the accompanying supplement. Each Fund prospectus
provides more detailed information about the specific Fund.
Does Group Variable Universal Life Insurance offer choice and flexibility in the
amount of insurance protection I can get?
Yes. The Death Benefit under a Certificate includes, among other things, the
value of your Certificate Fund. The value of your Certificate Fund will vary
with the investment performance of the investment options you select. So, your
Death Benefit could grow more than it could under a certificate that does not
include investment options. But, the Death Benefit may also go down if the
investment options in your Certificate Fund have poor investment performance.
You choose how to invest the amount you have in your Certificate Fund. You may
choose more aggressive Funds or less aggressive Funds. What you choose depends
on your personal circumstances and your investment objectives and how they may
change over time.
If you prefer to avoid or reduce the risks that come with investing in the
Funds, you can choose to direct some or all of the amount in your Certificate
Fund to the Fixed Account.
3
<PAGE>
Prudential guarantees that the part of your Certificate Fund that is directed to
the Fixed Account will earn interest daily at a rate that Prudential declares
periodically. That rate will change from time to time, but it will never be
lower than 4%. See The Fixed Account section on page X.
What charges does Prudential make?
We deduct certain charges from each premium payment that you make and from the
amounts that are held in each investment option. These charges compensate us for
insurance costs, risks and expenses.
All charges made by Prudential are described in detail in the Charges and
Expenses section on page XX. This chart briefly outlines the charges that may be
made:
- --------------------------------------------------------------------------------
You make a premium payment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Then, Prudential deducts these charges:
o A charge for taxes on premium payments. Currently, this charge is
2.6%, but some Group Contracts may permit a charge up to 5.35%. We
reserve the right to increase this charge if the cost of our taxes
related to premium payments increases. (In some states, this charge is
known as a premium-based administrative charge.)
o A processing charge of up to $2. (Under some Group Contracts, this
charge is waived.)
o A sales charge of up to 3 1/2%. (Under some Group Contracts, this
charge is waived.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The remainder is your Net Premium Amount
This is the amount that you can invest in one or more of the investment
options selected by your Group Contractholder.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Daily Charges
After your Net Premium Amount is directed to your investment option(s),
Prudential deducts these daily charges from the Subaccounts (but not from
the Fixed Account):
o A daily charge for mortality and expense risks. This charge is
deducted from the assets of the Subaccount(s) that correspond to the
Fund(s) you selected.
Currently, this charge is equivalent to an effective annual rate of
0.45%. Prudential guarantees that this charge will not be more than an
effective annual rate of 0.90%.
o A daily charge for investment management fees and expenses. These
charges are deducted from the assets of the Fund(s) you selected. The
Funds set these charges. The charges are described more fully in the
accompanying supplement.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Charges
Prudential deducts these charges from your Certificate Fund each month:
o A charge for administrative expenses. Currently, this charge may be up
to $3 per month. Prudential guarantees that it will not be more than
$6 per month.
o A charge for the cost of insurance.
o A charge for any additional insurance benefits not already included in
the charge for the cost of insurance.
Under some Group Contracts, Prudential may deduct these charges more or
less frequently.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Possible Additional Charges
Some Group Contracts may also permit Prudential to make the following
transaction charges:
o When you use the Dollar Cost Averaging feature.
o When you ask Prudential to reallocate the way your premium payments
will be invested.
o When you surrender your Certificate Fund or when you make a withdrawal
from it. The charge can be up to $20 or 2% of the amount you surrender
or withdraw, whichever amount is less.
o Each time you take a loan from your Certificate Fund. The charge may
be up to $20.
o Each time you request an additional statement about your Certificate
Fund. The charge may be up to $20.
o When you request more than 12 transfers between investment options in
a Certificate Year. The charge may be up to $20 for each transfer
after the 12th one.
Also, Prudential has the right to make a charge for any taxes that may be
imposed on the operations of the Separate Account.
- --------------------------------------------------------------------------------
Can I make withdrawals from the Certificate Fund?
Yes. You may request a partial withdrawal from the Certificate Fund. You may
also surrender your insurance and receive its Cash Surrender Value. See the
Partial Withdrawals section on page XX and the Full Surrenders section on page
XX.
Can I take loans?
Yes. You may borrow money from your Certificate Fund. The Loan Value, which is
the maximum amount you may borrow, is 90% of your Certificate Fund minus any
existing loan (and its accrued interest), outstanding charges, and the amount of
the next month's charges. In states that require it, you may borrow a greater
amount.
6
<PAGE>
When you take a loan from your Certificate Fund, here's what happens:
o The amount of the loan is transferred from your investment options to
a Loan Account. This Loan Account is still part of your Certificate
Fund.
o The Loan Account earns interest at an effective annual rate that is
usually 2% less than the rate Prudential charges as interest on the
loan.
The term "Certificate Debt" is used to mean any outstanding loan plus its
accrued interest. Certificate Debt is deducted from any amount payable at the
Covered Person's death. It is also deducted from the Certificate's Cash
Surrender Value.
How is my insurance coverage affected when I am no longer a member of the group?
Each Group Contract has different rules. Under some Group Contracts, you may
continue your insurance even though you are no longer part of the group. The
charges for continued insurance may be higher.
You may also surrender the insurance for its Cash Surrender Value, elect to use
the Cash Surrender Value to buy Paid-up Coverage, or convert the insurance to an
individual life insurance policy.
See the Options on Termination of Coverage section on page XX.
What is the Federal income tax status of amounts received under the Certificate?
Variable life insurance contracts receive the same Federal income tax treatment
as conventional life insurance contracts (those where the amount of the death
benefit is fixed instead of variable). Here's what that means:
o First, the Death Benefit is generally not included in the gross income of
the beneficiary.
o Second, increases in the value of the Certificate Fund are generally not
included in the taxable income of the Participant. This is true whether the
increases are from income or capital gains.
7
<PAGE>
o Third, surrenders and partial withdrawals are generally treated first as a
return of your investment in the Certificate and then as a distribution of
taxable income.
o Fourth, loans are not generally treated as distributions.
See the Tax Treatment of Certificate Benefits section on page XX. You should
consult your tax advisor for guidance on your specific situation.
Illustrations of Death Benefits and Cash Surrender Values
In the accompanying supplement, we show you examples of how the Death Benefit
and the Cash Surrender Value of your Certificate can change as a result of the
performance of the investment options you select. The examples are not our
prediction of how value will grow. They are hypothetical examples and are just
intended to show you how a Certificate works.
We call these examples "illustrations."
8
<PAGE>
General Information About:
o Prudential
o The Prudential Variable Contract Account GI-2
The Prudential Insurance Company of America
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
years to complete. No plan of demutualization has been adopted yet by
Prudential's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Prudential policyholders and appropriate state insurance
regulators. Throughout the process, there will be continuing evaluation by the
Board of Directors and management of Prudential as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.
Prudential is licensed to sell life insurance and annuities in all states, in
the District of Columbia, and in all United States territories and possessions.
Prudential's consolidated financial statements begin on page A-1 (following page
X) and should be considered only as bearing upon Prudential's ability to meet
its obligations under the Group Contracts and the insurance provided thereunder.
Prudential and its affiliates act in a variety of capacities with respect to
registered investment companies including as depositor, adviser, and principal
underwriter.
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (the "Separate Account") was
established on June 14, 1988 under New Jersey law as a separate investment
account. The Separate Account meets the definition of a "separate account" under
the federal securities laws. The Separate Account holds assets that are
segregated from all of Prudential's other assets.
The obligations arising under the Group Contracts and the Certificates are
general corporate obligations of Prudential. Prudential is also the legal owner
of the assets in the Separate Account. Prudential will maintain assets in the
Separate Account with a total market value at least equal to the liabilities
relating to the benefits attributable to the Separate Account. These assets may
not be charged with liabilities which arise from any other business Prudential
conducts. In addition to these assets, the Separate Account's
9
<PAGE>
assets may include funds contributed by Prudential to commence operation of the
Separate Account and may include accumulations of the charges Prudential makes
against the Separate Account. From time to time, these additional assets will be
transferred to Prudential's general account. Before making any such transfer,
Prudential will consider any possible adverse impact the transfer might have on
the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the federal securities laws as a unit investment trust, which is a
type of investment company. This does not involve any supervision by the SEC of
the management or investment policies or practices of the Separate Account. For
state law purposes, the Separate Account is treated as a part or division of
Prudential. There are currently 136 Subaccounts within the Separate Account,
each of which invests in a corresponding Fund. Prudential reserves the right to
take all actions in connection with the operation of the Separate Account that
are permitted by applicable law (including those permitted upon regulatory
approval).
The Funds
Information about each Fund, its investment objectives, investment management
fees and other expenses, and its investment advisor/investment manager appears
in the accompanying supplement.
Certain of the Funds have investment objectives and policies closely resembling
those of mutual funds within the same complex that are sold directly to
individual investors. Despite such similarities, there can be no assurance that
the investment performance of any such Fund will resemble that of its retail
fund counterpart.
You will receive a prospectus for each available Fund. That prospectus will
describe the Fund, its investment objective and strategies, its risks, and its
management fees and other expenses. You should read the Fund prospectuses
together with this prospectus. As with all mutual funds, a Fund may not meet its
investment objective. Subject to applicable law, Prudential may stop offering
one or more funds or may substitute a different mutual fund for any Fund.
Each Fund has provided Prudential with information about its management fees and
other expenses. Except for the Series Fund, Prudential has not verified that
information independently.
10
<PAGE>
The Fixed Account
You may invest all or part of your Certificate Fund in the Fixed Account. The
amount invested in the Fixed Account becomes part of Prudential's general
assets, commonly referred to as the general account. The part of the Certificate
Fund that you invest in the Fixed Account will accrue interest daily at a rate
that Prudential declares periodically. This rate will not be less than an
effective annual rate of 4%. Prudential may in its sole discretion sometimes
declare a higher rate. At least annually and anytime you ask, we will tell you
what interest rate currently applies. Under some Group Contracts, Prudential may
determine interest rates based on the contract year we receive the premium
payments.
We strictly limit your right to make transfers out of the Fixed Account. See
Transfers, page XX. Prudential has the right to delay payment of any Cash
Surrender Value attributable to the Fixed Account for up to 6 months. See When
Proceeds Are Paid, page XX.
Because of exemptive and exclusionary provisions, Prudential has not registered
the Fixed Account or the general account under the federal securities laws.
Prudential has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosure in this Prospectus relating to the
Fixed Account. Disclosures concerning the Fixed Account may, however, be subject
to certain provisions of the federal securities laws relating to the accuracy of
statements made in a prospectus.
Detailed Information About the Certificates
How Prudential Issues Certificates
To apply for coverage under a Group Variable Universal Life Insurance Contract,
an Eligible Group Member must fill out an enrollment form. Prudential may ask
questions about the health of the person whose life is to be covered, and may
ask that person to have a medical exam. If Prudential approves the person for
coverage, that person will become a Covered Person under the Group Variable
Universal Life Insurance.
Coverage on the life of a spouse. Usually, the Eligible Group Member buys
coverage on his or her own life. But, some Group Contracts allow an Eligible
Group Member to also apply for coverage on his or her spouse's life. No matter
whose life is covered, the Participant is the person who "owns" the right to
make decisions about the coverage (for example, deciding who the beneficiary
will be). When we use the term "Participant" or
11
<PAGE>
"you," we mean the person who owns those rights. When we use the term "Covered
Person," we mean the person whose life is covered.
The Eligible Group Member is usually the Participant. But, under some Group
Contracts, an Eligible Group Member may allow another person the right to make
decisions about the coverage. When that happens, Prudential considers the other
person to be a Participant. See the Assignment and Applicant Owner sections on
page X.
Prudential will issue a Certificate to each Participant. Prudential will issue a
separate Certificate for spouse coverage. The Certificate tells you about the
rights, benefits, coverage, and obligations of the Group Variable Universal Life
Insurance. The minimum Face Amount of insurance for a Certificate is $10,000.
Maximum ages. Generally, Prudential will not issue Certificates for a person who
is older than age 74. And, Prudential will generally end a Participant's
coverage at the maximum age shown in the Certificate (usually, that is age 100).
When a Participant reaches the maximum age, we make available these three
options:
o You may ask to receive the Cash Surrender Value of the Certificate.
(Prudential believes that a cash surrender upon termination of coverage
will be subject to the same tax treatment as other surrenders. See the Tax
Treatment of Certificate Benefits on page XX.)
o You may use some or all of the Certificate Fund to buy Paid-up Coverage.
See the Paid-up Coverage section on page X.
o You can remain invested in your investment options. Under this option, we
will no longer deduct monthly charges for the cost of insurance and for
additional insurance benefits. The Death Benefit will change. Specifically,
the Death Benefit will be equal to the amount of the Certificate Fund,
minus any Certificate Debt and outstanding charges. The Death Benefit will
no longer include the Face Amount of insurance. Also, we will no longer
allow you to make premium contributions. You can still make loan
repayments.
Under some Group Contracts, coverage may end at an age less than 100. You should
refer to your particular Certificate and Group Contract to learn when coverage
under your Certificate will end.
12
<PAGE>
A "Free Look" Period
Generally, you may return a Certificate for a refund within 10 days after you
receive it. This 10 day period is known as the "free look" period. Some states
allow a longer period. You can ask for a refund by mailing the Certificate back
to Prudential.
If you cancel your coverage during the free look period, we will generally
refund the premium payments you made, minus any loans or withdrawals that you
took. We will not add or subtract any gain or loss that would have come from the
investment options you chose (unless a state law requires that we take those
gains or losses into account when we make a refund). When we make a refund, we
will not deduct any charges.
During the first 20 days after the Certificate Date, your premium payments will
be invested in the Fixed Account (or, under some Group Contracts, in the Series
Fund Money Market Portfolio). Prudential reserves the right to limit
contributions and transactions during the free look period.
Procedures
Each Group Contract has different procedures for how you will conduct
transactions under your Group Variable Universal Life Insurance - for example,
how you will submit an enrollment form, make premium payments, take loans and
withdrawals, and transfer or reallocate money in your Certificate Fund. Your
Group Contractholder can tell you what those procedures are.
Under some Group Contracts, Participants will be required to make transactions
through the Group Contractholder. Under other Group Contracts, Participants will
be required to deal directly with Prudential. Either way, Prudential will
consider enrollment forms, payments, orders and other documents to be "received"
when Prudential receives them in good order.
When Prudential reconciles financial transactions. Prudential usually reconciles
financial transactions at the end of the day, when most banks and financial
institutions have closed for the evening. As a result, some transactions (for
example, premium payments, loan repayments, or withdrawals) cannot be completed
until the next business day. Usually, this will result in a one-day delay in the
movement of money from one investment option to another. During any delay,
Prudential may place this money in an unallocated account owned by Prudential
that pays a market rate of interest. The short term interest ("float") earned on
this money will be retained by Prudential as compensation for services rendered.
This interest will not be paid from a Participant's
13
<PAGE>
Certificate Fund, and will not reduce the value of the Certificate Fund.
Transfers among the Funds and dollar cost averaging are not subject to this
possible delay.
Premiums
Routine premium payments. You will usually be able to decide when to make
premium payments and how much each premium payment will be. You just have to
make sure that there is enough money in your Certificate Fund -- minus
Certificate Debt and outstanding charges -- to cover each month's charges. If
there is not, your insurance will end (in insurance terms, it will "lapse"). See
the Lapse section on page XX to learn how your insurance will end and what you
can do to stop it from ending.
Under some Group Contracts, you may also be required to pay a minimum initial
premium to become a Participant. The minimum initial premium will vary for each
Group Contract, but it will not be more than 50% of the Guideline Annual
Premium. We define Guideline Annual Premium in the Definitions of Special Terms
section on page XX.
Additional premium payments. In addition to routine premium payments, you may
make additional premium payments at any time. Each additional premium payment
must be at least $100. Prudential reserves the right to limit the amount of
additional premiums.
How you will pay premiums. Your Group Contractholder sets up the premium payment
method. Some Participants will make payments through the Group Contractholder
(who will pass them on to us). Other Participants will pay us directly. Monthly
charges may be higher when premium payments are made directly to Prudential. See
the Charges and Expenses section on page XX.
Deducting premiums from your paycheck. Some Group Contractholders might set up a
way for you to make routine premium payments by deducting them from your
paycheck. Each Group Contractholder's rules for paycheck deduction will be
different and some may require your premium payment to meet a minimum before the
automatic deduction will be allowed. If that's the case, you may still make
premium payments below the minimum directly to Prudential.
Effect of premium payments on tax status. If you pay additional premiums, we may
need to increase your Death Benefit (and corresponding cost of insurance
charges) to continue to qualify it as life insurance for federal tax purposes.
Also, if you make premium payments above certain limits, the tax status of the
insurance may change to that
14
<PAGE>
of a Modified Endowment Contract under the Internal Revenue Code. That status
could have significant disadvantages from a tax standpoint.
We reserve the right to return any premium payment that would cause your
insurance to fail to qualify as life insurance under applicable tax laws, or
that would increase the Death Benefit by more than it increases the Certificate
Fund. See the Tax Treatment of Certificate Benefits section on page XX.
Effective Date of Insurance
When your insurance begins depends on what day of the month Prudential approves
your completed enrollment form. If we approve your completed enrollment form
prior to the 20th day of a month, your insurance will begin on the first day of
the next month. If we receive your completed enrollment form on or after the
20th day of a month, your insurance will begin on the first day of the month
after the next month.
How Prudential Will Deposit and Invest Premium Payments
Prudential will deposit premium payments in your Certificate Fund after we
deduct any charges that apply. The amount of your premium after we deduct those
charges is called "Net Premiums." See the Charges and Expenses section on page
XX.
Here's how Prudential will deposit and invest your Net Premiums. We generally
will make deposits to your investment options at the end of the Business Day on
which Prudential receives the payment. Any payments received before the
Certificate Date will be deposited as of the Certificate Date.
o Before the Certificate Date. Prudential will hold any premium payment that
it receives before the Certificate Date in our general account (on your
behalf). We will not pay interest on those amounts.
o During the first 20 days that your Certificate is in effect. We will invest
any Net Premiums that we receive during the first 20 days in the Fixed
Account. We will leave the Net Premiums in the Fixed Account for those
first 20 days. After that, we will allocate the Net Premiums plus any
interest earned to the investment options you selected. (Under some Group
Contracts, we would use the Series Fund Money Market Portfolio instead of
the Fixed Account.)
15
<PAGE>
o After your Certificate has been in effect for 20 days. After your
Certificate has been in effect for 20 days, Prudential will invest Net
Premiums in your Certificate Fund and allocate them to the investment
options you selected.
If you have not given us complete instructions on how you want Net Premiums to
be invested, we will leave your Net Premiums invested in the Fixed Account until
you furnish complete information. (Again, under some Group Contracts, we would
use the Series Fund Money Market Portfolio, rather than the Fixed Account.)
How You Can Change the Way Prudential Allocates Future Premium Payments
You may ask Prudential to change the way your future premium payments will be
allocated among the available investment options. Prudential will give you a
form to use for this purpose. We will start to allocate premium payments in the
new way as of the end of the Business Day on which we receive your request form
in good order.
The minimum percent that you may allocate to an available investment option is
5%. All allocations must be in whole percents.
You may not change the way Prudential allocates future premiums if, at the time
we receive your request, there is not enough money in your Certificate Fund --
minus Certificate Debt and outstanding charges -- to cover each month's charges.
See the Lapse section on page XX.
We do not currently charge for changing the allocation of your future premiums.
But, we may charge for it in the future.
How You Can Transfer Amounts In Your Certificate Fund From One Investment Option
To Another
You may transfer amounts from one investment option to another. You may request
a transfer in terms of dollars (such as transfer of $10,000 from one available
option to another) or in terms of a percent reallocation (such as a reallocation
to put 25% of the Certificate Fund in each available option).
There are some rules about how transfers can be made:
16
<PAGE>
o The minimum amount you may transfer from one option to another is $100 (or
the entire balance in the investment option, if it is less than $100).
o The minimum percent that you may allocate to an available investment option
is 5%. All allocations must be in whole percents.
o We limit the number of times you may transfer amounts out of the Fixed
Account. You may make only one transfer from the Fixed Account to one of
the available Funds each Certificate Year. The transfer cannot be for more
than $5,000 or 25% of the amount you have invested in the Fixed Account,
whichever is greater. We may change these limits in the future.
Transfers will take effect as of the end of the Business Day in which a proper
transfer request is received by Prudential (or Prudential's designee) on the
form we require you to use for this purpose. Prudential will give you a form to
use to request a transfer.
Under some Group Contracts, if you make more than twelve transfers in a
Certificate Year, Prudential may charge up to $20 for each transfer after the
twelfth.
Group Variable Universal Life Insurance was not designed for professional market
timing organizations or for other organizations or persons that use programmed,
large or frequent transfers. We will discourage a pattern of exchanges that
coincides with a "market timing" strategy, since they may be disruptive to the
Separate Account and the Funds. If we were to find such a pattern, we might
modify the transfer procedures, including not accepting transfer requests of an
agent acting under a power of attorney on behalf of more than one Certificate
owner.
Dollar Cost Averaging
Dollar Cost Averaging (which we refer to as "DCA") lets you systematically
transfer specified dollar amounts from the Series Fund Money Market Portfolio to
the other available Funds at monthly intervals. You can request that a
designated number of transfers be made under the DCA feature. When we make
transfers under the DCA feature, the transfers are effective as of the end of
the first Business Day following the first of the month.
You may use DCA at any time after your Certificate becomes effective. But, to
start the DCA feature, you usually have to make a premium payment of at least
$1,000 to the Series Fund Money Market Portfolio. And, the minimum transfer
amount is $100.
17
<PAGE>
Prudential will give you a form to request DCA. If we receive your request form
in good order by the tenth of a month, we will start DCA processing during the
next month. If we receive it after the tenth day of a month, we will start DCA
processing during the month after the next month.
We will terminate the DCA arrangement when any of the following events occurs:
o We have completed the designated number of transfers.
o The amount you have invested in the Series Fund Money Market Portfolio is
not enough to complete the next transfer.
o Prudential receives your written request to end the DCA arrangement. (If we
receive your request by the tenth of a month, we will cancel the transfer
scheduled for the next following month. If we receive it after the tenth
day of a month, we will cancel the transfer scheduled for the month after
the next month.)
o You no longer have coverage under the Group Variable Universal Life
Insurance.
Currently, we do not charge for the DCA arrangement but we may in the future.
Transfers made under the DCA arrangement do not count against the number of
transfers that may be subject to the transfer charge described in the How You
Can Transfer Amounts In Your Certificate Fund From One Investment Option To
Another section on page XX.
The main objective of DCA is to shield investments from short-term price
fluctuations. Since the same dollar amount is transferred to an available Fund
with each transfer, you buy more of the Fund when its price is low and less of
the Fund when its price is high. Therefore, you may achieve a lower than average
cost over the long term. This plan of investing does not assure a profit or
protect against a loss in declining markets.
Death Benefits
Prudential will pay a Death Benefit to the beneficiary when the Covered Person
dies.
Amount of the Death Benefit. The Death Benefit is the Face Amount of Insurance
plus the value of the Certificate Fund as of the date of death minus any
Certificate Debt and any past due monthly charges.
18
<PAGE>
Adjustment in the Death Benefit. The Certificate Fund may have grown to the
point where we would need to increase the Death Benefit to be certain that the
insurance will meet the Internal Revenue Code's definition of life insurance. If
that were the case for your Certificate, we would use one of two methods to
increase the Death Benefit. Each Group Contract will use one method or the
other.
Under the first method, we would increase the Death Benefit (before we deduct
any Certificate Debt and outstanding charges) to make it equal to the following
"corridor percentage" of the Certificate Fund based on your Attained Age:
19
<PAGE>
COVERED PERSON'S CORRIDOR COVERED PERSON'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------ ----------
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
-- --- -- ---
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
-- --- -- ---
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
-- --- -- ---
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
-- --- -- ---
60 130 90 105
61 128 91 104
62 126 92 103
63 124 93 102
64 122 94 101
-- --- -- ---
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
Under the second method, we would increase the Death Benefit (before we deduct
any Certificate Debt and outstanding charges) to make it equal the Certificate
Fund divided by the "Net Single Premium" per dollar of insurance for the Covered
Person's Attained Age. For this purpose, we base the "Net Single Premium" on the
1980 CSO Table.
How your beneficiary may receive the Death Benefit: Your beneficiary may receive
the Death Benefit in the following ways:
20
<PAGE>
o Prudential's Alliance Account. The Alliance Account is an interest-bearing
account that holds the Death Benefit while your beneficiary takes time to
consider other options. Your beneficiary has complete ownership of funds
held in the Alliance Account, and may draw on all or part of the funds by
writing a draft. Interest earnings in the Alliance Account are compounded
daily and credited monthly. Your beneficiary can transfer proceeds from the
Alliance Account to other modes of settlement at any time. Proceeds in the
Alliance Account are part of Prudential's general account. If your
beneficiary does not want the money to go to the Alliance Account, he or
she can ask Prudential to issue a check instead.
o Other Options. Your beneficiary can arrange with Prudential for the Death
Benefit to be paid in a different way (known as "modes of settlement"), if
the Death Benefit is $1,000 or more. (You can also elect a different mode
of settlement for your beneficiary while you are living). See the Modes of
Settlement section on page XX.
Changes in Face Amount
The rules for changing the Face Amount of Insurance will be different for each
Group Contract, depending on the options selected by the Group Contractholder
and on Prudential's rules.
The Face Amount of Insurance may increase or decrease. The increase or decrease
may happen automatically, or when you ask. Here are some general statements
about changes in your Face Amount of Insurance. But you should read your
Certificate to learn how changes work in your case.
Increases in the Face Amount of Insurance
o Some Group Contracts allow Participants to ask for an increase in the Face
Amount of Insurance at certain times.
o Some Group Contracts provide for automatic increases in the Face Amount of
Insurance when a Participant's salary increases.
o Some Group Contracts may not allow increases at all.
o Whenever the Face Amount of Insurance increases, Prudential may ask
questions about the Covered Person's health, or require the Covered Person
to have a medical exam, before the increase can become effective. Based on
the answers to the questions or on the exam, Prudential may not allow the
increase.
21
<PAGE>
o An increase in the Face Amount will result in higher monthly insurance
charges because our net amount at risk will increase.
Decreases in the Face Amount of Insurance
o Some Group Contracts allow Participants to decrease the Face Amount of
Insurance at certain times.
o A Participant may not decrease the Face Amount to less than $10,000 or
below the minimum amount required to maintain status as life insurance
under federal tax laws.
o Some Group Contracts allow Prudential to automatically decrease the Face
Amount when certain "triggering events" occur. "Triggering events" are
events like reaching a certain age, retiring, or having a Certificate in
effect for a certain number of years.
Generally, Prudential will make the automatic decrease at latest of: the Covered
Person's 70th birthday, retirement, and the tenth Certificate Anniversary. We
will calculate the amount of the deduction at the end of the first Business Day
on or after the triggering event. The actual decrease will generally take effect
on the first Monthly Deduction Date after that. Sometimes it may take an
additional month before the charges change. If that happens, we will adjust the
amount we deduct the first month after the decrease takes effect to credit you
for any extra monthly charges we deducted the previous month.
When your Face Amount of Insurance changes - whether it increases or decreases -
the change may cause your insurance to be treated as a Modified Endowment
Contract under the Internal Revenue Code. Also, a decrease in coverage may limit
the amount of premiums that you may contribute in the future. See the Tax
Treatment of Certificate Benefits on page XX. You should consult your tax
advisor before you change the Face Amount of your insurance.
Charges and Expenses
For a Certificate that is in effect, Prudential reserves the right to increase
the charges that we currently make, but we currently have no intention to do so.
We will not in any case increase charges above the maximum charges described
below. You should refer to your particular Certificate to learn what charges
apply to you.
Charges Deducted From Each Premium Payment. We will deduct the charges listed
below from each premium payment you make before we invest the payment in the
investment options you selected.
22
<PAGE>
1. Charge for taxes on premium payments. We will deduct a charge for taxes we
must pay on premiums. These taxes include federal, state or local income,
premium, excise, business or any other type of tax (or part of one) that is
based on the amount of premium we receive.
This charge is currently made up of two parts:
o The first part is for state and local premium taxes. Currently, it is 2.25%
of the premium Prudential receives. For some Group Contracts, the charge
may be up to 5%. (In some states, this charge is called a premium-based
administrative charge.)
o The second part is for federal income taxes that are based on premiums.
Currently, it is 0.35% of premiums received by Prudential. We believe that
this second charge is a reasonable estimate of the increased cost for
premium-based federal income taxes resulting from a 1990 change in the
Internal Revenue Code.
We may increase this charge if the cost of our taxes related to premiums is
increased.
2. Charge for processing premiums. We may deduct up to $2 to cover the costs
of collecting and processing premiums. We may reduce or eliminate this
charge under certain Group Contracts. See the Reduction of Charges section
on page XX.
3. Charge for sales expenses. We may deduct a charge to pay part of the costs
we incur in selling the Group Contract and Certificates. These costs
include commissions, advertising, and publishing prospectuses and sales
literature. The maximum sales charge is 3.5% of each premium payment. We
may reduce or eliminate this charge under certain Group Contracts. See the
Reduction of Charges section on page XX.
Monthly Certificate Fund Charges. Prudential will deduct the following charges
from your Certificate Fund each month. We will take the charges from each
investment option you selected, in the same proportion that the value of your
Certificate Fund is invested.
Generally, we will deduct these charges on the Monthly Deduction Date. Under
some Group Contracts, we may deduct them when we receive the premium payments
from the Group Contractholder. But, we will never deduct them later than 45 days
past the Monthly Deduction Date.
1. Charge for the cost of insurance. We will deduct a charge for the cost of
your insurance.
To calculate the cost of insurance charge, we multiply:
23
<PAGE>
your Certificate's "net amount at risk" by the "cost of insurance rate" for
the Covered Person.
"Net amount at risk" means the amount by which your Certificate's Death Benefit
(computed as if there were no Certificate Debt) exceeds your Certificate Fund.
The "cost of insurance rate" is based on many factors, including:
o the Covered Person's age;
o the Covered Person's rate class (such as classes for smokers and
non-smokers, or for active employees and retired employees);
o the life expectancy of the people covered under your Group Contract;
o whether The Group Contractholder elected to buy any of the additional
insurance benefits shown in the Additional Insurance Benefits section on
page XX; and
o whether or not the Certificate is provided on a Portable basis.
The cost of insurance rate will generally increase as the Covered Person ages.
The cost of insurance charges are generally lower than the 1980 CSO Table.
We may adjust the actual cost of insurance rates from time to time. The changes
in cost of insurance rates for each Group Contractholder are based on many
factors, including:
o the number of Certificates in effect;
o the number of new Certificates issued;
o the number of Certificates surrendered or becoming Portable;
o the expected claims (death benefits, living benefits and surrenders);
o the expected cost of any additional insurance benefits that the Group
Contractholder elected to buy;
o the expected expenses; and
o administrative services provided by the Group Contractholder, if any.
24
<PAGE>
In addition to the list above, the past claims, expenses and the costs of
additional insurance benefits, if any, of the group are reviewed since they are
an important factor in calculating the expected claims, expenses and costs.
However, we are prohibited from recovering past losses by state insurance law.
If we change the cost of insurance rates, we will change them the same way for
all persons of the same age, rate class and group. We will not change them to be
higher than the guaranteed cost of insurance rates shown in your Certificate.
The guaranteed rates may be up to 150% of the 1980 CSO Table. The guaranteed
rates are based on many factors, including:
o guaranteed issue procedures, if any;
o simplified underwriting that may not require a medical exam, blood tests or
urine tests;
o groups with substandard risks characteristics; and
o the expected maximum cost of any additional insurance benefits that the
Group Contractholder elected to buy.
2. Charge for additional insurance benefits. The Additional Insurance Benefits
section on page XX tells you about benefits that you may be able to buy in
addition to the Group Variable Universal Life Insurance and the additional
insurance benefits that the Group Contractholder elected to buy. We will
deduct a separate charge for any additional insurance benefits that you
elect to buy from your Certificate Fund.
3. Charge for administrative expenses. We may deduct a charge for
administrative expenses. This charge pays for maintaining records and for
communicating with Participants and Group Contractholders. Currently, it is
not more than $3 per month and it is guaranteed not to be more than $6 per
month. We may reduce or eliminate this charge under certain Group
Contracts. See the Reduction of Charges section on page XX.
4. Charge for other taxes. We reserve the right to deduct a charge to cover
federal, state or local taxes that are imposed on the operations of the
Separate Account. These are taxes other than those described under "Charge
for taxes on premium payments" section above. Currently, we do not charge
for these other taxes.
Daily Deduction from the Separate Account: Each day, Prudential deducts a charge
from the assets of the Separate Account in an amount currently equal to an
effective annual rate of 0.45%. We guarantee that the charge will not be more
than an effective annual rate of 0.90%.
25
<PAGE>
This charge compensates us for assuming the mortality and expense risks of the
insurance provided under the Group Contract. The "mortality risk" is the risk
that Covered Persons may live for shorter periods of time than Prudential
estimated when we determined the mortality charge. The "expense risk" is the
risk that expenses for issuing and administering the insurance will be more than
Prudential estimated when we determined the charge for administrative expenses.
We will earn a profit from this risk charge to the extent we do not need it to
provide benefits and pay expenses under the Certificate. We do not assess this
charge on amounts allocated to the Fixed Account.
Transaction Charges. Under some Group Contracts, we may deduct a charge for
surrenders, partial withdrawals, loans, transfers, reinstatements and additional
statement requests. See the sections of this prospectus that describe each of
those transactions. Those sections also describe the charges that Prudential may
deduct.
Expenses Incurred by the Funds. Participants indirectly bear the charges and
expenses of the Funds. To find out details about the management fees and other
underlying Fund expenses, you should see The Funds section in the accompanying
supplement. You should also read the prospectuses for the available Funds.
Reduction of Charges
Prudential may reduce or waive the charge for sales expenses, the charge for
processing premiums, or other charges under certain Group Contracts where we
expect that the Group Contract will involve reduced sales or administrative
expenses. In deciding whether to reduce such charges, and by how much, we
consider the following factors:
o The size of the group.
o The total amount of premium payments we expect to receive.
o How long Participants will hold their Certificates.
o The purpose for which the Group Contractholder bought the Group Contract
and whether that purpose makes it likely that expenses will go down.
26
<PAGE>
o Any other circumstances Prudential believes to be relevant in determining
whether sales or administrative expenses will go down.
In some cases, we may guarantee the reduction or waivers of charges in the Group
Contract. In other cases, we may decide to discontinue the reductions or
waivers. Prudential's reductions and waivers of charges will not be unfairly
discriminatory to the interests of any individual Participants.
Dividends or Experience Credits
The Group Contract is eligible to receive Dividends or Experience Credits. But,
we have set the premium rates in such a way that we will not generally pay a
dividend or experience credit.
If there is a Dividend or Experience Credit, Prudential will pay it to the Group
Contractholder.
You should refer to your particular Group Contract for details on Dividends or
Experience Credits.
Cash Surrender Value
The Cash Surrender Value of your Certificate is equal to your Certificate Fund
minus any Certificate Debt, outstanding charges, and any transaction charge that
may apply. On any day, your Certificate Fund equals the sum of the amounts in
the Funds, the amount invested in the Fixed Account, and the Loan Account (see
the Loans section on page XX).
The Cash Surrender Value will change daily to reflect:
o Net Premiums;
o withdrawals;
o increases or decreases in the value of the Funds you selected;
o interest credited on any amounts allocated to the Fixed Account and on the
Loan Account;
o interest accrued on any loan;
27
<PAGE>
o the daily asset charge for mortality and expense risks assessed against the
variable investment options; and
o monthly charges that Prudential deducts from your Certificate Fund.
If you ask Prudential, we (or our designee) will tell you what the Cash
Surrender Value of your Certificate is. Prudential does not guarantee a minimum
Cash Surrender Value. It is possible for the Cash Surrender Value of your
Certificate to go down to zero.
The tables on pages T-1 and T-2 (following page X) of this prospectus give
examples of what Cash Surrender Values would be for two sample Certificates. The
examples assume there would be uniform investment results in the selected
Subaccount portfolios. The examples are only hypothetical and are only meant to
help you understand how the Certificate works.
Full Surrenders
You may surrender your Certificate for its Cash Surrender Value at any time. If
you do, all insurance coverage will end. Prudential will calculate the Cash
Surrender Value as of the end of the Business Day on which we receive your
request form in good order.
We will pay the proceeds as described in the When Proceeds Are Paid section on
page XX. Under certain Group Contracts, Prudential may charge a transaction
charge for the surrender of up to the lesser of $20 or 2% of the amount that you
receive.
A surrender may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
Paid-up Coverage
At any time, you may elect to use the Cash Surrender Value of your Certificate
to buy Paid-up Coverage. The minimum amount of Cash Surrender Value that you can
exchange is $1,000. Under certain Group Contracts, Prudential may impose a
transaction charge of up to $20 for the exchange.
The amount of Paid-up Coverage that you can have will be limited to the amount
that you can buy with your Certificate's Cash Surrender Value. Also, it cannot
be more than the Death Benefit under your Certificate at the time you make the
exchange.
28
<PAGE>
Paid-up coverage will start as of the end of the Business Day on which we
receive your request form in good order. Once the Paid-up coverage starts, all
other coverage under your Certificate, including any additional insurance
benefits, will end.
If you did not use your entire Cash Surrender Value to buy the Paid-up coverage,
Prudential will pay you the remaining amount as of the end of the first Business
Day after we receive your request form. We will pay it as described in the When
Proceeds are Paid section on page XX. This withdrawal may affect the way you are
taxed. See the Tax Treatment of Certificate Benefits section on page XX.
The purchase of Paid-up coverage could make your Certificate a Modified
Endowment Contract. See the Tax Treatment of Certificate Benefits section on
page XX.
Partial Withdrawals
While your Certificate is in effect, you may withdraw part of your Certificate's
Cash Surrender Value. We will take it from each investment option you selected
in the same proportions as the value of your Certificate Fund is invested,
unless your request tells us to take the withdrawal from only selected
investment options.
Partial withdrawals will be effective as of the end of the Business Day on which
we receive your request form. We will pay you the withdrawn money as described
in the When Proceeds Are Paid section on page XX.
You must withdraw at least $200 in any partial withdrawal. You may withdraw any
amount that is more than $200, but you must leave enough in your Certificate
Fund (less any Certificate Debt and outstanding charges) to pay the next month's
charges. We will tell you the maximum amount you may withdraw.
Some Group Contracts may have a limit on the number of partial withdrawals you
can make in a year. Some Group Contracts may impose a transaction charge for
each partial withdrawal. The charge can be up to the lesser of $20 or 2% of the
amount you withdraw. We will deduct the transaction charge from the amount you
withdraw. You may not repay any amount that you withdraw.
Withdrawals may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
29
<PAGE>
Loans
You may borrow up to the Loan Value of your Certificate Fund. The Loan Value is
90% of your Certificate Fund minus any existing loan (and its accrued interest),
outstanding charges, and the amount of the next month's charges. In states that
require it, you may borrow a greater amount.
Under certain Group Contracts, Prudential may make a charge of up to $20 for
each loan. The charge will be added to the principal amount of your loan.
The minimum amount that you can borrow at any one time is $200. You cannot take
a loan if Certificate Debt exceeds the Loan Value. Prudential will pay loan
proceeds as described in the When Proceeds Are Paid section on page XX.
Interest on the loan will accrue daily at a rate that Prudential sets each year.
Interest payments are due the day before the Contract Anniversary. If you do not
pay the interest when it is due, we will add it to the principal amount of the
loan. When this happens, we will take an amount out of your investment options
to make the Loan and the Loan Account equal in value.
When you take a loan from your Certificate Fund, here's what happens:
o We will take an amount equal to the loan out of each of your investment
options on a pro-rata basis unless you tell us to take it only from
selected investment options.
o We will start a Loan Account for you and will credit the Loan Account with
an amount equal to the loan.
o We will generally credit interest to the amount in the Loan Account at an
effective annual rate that is usually 2% less than the rate Prudential
charges as interest on the loan. The crediting rate will generally be equal
to the Fixed Account crediting rate.
You may repay all or part of a loan at any time. We will apply a loan repayment
first against any unpaid loan interest and then to reduce the principal amount
of the loan. You may repay a loan either by repayment or by withdrawing amounts
from the Certificate Fund. When you send us a payment, you should tell us
whether the payment is intended as a premium payment or as a loan repayment. If
you do not indicate whether it is a premium or loan repayment, we will assume it
is a loan repayment.
If you repay a loan by using the Certificate Fund, we will treat the repayment
as a partial withdrawal from the Certificate Fund. A partial withdrawal may have
tax consequences. See the Partial Withdrawals section on page XX and the Tax
Treatment of Certificate Benefits section on page XX.
30
<PAGE>
Your Loan Account plus accrued interest (together, these are called "Certificate
Debt") may not exceed the value of your Certificate Fund. If Certificate Debt
exceeds the value of your Certificate Fund, you will not have enough money in
your Certificate Fund to cover the month's charges. See the Lapse section on
page XX.
If you still have Certificate Debt outstanding when you surrender your
Certificate or when you allow your Certificate to lapse, the amount you borrowed
may become taxable. Also, loans from Modified Endowment Contracts may be treated
for tax purposes as distributions of income. See the Tax Treatment of
Certificate Benefits section on page XX.
If we pay the Death Benefit or the Cash Surrender Value while a loan is
outstanding, we will reduce the Death Benefit or the Cash Surrender Value by the
amount of the loan plus any accrued interest.
A loan will have a permanent effect on your Certificate's Cash Surrender Value.
It may also have a permanent effect on the Death Benefit. This happens because
the investment results of the investment options you selected will apply only to
the amount remaining in those investment options after the loan amount is
transferred to the Loan Account. The longer a loan is outstanding, the greater
the effect is likely to be.
Telephone and Electronic Transactions
Under some Group Contracts, you may be able to perform some transactions by
telephone or electronically. These transactions include: transferring amounts
among available investment options, making surrenders and partial withdrawals,
and requesting loans.
Prudential will not be liable when we follow instructions that we receive by
telephone or electronically, if we reasonably believe the instructions were
genuine. We have adopted security procedures that are reasonably designed to
verify that such communications are genuine. We cannot guarantee that you will
be able to get through to complete a telephone or electronic transaction during
peak periods such as periods of drastic economic or market change or during
system failures or power outages.
Lapse
In general, your Certificate will remain in force as long as the balance in your
Certificate Fund (less any Certificate Debt and outstanding charges) is enough
to pay the monthly charges when
31
<PAGE>
due. If it is not enough, Prudential will send you a notice to tell you that
your insurance is going to end, how much you must pay to stop it from ending,
and when you must pay it.
In insurance terms, we call it a lapse when insurance ends because the charges
for it are not paid.
How you can stop your insurance from lapsing. You must make a payment that is
enough to pay outstanding charges. Prudential must receive the payment by the
later of:
o 61 days after the Monthly Deduction Date; or
o 30 days after the date we mailed you the notice.
If you do not, your insurance will lapse and your Certificate will no longer
have any value. A Certificate that lapses with Certificate Debt may affect the
way you are taxed. See the Tax Treatment of Certificate Benefits section on page
XX.
We will send the notice to the last known address we have on file for you. If
the Covered Person dies during the grace period, we will reduce the Death
Benefit by any past due monthly charges and by any Certificate Debt.
Termination of a Group Contractholder's Participation in Group Contract
The Group Contractholder may decide to terminate the Group Contract with
Prudential, by giving Prudential 90 days' written notice.
In addition, Prudential may terminate a Group Contract:
o If the aggregate Face Amount of all Certificates, or the number of
Certificates issued, falls below the permitted minimum, by giving the Group
Contractholder 90 days' written notice.
o If the Group Contractholder fails to remit premium payments to Prudential
in a timely way, at the end of the grace period.
o For any other reason, effective on a Contract Anniversary, by giving the
Group Contractholder 31 days' written notice.
Termination of the Group Contract means that the Group Contractholder will
not remit premiums to Prudential. In that event, no new Certificates will
be issued under the Group Contract. How the termination affects you is
described in the Options on Termination of
32
<PAGE>
Coverage section on page XX. The options that are available to you from
Prudential may depend on what other insurance options are available to you.
You should refer to your particular Certificate to find out more about your
options at termination of coverage.
Participants Who Are No Longer Eligible Group Members
Each Group Contract has different rules for what happens when a Participant is
no longer an Eligible Group Member.
Under some Group Contracts, Participants may be able to continue insurance
coverage even though they are no longer an Eligible Group Member. This is called
Portable Coverage. With Portable Coverage, you will start to make premium
payments directly to Prudential (or to Prudential Mutual Fund Services, Inc.).
We will start to send premium reminders directly to you. We will let you know
about this change in the way premiums are paid within 61 days after you are no
longer eligible under the Group Contract. We might impose certain rules and
limits on the continued insurance. The rules and limits are shown in your
Certificate. The notice that we send you will also tell you what the charges and
expenses are for Portable Certificates. See also the Charges and Expenses
section on page XX. Charges and expenses for Portable Certificates may be higher
than those you paid while you were still an Eligible Group Member. But the
charges and expenses will not be higher than the maximums described in this
prospectus. Prudential may require that you keep a specified minimum amount in
your Certificate Fund to continue as a Portable Certificate holder.
Under other Group Contracts, Participants will not be able to continue insurance
coverage when no longer an Eligible Group Member. Those Participants have the
options of Conversion, Paid- up Coverage, and payment of Cash Surrender Value,
which are described in the Options on Termination of Coverage section on page
XX.
Options on Termination of Coverage
Your insurance coverage under the Group Contract will end when the Group
Contract itself ends. Under some Group Contracts, insurance coverage will also
end when a Participant is no longer an Eligible Group Member.
When the Group Contractholder ends a Group Contract, the effect on Participants
depends on whether or not the Group Contractholder replaces the Group Contract
with another life insurance contract that allows for the accumulation of cash
value. Generally, here is what will happen:
33
<PAGE>
o If the Group Contractholder does replace the Group Contract with another
life insurance contract that allows for the accumulation of cash value,
Prudential will terminate your Certificate. We will also transfer the Cash
Surrender Value of your Certificate directly to that new contract, unless
you elect to receive the Cash Surrender Value.
Under some Group Contracts, you may continue your insurance coverage on a
Portable basis. Prudential might impose certain rules and limits on the
continued insurance. The rules and limits are shown in your Certificate.
You should read your Certificate to find out what rules and limits apply
when you want to continue your insurance on a Portable basis.
o If the Group Contractholder does not replace the Group Contract with
another life insurance contract that allows for the accumulation of cash
value, you will have the options listed below. Under some Group Contracts,
you may also have the option of continuing your insurance coverage on a
Portable basis, as stated above.
Conversion. You may elect to convert your Certificate to an individual life
insurance policy without giving Prudential evidence that the Covered Person is
in good health, if your Certificate has been in force for at least 5 years
(under some Group Contracts, the requirement may be less than 5 years). To elect
this option, you must apply for it within 31 days (or longer, depending on the
state law that applies) after your Certificate ends. You may select any form of
individual life insurance policy (other than term insurance) that Prudential
normally makes available to persons who are the same age as you and who are
asking for the same amount of life insurance. Your premiums for the individual
life insurance policy will be based on the type and amount of life insurance you
select, your age and your risk class.
If your Certificate ended because you are no longer an Eligible Group Member,
you may not convert more than the Face Amount of your Certificate. If your
Certificate ended because the Group Contract ended, the amount you are able to
convert may, depending on the state law that applies, be limited to the lesser
of:
o $10,000 or
o the Face Amount of your Certificate minus the amount of any group insurance
that you become eligible for within 45 days after your Certificate ends.
If a Covered Person dies within 31 days (or longer, depending on the state law
that applies) after the Certificate ends and you had the right to convert to an
individual policy, we will pay a Death Benefit under the Certificate. But, the
Death Benefit will be equal to the amount of individual insurance you could have
had if you had actually made the conversion to the individual policy.
34
<PAGE>
Paid-up Coverage. You may elect to use your Certificate's Cash Surrender Value
to buy fixed Paid-up Coverage on the Covered Person. To use this option, you
must have at least $1,000 of Cash Surrender Value on the day your Certificate
ends. The insurance amount will depend on how much the Cash Surrender Value is
and on the age of the Covered Person. But, the amount of Paid-up Coverage cannot
be more than your Certificate's Death Benefit right before you buy the Paid-up
Coverage.
You may elect this option within 61 days of the date your Certificate ended.
Prudential will make the Paid-up Coverage effective as of the end of the
Business Day on which we (or our designee) receive your request on the form we
require you to use for this purpose. If you elect this option, your insurance
may become a Modified Endowment Contract under the Internal Revenue Code. See
the Tax Treatment of Certificate Benefits section on page XX.
Payment of Cash Surrender Value. You may receive the Cash Surrender Value by
surrendering your Certificate. To do this, you must make a request to Prudential
on the form that we require you to use for this purpose.
If you do not choose one of the options described above within 61 days of the
date the Certificate ends, we will exchange your Certificate Fund for Paid-up
Coverage if your Certificate Fund value is at least $1,000. If it does not have
that much value, we will pay the Cash Surrender Value.
Reinstatement
You may request reinstatement of a lapsed Certificate any time within 3 years
after the end of the grace period. But, you must be less than the maximum age at
which a Certificate may be held. We will not reinstate a lapsed Certificate if
the Group Contract under which the Certificate was issued ended and you did not
have the right to continue your insurance on a Portable basis.
To reinstate your Certificate, you must send the following items to Prudential
(or our designee):
o A written request for reinstatement.
o Evidence of the good health of the Covered Person. The evidence must be
satisfactory to Prudential.
o A premium payment (less any charges that apply) that is at least enough to
pay the monthly charges for the grace period and for two more months. See
the Charges and Expenses section on page XX.
35
<PAGE>
o We will make your Certificate effective again on the Monthly Deduction Date
that occurs after we approve your request. The terms of your original
Certificate will still apply. We will apply a new 2-year period of
incontestability, and the period during which the suicide exclusion applies
will start over again. See the Incontestability section on page XX and the
Suicide Exclusion section on page XX. When the original Certificate lapsed,
we would have required you to pay off any outstanding Certificate Debt. We
will not allow you to continue the loan under the reinstated Certificate.
o Currently, we do not charge for a reinstatement. But, we reserve the right
to charge for reinstatements in the future.
Tax Treatment of Certificate Benefits
Introduction
This summary provides general information on the federal income tax treatment of
a Certificate under the Group Contract. It is not a complete statement of what
the federal income taxes will be in all circumstances. It is based on current
law and interpretations, which may change. It does not cover state taxes or
other taxes. It is not intended as tax advice. You should consult your own tax
advisor for complete information and advice.
Treatment as Life Insurance and Investor Control
The Certificate must meet certain requirements to qualify as life insurance for
tax purposes. These requirements include certain definitional tests and rules
for diversification of investments. For further information on the
diversification requirements, see Dividends, Distributions and Taxes in the
applicable Fund prospectuses.
We believe we have taken adequate steps to insure that the Certificate qualifies
as life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Certificate Fund,
unless you receive a distribution,
o the Certificate's Death Benefit will be tax free to your beneficiary.
Although we believe that the Certificate should qualify as life insurance for
tax purposes, there are some uncertainties, particularly because the Secretary
of Treasury has not yet issued permanent regulations that bear on this question.
Moreover, regulations issued to date do not
36
<PAGE>
provide guidance concerning the extent to which Participants may direct their
investments to the particular available subaccounts of a separate account
without causing the Participants (instead of Prudential) to be considered the
owners of the underlying assets. The ownership rights under the Certificate are
similar to, but different in certain respects from, those addressed by the
Internal Revenue Service in rulings holding that the insurance company was the
owner of the assets. For example, Participants have the choice of more funds and
the ability to reallocate amounts among available Subaccounts more frequently
than in the rulings. While we believe that Prudential will be treated as the
owner of the Separate Account assets, it is possible that the Participants may
be considered to own the assets.
Because of these uncertainties, we reserve the right to make changes -- which
will be applied uniformly to all Participants after advance written notice --
that we deem necessary to insure that the Certificates under the Group Contract
will qualify as life insurance and that Prudential will be treated as the owner
of the underlying assets.
Distributions
The tax treatment of any distribution you receive before the Covered Person's
death depends on whether your Certificate is classified as a Modified Endowment
Contract.
Certificates Not Classified as Modified Endowment Contracts
o If you surrender your Certificate or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will be
treated as receiving any portion of the Cash Surrender Value used to repay
Certificate Debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Certificate less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Certificate Years, all or a portion of a
withdrawal may be taxed if the Certificate Fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Certificate for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Certificate are ordinarily treated as debt and
are not considered distributions subject to tax.
37
<PAGE>
Modified Endowment Contracts
o The rules change if the Certificate is classified as a Modified Endowment
Contract. The Certificate could be classified as a Modified Endowment
Contract if premiums substantially in excess of scheduled premiums are paid
or a decrease in the Face Amount of insurance is made (or a rider removed).
The addition of a rider or an increase in the Face Amount of insurance may
also cause the Certificate to be classified as a Modified Endowment
Contract. You should first consult a tax advisor if you are contemplating
any of these steps.
o If the Certificate is classified as a Modified Endowment Contract, then
amounts you receive under the Certificate before the Covered Person's
death, including loans and withdrawals, are included in income to the
extent that the Certificate Fund before surrender charges exceeds the
premiums paid for the Certificate increased by the amount of any loans
previously included in income and reduced by any untaxed amounts previously
received other than the amount of any loans excludible from income. An
assignment of a Modified Endowment Contract is taxable in the same way.
These rules also apply to loans, withdrawals, and full surrenders made
during the two-year period before the time that the Certificate became a
Modified Endowment Contract.
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty tax of 10 percent unless the amount is received on
or after age 59 1/2 , on account of your becoming disabled or as a life
annuity.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Certificate for purposes of applying
these rules.
Any dividends or Experience Credits applied to reduce premiums due will
effectively reduce the premiums paid for purposes of these rules.
Treatment as Group Term Life Insurance
In most cases, employee-pay-all coverage under the Group Contract will not
qualify as group term life insurance under the Internal Revenue Code, or be
deemed to be part of a group term life insurance plan. The Certificate will
therefore be treated the same as any individually purchased life insurance
policy for tax purposes. However, under certain circumstances, a portion of the
coverage under the Group Contract may qualify as group term life insurance and,
in addition, Participants may be taxed on certain increases in cash values under
an IRS-prescribed formula.
38
<PAGE>
Withholding
You must affirmatively elect that no taxes be withheld from a pre-death
distribution. Otherwise, the taxable portion of any amounts you receive will be
subject to withholding. You are not permitted to elect out of withholding if you
do not provide a social security number or other taxpayer identification number.
You may be subject to penalties under the estimated tax payment rules if your
withholding and estimated tax payments are insufficient to cover the tax due.
Other Tax Considerations
If you transfer or assign the Certificate to someone else, there may be gift,
estate and/or income tax consequences. If you transfer the Certificate to a
person two or more generations younger than you (or designate such a younger
person as a beneficiary), there may be Generation Skipping Transfer tax
consequences. Deductions for interest paid or accrued on Certificate Debt or on
other loans that are incurred or continued to purchase or carry the Certificate
may be denied. Your individual situation or that of your beneficiary will
determine the federal estate taxes and the state and local estate, inheritance
and other taxes due if you or the Covered Person dies.
The earnings of the Separate Account are taxed as part of Prudential's
operations. The Separate Account does not intend to qualify as a regulated
investment company under the Internal Revenue Code.
ERISA Considerations
If the Group Contract is treated as or acquired by an "employee benefit plan,"
as defined under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), certain legal requirements may apply.
Definition of An Employee Benefit Plan
An "employee benefit plan" includes two broad categories of arrangements that
are established by certain entities (employers or unions) to cover employees --
"pension" plans or "welfare" plans.
A "pension plan" includes any program that provides retirement income to
employees, or results in a deferral of income by employees for periods extending
to the termination of covered employment or beyond. For these purposes, the term
"pension plan" includes, but is not limited to, retirement plans that meet tax
qualification requirements (for example, a "401(k) plan"), as
39
<PAGE>
well as other arrangements which, by their operation, are intended to provide
retirement income or deferrals beyond termination of employment. A "welfare
plan" includes a program established or maintained for the purposes of providing
to employees, among other things, medical, accident, disability, death,
vacation, and unemployment benefits.
Group Contracts as Employee Benefit Plans
Regulations issued by the United States Department of Labor ("Labor") clarify
when specific plans, programs or other arrangements will not be either pension
or welfare plans (and thus not considered "employee benefit plans" for purposes
of ERISA). Among other exceptions, "group" or "group-type insurance programs"
offered by an insurer to employees of an employer will not be a "plan" where:
o no contributions are made by the employer for the coverage;
o participation in the program is completely voluntary for employees;
o the "sole" function of the employer with respect to the program is, without
endorsing the arrangement, to permit the insurer to publicize the program,
to collect premiums through payroll deductions and to remit them to the
insurer; and o the employer does not receive any consideration in
connection with the program, other than reasonable compensation (excluding
any profit) for administrative services actually provided in connection
with payroll deductions.
Whether or not a particular group insurance arrangement satisfies these
conditions is a question of fact depending on the particular circumstances. You
should consult counsel and other advisors to determine whether, under the facts
of the particular case, a particular Group Contract might be treated as an
"employee benefit plan" (either a pension or a welfare plan) subject to the
requirements of ERISA.
Investment of Plan Assets in a Group Contract
The decision to invest employee benefit plan assets in a Group Contract is
subject to rules under ERISA and/or tax law. Any plan fiduciary, which proposes
to cause a plan to acquire a Group Contract, should consult with its counsel
with respect to the potential legal consequences of the plan's acquisition and
ownership of such Contract.
40
<PAGE>
Fiduciary/Prohibited Transaction Requirements under ERISA
If applicable, ERISA and tax law impose certain restrictions on employee benefit
plans and on persons who are (1) "parties in interest" (as defined under ERISA)
or "disqualified persons" (as defined under tax law) and (2) "fiduciaries" with
respect to such plans. These restrictions may, in particular, prohibit certain
transactions in connection with a Group Contract, absent a statutory or
administrative exemption. You should consult counsel and other advisors to
determine the application of ERISA under these circumstances.
For example, administrative exemptions issued by Labor under ERISA permit
transactions (including the sale of insurance contracts like the Group Contract)
between insurance agents and employee benefit plans. To be able to rely upon
such exemptions, certain information must be disclosed to the plan fiduciary
approving such purchase on behalf of the plan. The information that must be
disclosed includes:
o the relationship between the agent and the insurer;
o a description of any charges, fees, discounts, penalties or adjustments
that may be imposed in connection with the purchase, holding, exchange or
termination of the Group Contract; and
o the commissions received by the agent.
Information about any applicable charges, fees, discounts, penalties or
adjustments may be found in the Charges and Expenses section on page XX.
Information about sales representatives and commissions may be found in the Sale
of the Contract and Sales Commissions section on page XX.
Execution of a Group Contract by a Group Contractholder and an enrollment form
by a Participant will be deemed an acknowledgment of receipt of this information
and approval of transactions under the Group Contract.
When Proceeds Are Paid
Prudential will generally pay any Death Benefit, Cash Surrender Value, partial
withdrawal or loan proceeds within 7 days after we receive the request for
payment at the office specified in our request form. We will determine the
amount of the Death Benefit as of the date of the Covered Person's death. For
other types of redemptions, we will determine the amount of the proceeds as of
the end of the Business Day on which we received the request in good order.
There are certain circumstances when we delay payment of proceeds:
41
<PAGE>
o We may delay payment of proceeds that come from the Funds and the variable
part of the Death Benefit if any of the following events occurs: the New
York Stock Exchange is closed (other than for a regular holiday or a
weekend), trading is restricted by the SEC, or the SEC declares that an
emergency exists.
o We expect to pay proceeds that come from the Fixed Account or from Paid-up
Coverage promptly upon request. But, we do have the right to delay these
payments (other than the Death Benefit) for up to six months (or a shorter
period, if required by state law). We will pay interest at the Fixed
Account rate if we delay payment for more than 30 days (or a shorter
period, if required by state law).
Beneficiary
You have the right to name the beneficiary who will receive the Death Benefit
from your Certificate. You must use the form that Prudential requires you to
use. You may change the beneficiary at any time. You do not need the consent of
the present beneficiary. If you have more than one beneficiary at the time the
Covered Person dies, we will pay the Death Benefit in equal parts to each
beneficiary, unless you have given us other instructions.
Incontestability
After your Certificate has been in force for two years or more during the
Covered Person's lifetime, Prudential will not contest liability under the
Certificate. We will also not contest liability for any change in your
Certificate that required our approval after the change has been in force for
two years or more during the Covered Person's lifetime.
Misstatement of Age
If the Covered Person's age is stated incorrectly in the Certificate, we will
adjust the amount of the Death Benefit to reflect the correct age, as permitted
by law.
Suicide Exclusion
Generally, if the Covered Person dies by suicide within two years from the
Certificate Date, Prudential will not pay the Death Benefit described in other
sections of this prospectus. Instead, we will pay your beneficiary an amount
equal to your premium payments minus any Certificate
42
<PAGE>
Debt, outstanding charges, and any partial withdrawals. This limit will apply
whether the suicide occurred while the Covered Person was sane or insane.
If the Covered Person dies by suicide within two years after the effective date
of an increase in the Face Amount of your Certificate that required our
approval, we will not pay the increased amount of insurance. Instead of the
amount of the increase, we will pay your beneficiary the monthly charges that
were attributable to the increased amount. Again, this limit will apply whether
the suicide occurred while the Covered Person was sane or insane.
Modes of Settlement
The Death Benefits section describes how your beneficiary may receive the Death
Benefit. In addition to the methods described in the Death Benefits section,
Prudential also makes these methods available. They are known as "modes of
settlement":
Option 1: Payments for a Fixed Period
The Death Benefit plus interest is paid over a fixed number of years (1 -
25). The payment may be received monthly, quarterly, semi-annually or
annually. The payment amount will be higher or lower depending on the
period selected. The interest rate can change, but will not be less than
the guaranteed rate shown in the claim settlement certificate that your
beneficiary will receive. Your beneficiary may withdraw the total present
value of payments not yet made at any time.
Option 2: Payment in Installments for Life
The Death Benefit provides monthly payments in installments for as long as
your beneficiary lives. Your beneficiary may choose a guaranteed minimum
payment period (5,10 or 20 years) or an installment refund, which will
guarantee that the sum of the payments equals the amount of the Death
Benefit payable under this option. If your beneficiary dies before
Prudential has made all guaranteed payments, Prudential will pay the
present value of the remaining guaranteed payments to a payee your
beneficiary designated.
Option 3: Interest Income
The Death Benefit remains with Prudential and earns interest. This option
allows you or your beneficiary to leave the Death Benefit with Prudential
and choose another settlement option at a later time. Withdrawals of $100
or more (including the entire unpaid Death Benefit) can be made at any
time. The interest income may be received monthly, quarterly, semi-annually
or annually.
43
<PAGE>
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that you or your beneficiary will
receive.
Option 4: Payments of a Fixed Amount
You or your beneficiary receives a guaranteed specified sum for a limited
number of years. This guaranteed specified sum represents a return of the
principal (Death Benefit) and interest paid over the selected number of
years. The payment may be received monthly, quarterly, semi-annually, or
annually.
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that you or your beneficiary will
receive. Any interest credited will be used to extend the payment period.
Option 5: Certificate of Deposit
The Death Benefit is used to purchase a certificate of deposit that is
issued by The Prudential Bank. Certificates of Deposit (CDs) are
investments that allow you or your beneficiary to choose a variety of
short- and long-term deposit options. They are designed to pay interest
monthly, quarterly, semi-annually, annually or at maturity. Interest rates
are guaranteed for the term of the CD. There is generally a $10,000 minimum
amount for this option.
Under each of the above options, each payment must generally be at least $20.
If your beneficiary elects one of these settlement options, the tax treatment of
the Death Benefit may be different than it would have been had the option not
been elected. Your beneficiary should get advice from a tax advisor.
Assignment
You may assign your Certificate, including all rights, benefits and privileges
that you have. Prudential will honor the assignment only if: (1) you make the
assignment in writing; (2) you sign it; and (3) Prudential receives a copy of
the assignment at the Prudential office shown in your Certificate. We are not
responsible for determining whether the assignment is legal or valid.
Throughout this prospectus, we describe various rights that you have. You may
assign those rights to someone else. If you do, you should consider the
references to "you" in this prospectus as applying to the person to whom you
validly assigned your Certificate.
44
<PAGE>
If you assign a Certificate that is a Modified Endowment Contract, it might
affect the way you are taxed. It might also affect the way the person to whom
you assign the Certificate is taxed. See the Tax Treatment of Certificate
Benefits section on page XX.
Applicant Owner Provision
Some Group Contracts have an "applicant owner" provision. An "applicant owner"
is a person who may apply for coverage on the life of an Eligible Group Member.
And, as with an assignment, if a Participant agrees to let another person be the
applicant owner of the Certificate, that person would have all of the rights to
make decisions about the coverage. References to "Participant" and "you" in this
prospectus also apply to an applicant owner.
When naming an applicant owner, the Eligible Group Member must agree to have his
or her life covered. Examples of people who may be applicant owners are the
Eligible Group Member's spouse, child, parent, grandparent, grandchild, sister,
brother, or the trustee of any trust set up by the Eligible Group Member. At any
one time, only one person may be an "applicant owner" under a Certificate.
An "applicant owner" must fill out an enrollment form. The Eligible Group Member
must sign the enrollment form to show his or her agreement. Prudential may
require the Eligible Group Member to answer questions about his or her health,
or to have a medical examination. If we approve the enrollment form, we will
issue the Certificate to the applicant owner.
Voting Rights
The assets that are held in the Separate Account are invested in the Funds.
Prudential is the legal owner of those shares. Because we are the owner, we have
the right to vote on any matter that shareholders of the Funds vote on. The
voting happens at regular and special shareholder meetings. We will (as required
by law) vote in accordance with voting instructions we receive from
Participants. A Fund may not hold annual shareholder meetings when not required
to do so under the laws of the state of its incorporation or under the federal
securities laws.
If we do not receive timely voting instructions for Fund shares from
Participants, we will vote those shares in the same proportion as shares in the
Funds for which we do receive instructions. We will do the same thing for shares
held as general account investments of Prudential. If federal securities laws
change so that Prudential is allowed to vote on Fund shares in our own right, we
may decide to do so.
45
<PAGE>
Generally, you may give us voting instructions on matters that would be changes
in fundamental policies of the Funds. You may also give us voting instructions
on any matter that requires a vote of the Fund's shareholders. But, if a Fund
that you participate in has a vote on approval of the investment advisory
agreement or any change in a Fund's fundamental investment policy, you will vote
separately by Fund. This practice is dictated by the federal securities laws.
Here's how we will determine the number of Fund shares and votes for which you
may give instructions:
o To determine the number of Fund shares, we will divide the part of your
Certificate Fund that is derived from participation in a Subaccount by the
value of one share in the corresponding portfolio of the applicable Fund.
o The number of votes will be determined as of the record date chosen by the
Board of Directors of the applicable Fund.
We will give you the proper forms and proxies to give these instructions. We
reserve the right to change the way in which we calculate the weight we give to
voting instructions. We would make such a change to comply with federal
regulations.
If we are required by state insurance regulations, we may disregard voting
instructions in certain instances. We may disregard instructions if: (1) the
instructions would require shares to be voted in a way that would cause a change
in the sub-classification or investment objectives of one or more of the Funds'
portfolios, or (2) the instruction would approve or disapprove an investment
advisory contract for a Fund. Also, Prudential itself may disregard voting
instructions that would require changes in the investment policy or investment
advisor of one or more of the Funds' portfolios, provided that Prudential
reasonably disapproves such changes in accordance with applicable federal
regulations. If Prudential does disregard voting instructions, we will tell you
that we did and our reasons for it in the next annual or semi-annual report to
Participants.
Substitution of Fund Shares
If Prudential's management thinks that an available portfolio of the Funds
becomes unsuitable for investment by Participants, we may substitute the shares
of another portfolio or of an entirely different mutual fund. Our management
might find a portfolio to be unsuitable because of investment policy changes,
tax law changes or considerations, the unavailability of shares for investment
or other reasons, including our discretion. Before Prudential can substitute
shares, the SEC, and possibly one or more state insurance departments, must
approve the substitution. We would notify Group Contractholders and Participants
if we were to make such a substitution.
46
<PAGE>
Additional Insurance Benefits
One or more of the following additional insurance benefits may be available to
you. These benefits may be provided to all Participants under a Group Contract.
Or, the Group Contract may require you to pay an additional charge to receive
the benefits. Each Group Contract will have different rules about how the
additional benefits are made available. You should refer to the Group Contract
and your Certificate to find out what additional insurance benefits are
available to you.
Accelerated Death Benefit. Under an accelerated death benefit, you can elect to
receive an early payment of part of the Certificate's Death Benefit when the
Covered Person is diagnosed as being terminally ill. "Terminally ill" means the
Covered Person has a life expectancy of 12 months or less (under some Group
Contracts, the number of months might be higher or lower). You must give
Prudential satisfactory evidence that the Covered Person is terminally ill. You
may receive the accelerated payment in a lump sum.
When we pay the Death Benefit under this option, it will be adjusted to reflect
its present value. The adjusted Death Benefit will always be less than the Death
Benefit, but will generally be greater than the Certificate's Cash Surrender
Value. Under some Group Contracts, the accelerated death benefit may be
discounted for interest. Prudential may charge a fee of up to $350 when we pay
an accelerated death benefit.
We will not pay an accelerated death benefit if you are required to elect it to
meet the claims of creditors or to obtain a government benefit. We can furnish
details about the amount of accelerated death benefit that is available to you.
Unless required by law, you can no longer request an increase in the Face Amount
of your Certificate once you have elected to receive an accelerated death
benefit. The amount of future premium payments you can make will also be
limited.
Adding the Accelerated Death Benefit to your Certificate will not affect the way
you are taxed. This income tax exclusion may not apply if the benefit is paid to
someone other than the Participant. But, if you actually receive proceeds from
the Accelerated Death Benefit, it could have tax consequences and may affect
your eligibility for certain government benefits or entitlements. In general,
the accelerated death benefit is excluded from income if the Covered Person is
terminally ill or chronically ill as defined in the tax law (although the
exclusion in the latter case may be limited). You should consult a tax advisor
before you elect to receive this benefit.
47
<PAGE>
Accidental Death and Dismemberment Benefit. An Accidental Death and
Dismemberment Benefit provides you insurance for accidental loss of life, sight,
hand, or foot. This benefit excludes certain types of losses. For example,
losses due to suicide or attempted suicide, diseases and infirmities, medical or
surgical treatments, and acts of war are not covered. The benefit may be subject
to other exclusions from coverage, age limitations, and benefit limitations. You
should refer to your Certificate and the Group Contract to learn the details of
any benefit that may be available to you.
Extended Death Protection During Total Disability. An extended death benefit
provides protection during your total disability. Under this provision, even if
your insurance would have ended because of your total disability, Prudential
will extend your insurance coverage if you became totally disabled prior to age
60. The amount of insurance that will be extended is your Face Amount of
insurance. We will extend your insurance coverage for successive one-year
periods, generally until age 65. You must provide satisfactory proof of
continued total disability.
Dependent Life Benefits. Dependent life benefits provide insurance on the life
of a qualified dependent. A qualified dependent may be the Participant's spouse
and/or unmarried child.
Seat Belt Coverage. Seat belt coverage provides a death benefit for the loss of
life while driving or riding in a motor vehicle while wearing a seat belt.
"Motor vehicle" means a private automobile, van, four-wheel drive vehicle,
self-propelled motor home and truck. It does not mean a motor vehicle used for
farming, military, business, racing, or any other type of competitive speed
event. Certain exclusions will apply.
Reports
At least once each Certificate Year, Prudential will send you a statement that
gives you certain information about your insurance. These statements will give
you details about the value of your Certificate Fund, about transactions that
you made, and specific insurance data about your coverage.
If you make a request, we will also send you a current statement about your
insurance. It will give you the same kind of information as the annual statement
does. We may limit the number of current statements you may request or may
charge you for additional statements. Any such charge will not exceed $20 for an
additional report.
48
<PAGE>
We will also send to you and to the Group Contractholder, annual and semi-annual
reports that list the securities held in each available portfolio of the Funds.
The federal securities laws require these reports. Prudential keeps records
about the Separate Account according to the federal securities laws.
If you invest in the Series Fund through more than one variable insurance
contract, you will receive only one copy of each annual and semi-annual report
issued by the Series Fund. But, if you want another copy of a report, you may
ask us for one by calling the telephone number listed on the inside cover page
of this prospectus.
Sale of the Contract and Sales Commissions
Prudential Investment Management Services LLC (referred to as "PIMS") acts as
the principal underwriter of the Group Contracts and Certificates. PIMS is a
direct, wholly-owned subsidiary of Prudential.
PIMS, organized in 1996 under Delaware law, is registered as a broker-dealer
under the federal securities laws. PIMS is also a member of the National
Association of Securities Dealers, Inc. PIMS's principal business address is 751
Broad Street, Newark, New Jersey 07102. PIMS also acts as principal underwriter
with respect to the securities of other Prudential investment companies.
The Group Contracts and Certificates are sold by persons who are registered
representatives of PIMS and who are also authorized by state insurance
departments. The Group Contracts and Certificates may also be sold through other
broker-dealers authorized by PIMS and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than the basis described below.
The maximum commission that Prudential will pay to the representative upon the
purchase of the Contract is 15% of the premium payment received. The amount
Prudential will pay to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 15%
of the premium payment. Prudential may require the representative to return all
of the first year commission if the Group Contract is not continued through the
first year. Sales representatives who meet certain productivity, profitability,
and persistency standards with regard to the sale of the Group Contract will be
eligible for additional bonus compensation from Prudential. Generally,
Prudential will pay PIMS a commission of no more than 15% of the premium
payment. The commission and distribution percentages will depend on factors such
as the size of the group involved and the amount of sales and administrative
effort required in connection with the particular Group Contract. In total, they
will not exceed 15% of the premium payment.
49
<PAGE>
The distribution agreement between PIMS and Prudential will terminate
automatically upon its assignment (as that term is defined in the federal
securities laws). But, PIMS may transfer the agreement, without the prior
written consent of Prudential, under the circumstances set forth in the federal
securities laws. Either party may terminate the agreement at any time if the
party gives 60 days' written notice to the other party.
Sales expenses in any year are not equal to the sales charge in that year.
Prudential may not recover its total sales expenses for some or all Group
Contracts over the periods the Certificates for such Group Contracts are in
effect. To the extent that the sales charges are insufficient to cover total
sales expenses, the sales expenses will be recovered from Prudential's surplus,
which may include amounts derived from the mortality and expense risk charge and
the monthly cost of insurance charge. See the Charges and Expenses section on
page 34.
Ratings and Advertisements
Independent financial rating services -- including Moody's, Standard & Poors,
Duff & Phelps and A.M. Best Company -- rate Prudential. These ratings reflect
our financial strength and claims-paying ability. They are not intended to rate
the investment experience or financial strength of the Separate Account. We may
advertise these ratings from time to time. Furthermore, we may include in
advertisements comparisons of currently taxable and tax-deferred investment
programs, based on selected tax brackets, or discussions of alternative
investment vehicles and general economic conditions.
Services Performed by Third Parties
Throughout this prospectus, we describe how Prudential and the Group
Contractholder will perform transactions with you and how you will perform
transactions with them. Prudential has the right to ask another party (referred
to as a "third party") to perform or receive transactions in its place. The
Group Contractholder has the same right. That means that, for a particular Group
Contract, you may conduct transactions via a third party rather than directly
with Prudential or the Group Contractholder.
In some cases, the third party might be another part of Prudential. (For
example, when you make premium payments to Prudential, they could be received by
Prudential Mutual Fund Services, Inc., a wholly-owned subsidiary of Prudential).
In other cases, the third party might be a third party administrator or even the
group that sponsors the Group Contract.
Prudential may make payments to third party administrators or groups sponsoring
the Group Contracts for their services related to administration and sponsorship
of the Group Contracts.
50
<PAGE>
State Regulation
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. We
reserve the right to change the Group Contract and Certificate to comply with
applicable state insurance laws and interpretations thereof.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, we are required to file
with New Jersey and other jurisdictions a separate statement with respect to the
operations of all our variable contract accounts, in a form promulgated by the
National Association of Insurance Commissioners.
Experts
The financial statements in this registration statement for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996 have been audited by
________________________, independent accountants, as stated in their reports
appearing in this prospectus. Prudential is relying on
__________________________'s reports, which are given on their authority as
accounting and auditing experts. _________________________'s principal business
address is ___________________________________________________________________.
[Actuarial expert sentence to be added by post-effective amendment.]
Litigation
On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales practices. (In re Prudential Insurance Company
of America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate, and later issued a Final Order and Judgement in the
consolidated class actions before the court, 962 F. Supp. 450 (March 17, 1997,
as amended April 14, 1997). The
51
<PAGE>
Court's Final Order and Judgement approving the class Settlement was appealed to
the United States Court of Appeals for the Third Circuit, which upheld the
district court's approval of the Stipulation of Settlement on July 23, 1998. As
of now no further appeal has been taken.
Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance contracts. As of December 31, 1997, based on a reasonable estimate of
losses associated with ADR claims, management estimated the cost, before taxes,
of remedying policyholder claims in the ADR process to be approximately $2.05
billion. While management believed these to be reasonable estimates based on
information then available, further estimates are currently being developed in
connection with the availability of more recent data. The ultimate amount of the
total cost of remedied policyholder claims is dependent on complex and varying
factors, including actual claims by eligible policyholders, the relief options
chosen and the dollar value of those options. There are also additional elements
of the ADR process which cannot be fully evaluated at this time (e.g., claims
which may be successfully appealed) which could increase this estimate.
In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class Settlement.
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted. It is also not possible to
predict the likely results of any regulatory inquiries or their effect on
litigation which might be initiated in response to widespread media coverage of
these matters.
Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods, could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not
52
<PAGE>
have a material adverse effect on Prudential's financial position, after
consideration of applicable reserves.
Year 2000 Compliance
The services provided to the Group Contractholders by Prudential depend on the
smooth functioning of its computer systems. The year 2000, however, holds the
potential for significant disruption in the operation of these systems. Many
computer systems are programmed to recognize only the last two digits in a date.
As a result, any computer system that has date- sensitive programming may
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem can affect non-information technology systems that include embedded
technology, such as microprocessors included in "infrastructure" equipment used
for telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly, which could in turn affect the
accuracy and compromise the integrity of business records. Business operations
could be interrupted when companies are unable to process transactions, send
invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide progress of each component of Prudential's
program for conversion and upgrading of systems for Year 2000 compliance.
Business Applications
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000 compliant
systems, and the remaining 17% are being retired from production. At December
31, 1998, the percentage of business applications
53
<PAGE>
(based on application count) in the implementation phase for Year 2000
compliance for renovation, replacement and retirement are 99%, 96% and 99%,
respectively. The interim target date for completing renovations and retirements
is March 1999, with an overall completion date for Business Applications of June
1999.
Infrastructure
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The interim target date for
completion of certain Infrastructure components is March 1999 with an overall
completion date for Infrastructure of June 1999.
Business Partners
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of our business
partners have been identified as highly critical and the remaining 70% as less
critical. Project phases include inventory, risk assessment, and contingency
planning activities. All project phases for highly critical business partner
readiness were achieved in December 1998; we have an overall completion date for
less critical business partner readiness of June 1999.
The Cost of Year 2000 Readiness
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including those businesses not engaged in
providing services to Group Contractholders. Accordingly, while the expense is
substantial in the aggregate, it is not expected to have a material impact on
Prudential's ability to meet its contractual commitments to Group
Contractholders.
Year 2000 Risks and Contingency Planning
The major portion of Prudential's transactions are of such volume that they can
only be effectively processed through the use of automated systems. Therefore,
substantially all of
54
<PAGE>
Prudential's contingency plans include the ultimate resolution of any causative
technology failures that may be encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
significant impact on the timing of the project as a whole. During the course of
the Year 2000 program, some discretionary technology projects have been delayed
in favor of the completion of Year 2000 projects. However, this impact has been
minimized by Prudential's strategic decision to outsource most of the Year 2000
renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, Prudential is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the results of operations, liquidity or financial condition. In the worst case,
it is possible that any technology failure, including an internal or external
Year 2000 failure, could have a material impact on Prudential's results of
operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature.
55
<PAGE>
Definitions of Special Terms
Used in this Prospectus
Attained Age -- Your age as defined by the Group Contract.
Business Day -- A day on which the New York Stock Exchange is open for trading.
Cash Surrender Value -- The amount you receive upon surrender of the
Certificate. The Cash Surrender Value is equal to your Certificate Fund on the
date of surrender, less any Certificate Debt, outstanding charges, and any
applicable transaction charge.
Certificate -- A document issued to you, as a Participant under a Group
Contract, setting forth or summarizing your rights and benefits.
Certificate Anniversary -- The same date each year as the Certificate Date.
Certificate Date -- The effective date of coverage under a Certificate.
Certificate Debt -- The principal amount of any outstanding loans you borrowed
under your Certificate plus any accrued interest.
Certificate Fund -- The total amount credited to you under your Certificate. On
any date it is equal to the sum of the amounts under that Certificate allocated
to: (1) the Subaccounts, (2) the Fixed Account, and (3) the Loan Account.
Certificate Year -- The year from the Certificate Date to the first Certificate
Anniversary or from one Certificate Anniversary to the next.
Contract Anniversary -- The same date each year as the Contract Date.
Contract Date -- The date as of which the Group Contract is issued.
Covered Person -- The person whose life is insured under the Group Contract. The
Covered Person is generally the Participant. Some Group Contracts may permit a
Participant to apply for insurance under a second Certificate naming the
Participant's spouse as the Covered Person.
Death Benefit -- The amount payable upon the death of the Covered Person (before
the deduction of any Certificate Debt or any outstanding charges).
Dividend -- A portion of Prudential's divisible surplus attributable to the
Group Contract that may be credited to the Group Contract as determined annually
by Prudential's Board of Directors.
Eligible Group Members -- The persons specified in the Group Contract as
eligible to apply for insurance protection under the Group Contract.
Experience Credit -- A refund that Prudential may provide under certain Group
Contracts based on favorable experience.
Face Amount -- The amount of life insurance in your Certificate. The Face
Amount, along with your Certificate Fund, is a part of your Death Benefit.
Fixed Account -- An investment option under which Prudential guarantees that
interest will be added to the amount deposited at a rate we declare
periodically.
56
<PAGE>
Funds -- The Series Fund portfolios and other mutual fund portfolios in which
the Separate Account invests. Your investment options include the Funds and the
Fixed Account. We describe the Funds in the accompanying supplement.
Group Contract -- A Group Variable Universal Life insurance contract that
Prudential issues to the Group Contractholder. The term Group Contract also
includes a participating employer's participation in a multi-employer trust.
Group Contractholder -- The employer, association, sponsoring organization or
trust that is issued a Group Contract. In the case of an employer that joins a
multiple employer trust, the employer exercises the rights accorded to a Group
Contractholder as described throughout this prospectus.
Guideline Annual Premium -- A level annual premium that would be payable
throughout the duration of a Certificate to fund the future benefits if the
Certificate were a fixed premium contract, based on certain assumptions set
forth in a rule of the SEC. Upon request, Prudential will advise you of the
guideline annual premium under the Certificate.
Issue Age -- The Covered Person's Attained Age on the date that the insurance on
that Covered Person goes into effect as defined by the Group Contract.
Loan Account -- An account within Prudential's general account to which we
transfer from the Separate Account and/or the Fixed Account an amount equal to
the amount of any loan.
Loan Value -- The amount (before any applicable transaction charge) that you may
borrow at any given time under your Certificate. We calculate the Loan Value by
multiplying the Certificate Fund by 90% (or higher where required by state law)
and then subtracting any existing loan with accrued interest, outstanding
charges, and the amount of the next month's charges.
Modified Endowment Contract -- A type of life insurance contract or Certificate
under the Internal Revenue Code which has been funded in excess of certain IRS
limits. In general, a Certificate may be classified as a Modified Endowment
Contract (or "MEC") if premiums substantially in excess of scheduled premiums
are paid or a decrease in the Face Amount of insurance is made (or an additional
insurance benefit removed). Less favorable tax rules, and in some cases a
penalty tax, apply if you take distributions (such as withdrawals, loans or
assignments) from a MEC. Regardless of classification as a MEC, cash value
accrues on a tax deferred basis and the Death Benefit is generally received free
of income tax. See Tax Treatment of Certificate Benefits for a more complete
description of the MEC rules.
Monthly Deduction Date -- Generally, the Contract Date and the first day of each
succeeding month, except that whenever the Monthly Deduction Date falls on a
date other than a Business Day, the Monthly Deduction Date will be the next
Business Day. Some Group Contracts may define Monthly Deduction Date slightly
differently, in which case a supplement to this prospectus will define Monthly
Deduction Date.
Net Premium -- Your premium payment minus any charges for taxes attributable to
premiums, any processing fee, and any sales charge. Net Premiums are the amounts
that
57
<PAGE>
we allocate to the Separate Account and/or the Fixed Account.
Paid-up Coverage -- This type of life insurance coverage pays a Death Benefit of
a specific amount that does not change. You make one initial premium payment to
begin the coverage and never make any additional payments.
Participant -- An Eligible Group Member or "applicant owner" under a Group
Contract who obtains insurance under the Group Contract and is eligible to
exercise the rights described in the Certificate. The Participant will be the
person entitled to exercise all rights under a Certificate, regardless of
whether the Covered Person under the Certificate is the Participant or his or
her spouse. We refer to Participants as "you" in this prospectus. If you validly
assign your rights as a Participant to someone else, then that person may
exercise those rights.
Portable -- Under some Group Contracts, you may continue your insurance coverage
even if you are no longer an Eligible Group Member. This type of insurance
coverage is called Portable. Cost of insurance rates and charges may increase
under a Portable Certificate since the Covered Person under a Portable
Certificate may no longer be considered to be a member of the Group
Contractholder's group for purposes of determining those rates and charges.
Separate Account -- Prudential Variable Contract Account GI-2, a separate
investment account registered as a unit investment trust under the federal
securities laws and established by Prudential to receive some or all of the Net
Premiums and to invest them in the Funds.
Series Fund -- The Prudential Series Fund, Inc., a mutual fund with separate
portfolios, some of which are available as investment options for the Group
Contract.
Subaccount -- A division of the Separate Account. Each Subaccount invests its
assets in the shares of a corresponding Fund.
We -- The Prudential Insurance Company of America.
You -- A Participant.
58
<PAGE>
Directors and Officers of Prudential
Directors of Prudential
Franklin E. Agnew - Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc. John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address: 600
Grant Street, Suite 660, Pittsburgh, PA 15219.
Frederick K. Becker - Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.
James G. Cullen - Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
Carolyne K. Davis - Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102.
Roger A. Enrico - Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.
Allan D. Gilmour - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995.
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool Corporation,
USWest, Inc., The Dow Chemical Company and DTE Energy Company. Age 63. Address:
751 Broad Street, 23rd Floor, Newark, NJ 07102.
William H. Gray, III - Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since
59
<PAGE>
1991. Mr. Gray served in Congress from 1979 to 1991. Mr. Gray is also a director
of Chase Manhattan Corporation, The Chase Manhattan Bank, Lotus Development
Corporation, Municipal Bond Investors Assurance Corporation, Rockwell
International Corporation, Union-Pacific Corporation, Warner-Lambert Company,
Westinghouse Electric Corporation, and Electronic Data Systems. Age 56. Address:
8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.
Jon F. Hanson - Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
Glen H. Hiner, Jr. - Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.
Constance J. Horner - Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
Gaynor N. Kelley - Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.
Burton G. Malkiel - Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65. Address: Princeton University, 110 Fisher Hall,
Prospect Avenue, Princeton, NJ 08544-1021.
Arthur F. Ryan - Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.
Ida F.S. Schmertz - Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994. Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
60
<PAGE>
Charles R. Sitter - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.
Donald L. Staheli - Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.
Richard M. Thomson - Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.
James A. Unruh - Director since 1996 (current term expires April, 2000). Member,
Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.
P. Roy Vagelos, M.D. - Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.
Stanley C. Van Ness - Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.
Paul A. Volcker - Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
61
<PAGE>
Bankers Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite
420, New York, NY 10020.
Joseph H. Williams - Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74172.
PRINCIPAL OFFICERS OF PRUDENTIAL
Arthur F. Ryan - Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.
E. Michael Caulfield - Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.
Michele S. Darling - Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.
Robert C. Golden - Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.
Mark B. Grier - Executive Vice President, Financial Management since 1997; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 44.
Rodger A. Lawson - Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.
John V. Scicutella - Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.
John R. Strangfeld - Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
R. Brock Armstrong - Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.
62
<PAGE>
James J. Avery, Jr. - Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.
Martin A. Berkowitz - Senior Vice President and Comptroller since 1995; prior to
1995, Senior Vice President and CFO, Prudential Investment Corporation. Age 48.
William M. Bethke - Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.
Richard J. Carbone - Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.
Mark R. Fetting - President, Prudential Retirement Services since 1996; prior to
1996, President, Prudential Defined Contribution Services. Age 43.
William D. Friel - Senior Vice President and Chief Information Officer since
1993. Age 59.
Jean D. Hamilton - President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.
Ronald P. Joelson - Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.
Ira J. Kleinman - Executive Vice President, International Insurance Group, since
1997; prior to 1997, Senior Vice President. Age 51.
Neil A. McGuinness - Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.
Priscilla A. Myers - Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.
I. Edward Price - Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.
Kiyofumi Sakaguchi - President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.
Brian M. Storms - President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.
Robert J. Sullivan - Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.
63
<PAGE>
Susan J. Blount - Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.
C. Edward Chaplin - Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
Prudential officers are elected annually.
64
<PAGE>
Financial Statements
[Financial statements to be added by post-effective amendment.]
65
<PAGE>
Supplement dated May 1, 1999
to Prospectus dated May 1, 1999
for Group Variable Universal Life Insurance
This document is a supplement to the prospectus dated May 1, 1999 (the
"prospectus") for the Group Variable Universal Life Insurance contract and
Certificates that Prudential offers to you. This supplement is not a complete
prospectus, and must be accompanied by the Prospectus. The Prospectus describes
the insurance features and certain other aspects of the [XYZ Corporation] Group
Contract and Certificates. In this supplement, we describe the _____ Funds that
are available to you under the [XYZ Corporation] Group Contract and
Certificates.
The Funds
Set out below is a list of each Fund, its investment objectives, investment
management fees and other expenses, and its investment advisor/investment
manager. Some Funds also provide information about their principal strategies.
Certain of the Funds have adopted distribution plans pursuant to Rule 12b-1 of
the 1940 Act, and under those plans, the Fund may make payments to Prudential
and/or its affiliate for certain marketing efforts.
The Prudential Series Fund, Inc.
The portfolios of the Series Fund in which the Separate Account may currently
invest and their investment objectives, principal strategies and fees are as
follows:
Conservative Balanced Portfolio: The investment objective is a total investment
return consistent with a conservatively managed diversified portfolio. The
Portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
Diversified Bond Portfolio: The investment objective is a high level of income
over a longer term while providing reasonable safety of capital. The Portfolio
invests primarily in higher grade debt obligations and high quality money market
investments.
Equity Income Portfolio: The investment objective is both current income and
capital appreciation. The Portfolio invests primarily in common stocks and
convertible securities that provide good prospects for returns above those of
the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index") or
the NYSE Composite Index.
Equity Portfolio: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established corporations
as well as smaller companies that offer attractive prospects of appreciation.
<PAGE>
Flexible Managed Portfolio: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
Global Portfolio: The investment objective is long-term growth of capital. The
Portfolio invests primarily in common stocks (and their equivalents) of foreign
and U.S. companies.
Government Income Portfolio: The investment objective is a high level of income
over the longer term consistent with the preservation of capital. The Portfolio
invests primarily in U.S. Government securities, including intermediate and
long-term U.S. Treasury securities and debt obligations issued by agencies or
instrumentalities established by the U.S. Government.
High Yield Bond Portfolio: The investment objective is a high total return. The
Portfolio invests primarily in high yield/high risk debt securities.
Money Market Portfolio: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity. The
Portfolio invests in short-term debt obligations that mature in 13 months or
less.
Natural Resources Portfolio: The investment objective is long-term growth of
capital. The Portfolio invests primarily in common stocks and convertible
securities of natural resource companies and securities that are related to the
market value of some natural resource.
Prudential Jennison Portfolio: The investment objective is to achieve long-term
growth of capital. The Portfolio invests primarily in equity securities of major
established corporations that offer above average growth prospects.
Small Capitalization Stock Portfolio: The investment objective is long-term
growth of capital. The Portfolio invests primarily in equity securities of
publicly-traded companies with small market capitalization.
Stock Index Portfolio: The investment objective is to achieve an investment
return that corresponds to the performance of publicly-traded common stocks
generally. The Portfolio invests to duplicate the price and yield performance of
the S&P 500 Index.
Two Zero Coupon Bond Portfolios -- 2000 and 2005: The investment objective of
these two portfolios is the highest predictable compound investment for a
specific period of time, consistent with the safety of invested capital. The
Portfolio invests primarily in debt obligations of the U.S. Treasury and
corporations that have been issued without interest coupons or stripped of their
interest coupons, or interest coupons that have been stripped from the debt
obligations.
Prudential is the investment adviser of each of the portfolios of the Series
Fund. Prudential's principal business address is 751 Broad Street, Newark, New
Jersey 07102-3777. Prudential has a service agreement with its wholly-owned
subsidiary The Prudential Investment Corporation ("PIC"), which provides that,
subject to Prudential's supervision, PIC will furnish investment advisory
services in connection with the management of the Series Fund. In addition,
Prudential
2
<PAGE>
has entered into a subadvisory agreement with its wholly-owned subsidiary
Jennison Associates Capital Corp. ("Jennison"), under which Jennison furnishes
investment advisory services in connection with the management of the Prudential
Jennison Portfolio. Further detail is provided in the prospectus and statement
of additional information for the Series Fund. Prudential, PIC and Jennison are
registered as investment advisers under the Investment Advisers Act of 1940.
<TABLE>
<CAPTION>
======================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Fee Expenses (After Expense
Reimbursements)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Series Fund
Conservative Balanced Portfolio (1) _.__% _.__% _.__%
Diversified Bond Portfolio (1) _.__% _.__% _.__%
Equity Income Portfolio (1) _.__% _.__% _.__%
Equity Portfolio (1) _.__% _.__% _.__%
Flexible Managed Portfolio (1) _.__% _.__% _.__%
Global Portfolio (1) _.__% _.__% _.__%
Government Income Portfolio (1) _.__% _.__% _.__%
High Yield Bond Portfolio (1) _.__% _.__% _.__%
Money Market Portfolio (1) _.__% _.__% _.__%
Natural Resources Portfolio (1) _.__% _.__% _.__%
Prudential Jennison Portfolio (1) _.__% _.__% _.__%
Small Capitalization Stock Portfolio (1) _.__% _.__% _.__%
Stock Index Portfolio (1) _.__% _.__% _.__%
Zero Coupon Bond 2000 Portfolio (1) _.__% _.__% _.__%
Zero Coupon Bond 2005 Portfolio (1) _.__% _.__% _.__%
======================================================================================
</TABLE>
(1) Series Fund. With respect to the Series Fund portfolios, except for the
Global Portfolio, Prudential reimburses a portfolio when its ordinary
operating expenses, excluding taxes, interest, and brokerage commissions
exceed _.__% of the portfolio's average daily net assets. The amounts
listed for the portfolios under Other Expenses are based on amounts
incurred in the last fiscal year.
AIM Variable Insurance Funds, Inc.
The portfolios of the AIM Variable Insurance Funds, Inc. in which the Separate
Account may currently invest and their investment objectives and fees are as
follows:
AIM V.I. Capital Appreciation Fund: The Fund's investment objective is to seek
capital appreciation through investments in common stocks, with emphasis on
medium-sized and smaller emerging growth companies.
AIM V.I. Diversified Income Fund: The Fund's investment objective is to seek to
achieve a high level of current income. The Fund will seek to achieve its
investment objective by investing
3
<PAGE>
primarily in: (1) foreign government securities, (2) foreign and domestic
corporate debt securities, (3) U.S. Government securities, including U.S.
Government Agency Mortgage- Backed Securities and (4) lower-rated or unrated
high yield debt securities (commonly known as "junk bonds") of U.S. and foreign
companies.
AIM V.I. Global Utilities Fund: The Fund's investment objective is to achieve a
high level of current income, and as a secondary objective the Fund seeks to
achieve capital appreciation, by investing primarily in the common and preferred
stocks of public utility companies (either domestic or foreign).
AIM V.I. Government Securities Fund: The Fund's investment objective is to
achieve a high level of current income consistent with reasonable concern for
safety of principal by investing in debt securities issued, guaranteed or
otherwise backed by the United States Government.
AIM V.I. Growth Fund: The Fund's investment objective is to seek growth of
capital principally through investment in common stocks of seasoned and better
capitalized companies considered by AIM to have strong earnings momentum.
Current income will not be an important criterion of investment selection, and
any such income should be considered incidental.
AIM V.I. Growth and Income Fund: The Fund's investment objective is to seek
growth of capital, with current income as a secondary objective. Although the
amount of the Fund's current income will vary from time to time, it is
anticipated that the current income realized by the Fund will generally be
greater than that realized by mutual funds whose sole objective is growth of
capital.
AIM V.I. International Equity Fund: The Fund's investment objective is to seek
to provide long-term growth of capital by investing in a diversified portfolio
of international equity securities the issuers of which are considered by AIM to
have strong earnings momentum. Any income realized by the Fund will be
incidental and will not be an important criterion in the selection of portfolio
securities.
AIM V.I. Value Fund: The Fund's investment objective is to achieve long-term
growth of capital by investing primarily in equity securities judged by AIM to
be undervalued relative to the current or projected earnings of the companies
issuing the securities, or relative to current market values of assets owned by
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective and would be satisfied principally from the
income (interest and dividends) generated by the common stocks, convertible
bonds and convertible preferred stocks that make up the Fund's portfolio.
A I M Advisors, Inc. ("AIM") serves as the investment advisor to each Fund.
AIM's principal business address is 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173. The principal underwriter of the funds is A I M Distributors, Inc.,
a subsidiary of AIM, located at 11 Greenway Plaza, Suite 100, Houston, Texas
77046-1173.
4
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
Funds Management Fee Other Total Fund
Expenses Annual Expenses
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund (1) _.__% _.__% _.__%
AIM V.I. Diversified Income Fund (1) _.__% _.__% _.__%
AIM V.I. Global Utilities Fund (1) _.__% _.__% _.__%
AIM V.I. Government Securities Fund (1) _.__% _.__% _.__%
AIM V.I. Growth Fund (1) _.__% _.__% _.__%
AIM V.I. Growth and Income Fund (1) _.__% _.__% _.__%
AIM V.I. International Equity Fund (1) _.__% _.__% _.__%
AIM V.I. Value Fund (1) _.__% _.__% _.__%
==============================================================================================================
</TABLE>
(1) AIM may from time to time voluntarily waive or reduce its respective fees.
The Funds listed above did not have any fee waivers for the year ended
12/31/97. None of the expense ratios have been restated. Effective May 1,
1998, the Funds reimburse AIM in an amount up to _.__% of the average net
asset value of each Fund, for expenses incurred in providing, or assuring
that participating insurance companies provide certain administrative
services. The fee currently only applies to the average net asset value of
each Fund in excess of the net asset value of each Fund as calculated on
April 30, 1998.
Alliance Capital
The portfolios of the Alliance Variable Products Series Fund, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
Global Bond Portfolio: Seeks a high level of return from a combination of
current income and capital appreciation by investing in a globally diversified
portfolio of high quality debt securities denominated in the U.S. Dollar and a
range of foreign currencies.
Global Dollar Government Portfolio: Seeks a high level of current income through
investing substantially all of its assets in U.S. and non-U.S. fixed-income
securities denominated only in U.S. dollars. As a secondary objective, the
Portfolio seeks capital appreciation. Substantially all of the Portfolio's
assets will be invested in high yield, high risk securities that are low-rated
(i.e., below investment grade), or of comparable quality and unrated, and that
are considered to be predominantly speculative as regards the issuer's capacity
to pay interest and repay principal.
Growth Portfolio: Seeks long-term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income Portfolio: Seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality.
5
<PAGE>
International Portfolio: Seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States companies
(or United States companies having their principal activities and interests
outside the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
Premier Growth Portfolio: Seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based upon their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. This portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Quasar Portfolio: Seeks growth of capital by pursuing aggressive investment
policies. This portfolio invests in a diversified portfolio of equity securities
of any company and industry and in any type of security which is believed to
offer possibilities for capital appreciation.
Real Estate Investment Portfolio: Seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Technology Portfolio: Seeks growth of capital through investment in companies
expected to benefit from advances in technology. This portfolio will invest
principally in a diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes.
U.S. Government/High Grade Securities Portfolio: Seeks a high level of current
income consistent with preservation of capital by investing principally in a
portfolio of U.S. Government Securities and other high grade debt securities.
Utility Income Portfolio: Seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies in
the "utilities industry." The Portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
Worldwide Privatization Portfolio: Seeks long-term capital appreciation by
investing principally in equity securities issued by enterprises that are
undergoing, or have undergone, privatization. The balance of the Portfolio's
investment portfolio will include equity securities of companies that are
believed by the Fund's Adviser to be beneficiaries of the privatization process.
Alliance Capital Management L.P. ("Alliance") is the investment adviser to each
of the above- mentioned funds. Alliance's principal business address is 1345
Avenue of the Americas, New York, New York 10105. The principal underwriter of
the funds is Alliance Fund Distributors,
6
<PAGE>
Inc., a subsidiary of Alliance, located at 1345 Avenue of the Americas, New
York, New York 10105.
<TABLE>
<CAPTION>
=========================================================================================================================
Total Fund
Funds Investment Other Annual Expenses
Management Fee Expenses (After Expense
Reimbursements)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio (1) _.__% _.__% _.__%
Global Dollar Government Portfolio (1) _.__% _.__% _.__%
Growth Portfolio (1) _.__% _.__% _.__%
Growth and Income Portfolio (1) _.__% _.__% _.__%
International Portfolio (1) _.__% _.__% _.__%
Premier Growth Portfolio (1) _.__% _.__% _.__%
Quasar Portfolio (1) _.__% _.__% _.__%
Real Estate Investment Portfolio (1)(2) _.__% _.__% _.__%
Technology Portfolio (1) _.__% _.__% _.__%
U.S. Government/High Grade Securities Portfolio (1) _.__% _.__% _.__%
Utility Income Portfolio (1) _.__% _.__% _.__%
Worldwide Privatization Portfolio (1) _.__% _.__% _.__%
=================================================================================================================================
</TABLE>
(1) Net of expense reimbursement. The expenses of the following Portfolios,
before expense reimbursements, would be: Global Bond Portfolio: investment
management fee _.__%, other expenses _.__% and total fund annual expenses
_.__%; Global Dollar Government Portfolio: investment management fee _.__%,
other expenses _.__% and total fund annual expenses _.__%; Growth
Portfolio: investment management fee _.__%, other expenses _.__% and total
fund annual expenses _.__%; Growth and Income Portfolio: investment
management fee _.__%, other expenses _.__% and total fund annual expenses
_.__%; International Portfolio: investment management fee _.__%, other
expenses _.__% and total fund annual expenses _.__%; Premier Growth
Portfolio: investment management fee _.__%, other expenses _.__% and total
fund annual expenses _.__%; Quasar Portfolio: investment management fee
_.__%, other expenses _.__% and total fund annual expenses _.__%; Real
Estate Investment Portfolio: investment management fee _.__%, other
expenses _.__% and total fund annual expenses _.__%; Technology Portfolio:
investment management fee _.__%, other expenses _.__& and total fund annual
expenses _.__%; U.S. Government/High Grade Securities Portfolio: investment
management fee _.__%, other expenses _.__% and total fund annual expenses
_.__%; Utility Income Portfolio: investment management fee _.__%, other
expenses _.__% and total fund annual expenses _.__%; and Worldwide
Privatization Portfolio: investment management fee _.__%, other expenses
_.__% and total fund annual expenses _.__%.
(2) Annualized.
7
<PAGE>
American Century Variable Portfolios, Inc.
The portfolios of American Century Variable Portfolios, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
VP Balanced Portfolio: The investment objective of the VP Balanced Portfolio is
capital growth and current income. Management of the Portfolio intends to
maintain approximately 60% of the Portfolio's assets in the equity securities
described in the prospectus, and intends to maintain approximately 40% of the
Portfolio's assets in fixed income securities.
VP Capital Appreciation Portfolio: Seeks capital growth over time by investing
primarily in common stocks that are considered by management to have
better-than-average prospects for appreciation.
VP International Portfolio: Seeks capital growth over time by investing in
common stocks of foreign companies considered to have better-than-average
prospects for appreciation.
VP Value Portfolio: Seeks long-term capital growth with income as a secondary
objective. The fund seeks to achieve its objectives by investing primarily in
equity securities of well-established companies that are believed by management
to be undervalued at the time of purchase.
The investment adviser for each fund is American Century Investment Management,
Inc. ("ACIM"). ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. Funds Distributor, Inc. distributes
shares of American Century funds, and all sales of fund shares are subject to
approval by Funds Distributor, Inc.
=====================================================================
Funds Total Fund
Annual Expenses
---------------------------------------------------------------------
American Century Variable Portfolios, Inc.
VP Balanced Portfolio (1) _.__%
VP Capital Appreciation Portfolio (1) _.__%
VP International Portfolio (1) _.__%
VP Value Portfolio (1) _.__%
=====================================================================
(1) Fees are all-inclusive.
The Berger Funds
The portfolios of the Berger Institutional Products Trust ("Berger IPT") in
which the Separate Account may currently invest and their investment objectives
and fees are as follows:
Berger IPT - 100 Fund: The investment objective of the Berger IPT - 100 Fund is
long term capital appreciation. The Berger IPT - 100 Fund seeks to achieve this
objective by investing primarily in common stocks of established companies which
are believed to offer favorable
8
<PAGE>
growth prospects. Current income is not an investment objective of the Berger
IPT - 100 Fund, and any income produced will be a by-product of the effort to
achieve the Fund's objective.
Berger IPT - Growth and Income Fund: The primary investment objective of the
Berger IPT Growth and Income Fund is capital appreciation. A secondary objective
is to provide a moderate level of current income. The Berger IPT - Growth and
Income Fund seeks to achieve these objectives by investing primarily in common
stocks and other securities, such as convertible securities and preferred
stocks, which the Fund's advisor believes offer favorable growth prospects and
are expected to also provide current income.
Berger IPT - Small Company Growth Fund: The investment objective of the Berger
IPT Small Company Growth Fund is capital appreciation. The Berger IPT - Small
Company Growth Fund seeks to achieve this objective by investing primarily in
equity securities (including common and preferred stocks, convertible debt
securities and other securities having equity features) of small growth
companies with market capitalization of less than $1 billion at the time of the
initial purchase.
Berger/BIAM IPT - International Fund: The investment objective of the
Berger/BIAM IPT - International Fund is long-term capital appreciation. The
Berger/BIAM IPT - International Fund seeks to achieve this objective by
investing primarily in common stocks of well established companies located
outside the United States. The Fund intends to diversify its holdings among
several countries and to have, under normal market conditions, at least 65% of
the Fund's total assets invested in the securities of companies located in at
least five countries, not including the United States.
Berger Associates, Inc. ("Berger") is the investment adviser to the Berger IPT -
100 Fund, Berger IPT - Growth and Income Fund and Berger IPT - Small Company
Growth Fund. BBOI Worldwide LLC ("BBOI"), a joint venture of Berger and Bank of
Ireland Asset Management (U.S.) Limited ("BIAM"), is the adviser to the
Berger\BIAM IPT - International Fund, and BIAM serves as the Fund's subadviser.
Berger Distributors, Inc., a wholly-owned subsidiary of Berger, is the principal
underwriter for all of the portfolios of Berger IPT. The principal business
address of Berger, BBOI and Berger Distributors, Inc. is 210 University
Boulevard, Denver, Colorado 80206.
<TABLE>
<CAPTION>
======================================================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Fee Expenses (After Expense
Reimbursements)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Berger Institutional Products Trust
Berger IPT - 100 Fund (1)(2) _.__% _.__% _.__%
Berger IPT - Growth & Income Fund (1)(2) _.__% _.__% _.__%
Berger IPT - Small Company Growth Fund (1)(2) _.__% _.__% _.__%
Berger/BIAM IPT - International Fund (1)(2) _.__% _.__% _.__%
======================================================================================================================
</TABLE>
9
<PAGE>
(1) Other Expenses primarily include transfer agency fees, shareholder report
expenses, registration fees and custodian fees.
(2) After fee waivers and expense reimbursements. The Funds' investment advisor
has voluntarily agreed to waive its advisory fee and has voluntarily
reimbursed the Funds for additional expenses to the extent that normal
operating expenses in any fiscal year, including the investment fee but
excluding brokerage commissions, interest, taxes and extraordinary
expenses, of each of the Berger IPT - 100 Fund and the Berger IPT - Growth
and Income Fund exceed _.__%, the normal operating expenses in any fiscal
year of the Berger IPT Small Company Growth Fund exceed _.__%, and the
normal operating expenses in any fiscal year of the Berger/BIAM IPT -
International Fund exceed _.__% of the respective Fund's average daily net
assets. Absent the voluntary waiver and reimbursement, the investment
management fee for the Berger IPT - 100 Fund, Berger IPT - Growth and
Income Fund, Berger IPT - Small Company Growth Fund and the Berger/BIAM IPT
- International Fund would have been _.__%, _.__%, _.__% and _.__%,
respectively, and the funds' total operating expenses would have been
_.__%, _.__%, _.__% and _.__%, respectively.
Dreyfus Corporation Funds
The portfolios of the Dreyfus Variable Investment Fund, The Dreyfus Socially
Responsible Growth Fund, Inc., and the Dreyfus Stock Index Fund in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
Capital Appreciation Portfolio: Seeks to provide long-term capital growth
consistent with the preservation of capital; current income is a secondary
investment objective. This portfolio invests primarily in the common stocks of
domestic and foreign issuers.
Disciplined Stock Portfolio: Seeks to provide investment results that are
greater than the total return performance of publicly-traded common stocks in
the aggregate, as represented by the Standard & Poor's 500 Composite Stock
Index. This portfolio will use quantitative statistical modeling techniques to
construct a portfolio in an attempt to achieve its investment objective, without
assuming undue risk relative to the broad stock market.
Growth and Income Portfolio: Seeks to provide long-term capital growth, current
income and growth of income, consistent with reasonable investment risk. This
portfolio invests primarily in equity securities of domestic and foreign
issuers. The portfolio also may invest in debt securities and money market
instruments of domestic and foreign issuers.
International Equity Portfolio: Seeks to maximize capital growth. This portfolio
invests primarily in equity securities of foreign issuers located throughout the
world.
International Value Portfolio: Seeks long-term capital growth. This portfolio
invests primarily in a portfolio of publicly-traded equity securities of foreign
issuers which would be characterized as "value" companies according to criteria
established by The Dreyfus Corporation.
10
<PAGE>
Special Value Portfolio: Seeks to maximize total return, consisting of capital
appreciation and current income. This portfolio follows an asset allocation
strategy by investing in equity securities, debt securities and money market
instruments of domestic and foreign issuers.
Quality Bond Portfolio: Seeks to provide the maximum amount of current income to
the extent consistent with the preservation of capital and the maintenance of
liquidity. This portfolio invests principally in the debt obligations of
corporations, the U.S. Government and its agencies and instrumentalities, and
U.S. major banking institutions.
Small Cap Portfolio: Seeks to maximize capital appreciation. This portfolio
invests primarily in common stocks of domestic and foreign issuers. This
portfolio will be particularly alert to companies that The Dreyfus Corporation
considers to be emerging smaller-sized companies which are believed to be
characterized by new or innovative products, services, or processes which should
enhance prospects for growth in future earnings.
Small Company Stock Portfolio: Seeks to provide investment results that are
greater than the total return performance in publicly-traded common stocks in
the aggregate, as represented by the Russell 2500(TM) Index. This portfolio
invests primarily in a portfolio of equity securities of small to medium-sized
domestic issuers, while attempting to maintain volatility and diversification
similar to that of the Russell 2500(TM) Index.
Socially Responsible Growth Fund: The Fund's primary goal is to provide capital
growth through equity investment in companies that, in the opinion of the Fund's
management, not only meet traditional investment standards but which also show
evidence that they conduct their business in a manner that contributes to the
enhancement of the quality of life in America.
Current income is secondary to the primary goal.
Zero Coupon 2000 Portfolio: Seeks to provide as high an investment return as is
consistent with the preservation of capital. This portfolio invests primarily in
debt obligations of the U.S. Treasury that have been stripped of their unmatured
interest coupons, interest coupons that have been stripped from debt obligations
issued by the U.S. Treasury, receipts and certificates for such stripped debt
obligations, and stripped coupons and zero coupon securities issued by domestic
corporations, which will mature on or about December 31, 2000.
The Dreyfus Corporation ("Dreyfus") is the investment adviser to each of the
above-mentioned portfolios and funds. Dreyfus' principal business address is 200
Park Avenue, New York, New York 10166. The principal underwriter of the
portfolios and funds is Premier Mutual Fund Services, Inc., located at 60 State
Street, Boston, Massachusetts 02109.
11
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Funds
Capital Appreciation Portfolio _.__% _.__% _.__%
Disciplined Stock Portfolio _.__% _.__% _.__%
Growth and Income Portfolio _.__% _.__% _.__%
International Equity Portfolio _.__% _.__% _.__%
International Value Portfolio _.__% _.__% _.__%
Quality Bond Portfolio _.__% _.__% _.__%
Small Cap Portfolio _.__% _.__% _.__%
Small Company Stock Portfolio _.__% _.__% _.__%
Socially Responsible Growth Portfolio _.__% _.__% _.__%
Special Value Portfolio _.__% _.__% _.__%
Zero Coupon 2000 Portfolio _.__% _.__% _.__%
===============================================================================================================
</TABLE>
Franklin Templeton
The Class 2 portfolios of the Templeton Variable Products Series Fund in which
the Separate Account may currently invest and their investment objectives and
fees are as follows:
Templeton Asset Allocation Fund: The fund's investment goal is high total
return. Under normal market conditions, the fund will invest in equity and debt
securities of any nation, including emerging markets, and in money market
instruments.
Templeton Bond Fund: The fund's investment goal is high current income. Capital
appreciation is a secondary consideration. Under normal market conditions, the
fund will invest at least 65% of its total assets in the debt securities of
governments and their political subdivisions and agencies, supranational
organizations, and companies located anywhere in the world, including emerging
markets.
Templeton Developing Markets Fund: The fund's investment goal is long-term
capital appreciation. Under normal market conditions, the fund will invest at
least 65% of its total assets in equity securities that trade in emerging
markets and are issued by companies that have their principal activities in
emerging market countries.
Templeton International Fund: The fund's investment goal is long-term capital
growth. Under normal market conditions, the fund will invest at least 65% of its
total assets in the equity securities of companies located outside the U.S.,
including emerging markets.
Templeton Stock Fund: The fund's investment goal is long-term capital growth.
Under normal market conditions, the fund will invest at least 65% of its total
assets in the equity securities of companies located anywhere in the world,
including in the U.S. and emerging markets.
Templeton Investment Counsel, Inc. ("TICI") serves as the investment manager for
the Asset Allocation Fund, Bond Fund, International Fund, and Stock Fund. TICI
is a Florida corporation
12
<PAGE>
with offices at Broward Financial Centre, Fort Lauderdale, Florida 33394-3091.
The Investment Manager for the Developing Markets Fund is Templeton Asset
Management Ltd., a Singapore corporation with offices at 7 Temasek Blvd.,
#38-03, Suntec Tower One, Singapore 038987. The principal underwriter of the
Funds is Franklin Templeton Distributors, Inc., 100 Fountain Parkway, St.
Petersburg, Florida 33716-1205.
<TABLE>
<CAPTION>
======================================================================================================================
Investment 12b-1 Other Total Fund
Funds Management Fee Fees Expenses Annual Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Variable Products Series
Fund (Class 2 Shares)
Asset Allocation Fund (1) _.__% _.__% _.__% _.__%
Bond Fund (2) _.__% _.__% _.__% _.__%
Developing Markets Fund (2) _.__% _.__% _.__% _.__%
International Fund (1) _.__% _.__% _.__% _.__%
Stock Fund (1) _.__% _.__% _.__% _.__%
======================================================================================================================
</TABLE>
(1) Class 2 of the Fund has a distribution plan or "Rule 12b-1 plan" which is
described in the Fund's prospectus. Because Class 2 shares were not offered
until May 1, 1997, figures (other than "12b-1 Fees") are estimates for 1998
based on the historical expenses of the Fund's Class 1 shares for the
fiscal year ended December 31, 1997, except that Management Fees and Total
Fund Operating Expenses have also been restated to reflect the management
fee schedule approved by shareholders and effective May 1, 1997. Actual
Management Fees and Total Fund Operating Expenses during 1997 were lower.
See fund prospectus for details.
(2) Class 2 of the Fund has a distribution plan or "Rule 12b-1 Plan" which is
described in the Fund's prospectus. Because Class 2 shares were not offered
until May 1, 1997, figures (other than "Rule 12b-1 Fees") are estimates for
1998 based on the historical expenses of the Fund's Class 1 shares for the
fiscal year ended December 31, 1997.
INVESCO Funds
The portfolios of the INVESCO Variable Investment Funds, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
Dynamics Portfolio: Seeks long-term appreciation of capital through aggressive
investment policies. The Dynamics Portfolio invests primarily in common stocks
of U.S. companies traded on national securities exchanges and over-the-counter.
Growth Portfolio: Seeks long-term capital growth. The Portfolio also seeks, as a
secondary objective, to obtain investment income through the purchase of
securities of carefully selected companies representing major fields of business
and industrial activity. In pursuing its objectives, the Portfolio invests
primarily in common stocks, but may also invest in other kinds of securities,
including convertible and straight issues of debentures and preferred stock.
13
<PAGE>
Health Sciences Portfolio: Seeks long-term capital appreciation by normally
investing at least 80% of its total assets in equity securities of companies
that develop, produce, or distribute products or services related to health
care.
High Yield Portfolio: Seeks a high level of current income by investing
substantially all of its assets in lower-rated bonds and other debt securities
and in preferred stock. The Portfolio pursues its investment objective through
investment in a variety of long-term, intermediate-term, and short-term bonds.
Potential capital appreciation is a factor in the selection of investments, but
is secondary to the Portfolio's primary objective.
Industrial Income Portfolio: Seeks the best possible current income. Capital
growth potential is an additional consideration in the selection of portfolio
securities. The Portfolio normally invests at least 65% of its total assets in
dividend-paying common stocks. Up to 10% of the Portfolio's total assets may be
invested in equity securities that do not pay regular dividends. The remaining
assets are invested in other income-producing securities, such as corporate
bonds. The Portfolio also has the flexibility to invest in other types of
securities.
Small Company Growth Portfolio: Seeks long-term capital growth. The Small
Company Growth Portfolio invests primarily in equity securities of
small-capitalization U.S. companies traded "over-the-counter."
Technology Portfolio: Seeks long-term capital appreciation. The Technology
Portfolio normally invests at least 80% of its total assets in equity securities
of companies in technology-related industries such as computers, communications,
video, electronics, oceanography, office and factory automation, and robotics.
Total Return Portfolio: Seeks a high total return on investment through capital
appreciation and current income. The Total Return Portfolio seeks to achieve its
investment objective by investing in a combination of equity securities
(consisting of common stocks and, to a lesser degree, securities convertible
into common stock) and fixed income securities.
Utilities Portfolio: Seeks capital appreciation and income. The assets of the
Utilities Portfolio are invested primarily in equity securities of companies
principally engaged in business as public utilities.
INVESCO Funds Group, Inc. ("INVESCO") serves as the investment adviser and
principal underwriter of each of the above-mentioned funds. INVESCO's principal
business address is 7800 E. Union Avenue, Denver, Colorado 80237.
14
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================================
Total Fund
Investment Other Annual Expenses (After
Funds Management Fee Expenses Expense
Reimbursements)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESCO Variable Investment Funds, Inc.
Dynamics Portfolio (1)(2) _.__% _.__% _.__%
Growth Portfolio (1)(2) _.__% _.__% _.__%
Health Sciences Portfolio (1)(2) _.__% _.__% _.__%
High Yield Portfolio (1)(2) _.__% _.__% _.__%
Industrial Income Portfolio (1)(2) _.__% _.__% _.__%
Small Company Growth Portfolio (1)(2) _.__% _.__% _.__%
Technology Portfolio (1)(2) _.__% _.__% _.__%
Total Return Portfolio (1)(2) _.__% _.__% _.__%
Utilities Portfolio (1)(2) _.__% _.__% _.__%
============================================= ======================= ===========================================
</TABLE>
(1) Various expenses of the Portfolios were voluntarily absorbed by INVESCO
Funds Group, Inc. for the year ended December 31, 1997. If such expenses
had not been voluntarily absorbed, the ratio of expenses to average net
assets for Dynamics, Growth, Health Sciences, High Yield, Industrial
Income, Small Company Growth, Technology, Total Return and Utilities
Portfolios would have been __.__%, __.__%, __.__%, _.__%, _.__%, __.__%,
__.__%, _.__% and _.__%, respectively.
(2) It should be noted that the Portfolios' actual total fund annual expenses
were lower than the figures shown because the Portfolios' custodian and
pricing expenses were reduced under an expense offset arrangement. However,
as a result of an SEC requirement, the figures shown above do not reflect
these reductions.
Investors Fund -- Kemper Series
The portfolios of Investors Fund Series in which the Separate Account may
currently invest (the "Kemper Series") and their investment objectives and fees
are as follows:
Blue Chip Portfolio: Seeks growth of capital and of income by investing
primarily in common stocks of well capitalized, established companies having
potential for growth of capital, earnings and dividends.
Contrarian Value Portfolio: Seeks to achieve a high rate of total return from a
portfolio primarily of value stocks of larger companies.
Global Income Portfolio: Seeks high current income consistent with prudent total
return asset management by investing primarily in a portfolio of investment
grade foreign and domestic fixed income securities.
Government Securities Portfolio: Seeks high current return consistent with
preservation of capital from a portfolio composed primarily of U.S. Government
securities.
15
<PAGE>
Growth Portfolio: Seeks maximum appreciation of capital through diversification
of investment securities having potential for capital appreciation.
High Yield Portfolio: Seeks to provide a high level of current income by
investing in fixed- income securities.
Horizon 5 Portfolio: Designed for investors with approximately a 5 year
investment horizon, seeks income consistent with preservation of capital, with
growth of capital as a secondary objective.
Horizon 10+ Portfolio: Designed for investors with approximately a 10+ year
investment horizon, seeks a balance between growth of capital and income,
consistent with moderate risk.
Horizon 20+ Portfolio: Designed for investors with approximately a 20+ year
investment horizon, seeks growth of capital, with income as a secondary
objective.
International Portfolio: Seeks total return, a combination of capital growth and
income, principally through an internationally diversified portfolio of equity
securities.
Investment Grade Bond Portfolio: Seeks high current income by investing
primarily in a diversified portfolio of investment grade debt securities.
Small Cap Growth Portfolio: Seeks maximum appreciation of investors' capital
from a portfolio primarily of growth stocks of smaller companies.
Small Cap Value Portfolio: Seeks long-term capital appreciation from a portfolio
primarily of value stocks of smaller companies.
Total Return Portfolio: Seeks a high total return, a combination of income and
capital appreciation, by investing in a combination of debt securities and
common stocks.
Value+Growth Portfolio: Seeks growth of capital through professional management
of a portfolio of growth and value stocks.
The asset manager of the portfolios is Scudder Kemper Investments, Inc.
("Scudder Kemper"). Scudder Kemper's principal business address is Two
International Place, Boston, Massachusetts 02110-4103.
16
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
Investment Other Total Fund
Funds Management Fee Expenses Annual Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investors Fund Series
Blue Chip Portfolio _.__% _.__% _.__%
Contrarian Value Portfolio _.__% _.__% _.__%
Global Income Portfolio _.__% _.__% _.__%
Government Securities Portfolio _.__% _.__% _.__%
Growth Portfolio _.__% _.__% _.__%
High Yield Portfolio _.__% _.__% _.__%
Horizon 5 Portfolio _.__% _.__% _.__%
Horizon 10+ Portfolio _.__% _.__% _.__%
Horizon 20+Portfolio _.__% _.__% _.__%
International Portfolio _.__% _.__% _.__%
Investment Grade Bond Portfolio _.__% _.__% _.__%
Small Cap Growth Portfolio _.__% _.__% _.__%
Small Cap Value Portfolio _.__% _.__% _.__%
Total Return Portfolio _.__% _.__% _.__%
Value+Growth Portfolio _.__% _.__% _.__%
========================================================================================================
</TABLE>
Janus Aspen Series
The portfolios of the Janus Aspen Series in which the Separate Account may
currently invest and their investment objectives and fees are as follows:
Aggressive Growth Portfolio: The investment objective of this Portfolio is
long-term growth of capital. It is a nondiversified portfolio that pursues its
investment objective by normally investing at least 50% of its equity assets in
securities issued by medium-sized companies.
Balanced Portfolio: The investment objective of this Portfolio is long-term
capital growth, consistent with preservation of capital and balanced by current
income. It is a diversified portfolio that, under normal circumstances, pursues
its objective by investing 40-60% of its assets in securities selected primarily
for their growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
Flexible Income Portfolio: The investment objective of this Portfolio is to
obtain maximum total return, consistent with preservation of capital. The
Portfolio pursues its objective primarily through investments in
income-producing securities. Total return is expected to result from a
combination of current income and capital appreciation, although income will
normally be the dominant component of total return. The Portfolio invests in
many types of income-producing securities and may have substantial holdings in
debt securities rated below investment grade.
Growth Portfolio: The investment objective of this Portfolio is long-term growth
of capital in a manner consistent with the preservation of capital. It is a
diversified portfolio that pursues its objective by investing in common stocks
of issuers of any size. This Portfolio generally invests in larger, more
established issuers.
17
<PAGE>
High-Yield Portfolio: The primary investment objective of this Portfolio is to
obtain high current income. Capital appreciation is a secondary objective when
consistent with its primary objective.
International Growth Portfolio: The investment objective of this Portfolio is
long-term growth of capital. It is a diversified portfolio that pursues its
objective primarily through investments in common stocks of issuers located
outside the United States.
Worldwide Growth Portfolio: The investment objective of this Portfolio is
long-term growth of capital in a manner consistent with the preservation of
capital. It is a diversified portfolio that pursues its objective primarily
through investments in common stocks of foreign and domestic issuers.
Janus Capital Corporation ("Janus Capital") serves as the investment adviser and
principal underwriter to each of the above-mentioned portfolios. Janus Capital's
principal business address is 100 Fillmore Street, Denver, Colorado 80206-4928.
<TABLE>
<CAPTION>
===========================================================================================================
Total Operating
Other Expenses (After Fee
Funds Management Fee Expenses Waivers and
Reductions)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Janus Aspen Series
Aggressive Growth Portfolio (1) _.__% _.__% _.__%
Balanced Portfolio (1) _.__% _.__% _.__%
Flexible Income Portfolio (1) _.__% _.__% _.__%
Growth Portfolio (1) _.__% _.__% _.__%
High-Yield Portfolio (1) _.__% _.__% _.__%
International Growth Portfolio (1) _.__% _.__% _.__%
Worldwide Growth Portfolio (1) _.__% _.__% _.__%
===========================================================================================================
</TABLE>
(1) Management fees for Aggressive Growth, Balanced, Growth, International
Growth and Worldwide Growth Portfolios reflect a reduced fee schedule
effective July 1, 1997. The management fee for each of these Portfolios
reflects the new rate applied to net assets as of December 31, 1997. Other
expenses are based on gross expenses of the Shares before expense offset
arrangements for the fiscal year ended December 31, 1997. The information
for each Portfolio other than the Flexible Income Portfolio is net of fee
waivers or reductions from Janus Capital. Fee reductions for the Aggressive
Growth, Balanced, Growth, International Growth and Worldwide Growth
Portfolios reduce the management fee to the level of the corresponding
Janus retail fund. Other waivers, if applicable, are first applied against
the management fee and then against other expenses. Without such waivers or
reductions, the Management Fee, Other Expenses and Total Operating Expenses
for the Shares would have been _.__%, _.__% and _.__% for Aggressive Growth
Portfolio; _.__%, _.__% and _.__% for Balanced Portfolio; _.__%, _.__% and
_.__% for Growth Portfolio; _.__%, _.__% and _.__% for High-Yield
Portfolio; _.__%, _.__% and _.__% for
18
<PAGE>
International Growth Portfolio; and _.__%, _.__% and _.__% for Worldwide
Growth Portfolio, respectively. Janus Capital may modify or terminate the
waivers or reductions at any time upon at least 90 days' notice to the
Trustees.
J.P. Morgan Series Trust II
The portfolios of the J.P. Morgan Series Trust II in which the Separate Account
may currently invest and their investment objectives and fees are as follows:
J.P. Morgan Bond Portfolio: Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. Total return will consist
of realized and unrealized capital gains and losses plus income less expenses.
Although the net asset value of the Portfolio will fluctuate, the Portfolio
attempts to preserve the value of its investments to the extent consistent with
its objective.
J.P. Morgan Equity Portfolio: Seeks to provide a high total return from a
portfolio comprised of selected equity securities. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests primarily in the common stock of U.S. corporations with market
capitalizations above $1.5 billion.
J.P. Morgan International Opportunities Portfolio: Seeks to provide a high total
return from a portfolio of equity securities of foreign corporations. Total
return will consist of realized and unrealized capital gains and losses plus
income less expenses.
J.P. Morgan Small Company Portfolio: Seeks to provide a high total return from a
portfolio of equity securities of small companies. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests at least 65% of the value of its total assets in the common
stock of small U.S. companies primarily with market capitalizations less than $1
billion.
J.P. Morgan Investment Management Inc. ("Morgan" or the "Adviser") serves as the
investment adviser to each of the above-mentioned portfolios. Morgan's principal
business address is 522 Fifth Avenue, New York, New York 10036. The Trust's
distributor is Funds Distributor, Inc. located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
19
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Expenses (After Expense
Fee Reimbursements)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
J.P. Morgan Series Trust II
J.P. Morgan Bond Portfolio (1) _.__% _.__% _.__%
J.P. Morgan Equity Portfolio (1) _.__% _.__% _.__%
J.P. Morgan International _.__% _.__% _.__%
Opportunities Portfolio (1)
J.P. Morgan Small Company Portfolio (1) _.__% _.__% _.__%
===========================================================================================================
</TABLE>
(1) The information in the foregoing table has been restated to reflect an
agreement by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"),
an affiliate of Morgan, to reimburse the Trust to the extent certain
expenses exceed in any fiscal year _.__%, _.__%, _.__% and _.__% of the
average daily net assets of J.P. Morgan Bond Portfolio, J.P. Morgan Equity
Portfolio, J.P. Morgan International Opportunities Portfolio and J.P.
Morgan Small Company Portfolio, respectively. Without such reimbursements,
total fund annual expenses would have been _.__% for the J.P. Morgan Bond
Portfolio, _.__% for the J.P. Morgan Equity Portfolio, _.__% for the J.P.
Morgan International Opportunities Portfolio and _.__% for the J.P. Morgan
Small Company Portfolio.
Lazard Retirement Series, Inc.
The portfolios of the Lazard Retirement Series, Inc. in which the Separate
Account may currently invest and their investment objectives and fees are as
follows:
Lazard Retirement Emerging Markets Portfolio: Seeks long-term capital
appreciation by investing primarily in equity securities of non-U.S. companies
whose principal activities are in emerging market countries that the Investment
Manager believes are undervalued based on their return on total capital or
equity.
Lazard Retirement Equity Portfolio: Seeks long-term capital appreciation by
investing primarily in equity securities of relatively large U.S. companies that
the Investment Manager believes are undervalued based on their return on total
capital or equity.
Lazard Retirement International Equity Portfolio: Seeks long-term capital
appreciation by investing primarily in equity securities of relatively large
non-U.S. companies that the Investment Manager believes are undervalued based on
their return on total capital or equity.
Lazard Retirement Small Cap Portfolio: Seeks long-term capital appreciation by
investing in equity securities of small U.S. companies in the range of the
Russell 2000 Index that the Investment Manager believes are undervalued based on
their return on total capital or equity.
Lazard Asset Management, a division of Lazard Freres & Co. LLC ("Lazard Freres")
and a New York limited liability company, serves as the investment manager and
principal underwriter to
20
<PAGE>
each of the above-mentioned portfolios. Lazard Freres' principal business
address is 30 Rockefeller Plaza, New York, New York 10112.
<TABLE>
<CAPTION>
=======================================================================================================================
Investment 12b-1 Other Total Fund
Funds Management Fee Fees Expenses Annual Expenses
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lazard Retirement Series, Inc.
Emerging Markets Portfolio (1) _.__% _.__% _._-% _.__%
Equity Portfolio (1) _.__% _.__% _.__% _.__%
International Equity Portfolio (1) _.__% _.__% _.__% _.__%
Small Cap Portfolio (1) _.__% _.__% _.__% _.__%
=======================================================================================================================
</TABLE>
(1) The other expenses noted above are based on estimated amounts for the
current fiscal year.
MFS Variable Insurance Trust
The portfolios of the MFS Variable Insurance Trust in which the Separate Account
may currently invest and their investment objectives and fees are as follows:
MFS Bond Series: Seeks primarily to provide as high a level of current income as
is believed consistent with prudent investment risk and secondarily to protect
shareholders' capital.
MFS Emerging Growth Series: Seeks to provide long-term growth of capital.
MFS Growth with Income Series: Seeks to provide reasonable current income and
long-term growth of capital and income.
MFS High Income Series: Seeks high current income by investing primarily in a
professionally managed diversified portfolio of fixed income securities, some of
which may involve equity features.
MFS Research Series: Seeks to provide long-term growth of capital and future
income.
MFS Total Return Series: Seeks primarily to provide above-average income
(compared to a portfolio invested entirely in equity securities) consistent with
the prudent employment of capital, and secondarily to provide a reasonable
opportunity for growth of capital and income.
MFS Utilities Series: Seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities).
MFS Capital Opportunities Series: Seeks capital appreciation.
MFS Global Government Series: Seeks income and capital appreciation.
21
<PAGE>
The investment adviser for each series is Massachusetts Financial Services
Company ("MFS"). MFS' principal business address is 500 Boylston Street, Boston,
Massachusetts 02116. The principal underwriter of the series is MFS Fund
Distributors, Inc. located at 500 Boylston Street, Boston, Massachusetts 02116.
<TABLE>
<CAPTION>
========================================================================================================================
Investment Total Fund
Management and Other Annual Expenses (After
Funds Fund Expenses Expense
Administration Fee Reimbursements)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MFS Variable Insurance Trust
MFS Bond Series (1)(2) _.__% _.__% _.__%
MFS Emerging Growth Series (2) _.__% _.__% _.__%
MFS Growth with Income Series (1)(2) _.__% _.__% _.__%
MFS High Income Series (1)(2) _.__% _.__% _.__%
MFS Research Series (2) _.__% _.__% _.__%
MFS Total Return Series (1)(2) _.__% _.__% _.__%
MFS Utilities Series (1)(2) _.__% _.__% _.__%
MFS Capital Opportunities Series (1)(2) _.__% _.__% _.__%
MFS Global Government Series (1)(2) _.__% _.__% _.__%
========================================================================================================================
</TABLE>
(1) MFS has agreed to bear expenses for the Series, subject to reimbursement by
the Series, such that each Series' "Other Expenses" shall not exceed the
following percentages of the average daily net assets of the Series during
the current fiscal year: _.__% for the Bond Series and _._-% for each
remaining Series. Otherwise, "Other Expenses" for the Bond Series, Growth
with Income Series, High Income Series, Total Return Series, Utilities
Series, Value Series and World Government Series would be _.__%, _.__%,
_.__%, _.__%, _.__%, _.__%, and _.__%, respectively, and total fund annual
expenses would be _.__%, _.__%, _.__%, _.__%, _.__%, _.__%, and _.__%,
respectively, for these Series.
(2) Each Series has an expense offset arrangement which reduces the Series'
custodian fees based upon the amount of cash maintained by the Series with
its custodian and dividend disbursing agent, and may enter into other such
arrangements and directed brokerage arrangements (which also have the
effect of reducing the Series' expenses). Any such fee reductions are not
reflected under "Other Expenses."
Neuberger Berman Management Inc. ("NBMI")
The portfolios of the Neuberger Berman Advisers Management Trust ("AMT") in
which the Separate Account may currently invest and their investment objectives
and fees are as follows:
AMT Balanced Portfolio: Seeks long-term capital growth and reasonable current
ncome without undue risk to principal.
AMT Growth Portfolio: Seeks capital appreciation without regard to income, and
can invest in securities of small-, medium-, and large-capitalization companies.
The portfolio has a current
22
<PAGE>
intention to focus primarily on the stocks of medium-cap companies believed to
have the maximum potential for long-term capital appreciation.
AMT Limited Maturity Bond Portfolio: Seeks the highest current income consistent
with low risk to principal and liquidity; and secondarily, total return.
Investments are made in a diversified portfolio primarily consisting of U.S.
Government and Agency securities and investment grade debt securities issued by
financial institutions, corporations, and others.
AMT Partners Portfolio: Invests principally in common stocks of medium- to
large-capitalization established companies, using the value-oriented investment
approach. Capital growth is sought through an investment approach that is
designed to increase capital with reasonable risk. NB Management looks for
securities believed to be undervalued based on strong fundamentals such as a low
price-to-earnings ratio, consistent cash flow, and the company's track record
through all parts of the market cycle.
Neuberger Berman Management Inc. ("NBMI") serves as the investment manager of
the portfolios and is also the principal underwriter of the portfolios. NBMI's
principal business address is 605 Third Avenue, New York, New York 10158-0180.
<TABLE>
<CAPTION>
======================================================================================================================
Investment
Management/ Other Total Fund
Funds Administrative Expenses Annual Expenses
Fees
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Neuberger Berman Advisers Management Trust
("AMT") (1)
AMT Balanced Portfolio (2) _.__% _.__% _.__%
AMT Growth Portfolio (2) _.__% _.__% _.__%
AMT Limited Maturity Bond Portfolio (2) _.__% _.__% _.__%
AMT Partners Portfolio (2) _.__% _.__% _.__%
======================================================================================================================
</TABLE>
(1) Shares of the separate Portfolios of Neuberger Berman Advisers Management
Trust are sold only through the currently effective prospectus and are not
available to the general public. Shares of the AMT Portfolios may be
purchased only by life insurance companies to be used with their separate
accounts which fund variable annuity and variable life insurance policies,
and shares of the AMT Balanced Portfolio are also available as an
underlying investment fund for certain qualified retirement plans.
(2) Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust ("Managers
Trust"), an open-ended management investment company. The figures reported
under "Investment Management/Administrative Fees" include the aggregate of
the administration fees paid by the Portfolio and the management fees paid
by its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
23
<PAGE>
The Royce Portfolios
The portfolios of Royce Capital Fund (Series Trust) in which the Separate
Account may currently invest and their investment objectives and fees are as
follows:
Royce Micro-Cap Portfolio: Seeks long-term capital appreciation, primarily
through investments in common stocks and convertible securities of small and
micro-cap companies. Production of income is incidental to this objective.
Royce Premier Portfolio: Investment objectives are primarily long-term growth
and secondarily current income. It seeks to achieve these objectives through
investments in a limited portfolio of common stocks and convertible securities
of companies viewed by Royce as having superior financial characteristics and/or
unusually attractive business prospects.
Royce Total Return Portfolio: Seeks to have an equal focus on both long term
growth of capital and current income by investing in a broadly diversified
portfolio of dividend paying common stocks of companies selected on a value
basis.
Royce & Associates, Inc. ("Royce") serves as the investment manager of the
portfolios. Royce's principal business address is 1414 Avenue of the Americas,
New York, New York 10019. The principal underwriter of the portfolios is Royce
Fund Services, Inc., 1414 Avenue of the Americas, New York, New York 10019.
<TABLE>
<CAPTION>
============================================================================================================
Total Fund
Investment Other Annual Expenses (After
Funds Management Fee Expenses Expense
Reimbursements)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Royce Portfolios
Royce Micro-Cap Portfolio (1) _.__% _.__% _.__%
Royce Premier Portfolio (1) _.__% _.__% _.__%
Royce Total Return Portfolio (1) _.__% _.__% _.__%
============================================================================================================
</TABLE>
(1) Investment management fees would be _.__%, _.__% and _.__% and total fund
annual expenses would be _.__%, _.__% and _.__% for the Micro-Cap
Portfolio, the Premier Portfolio, and the Total Return Portfolio,
respectively, without the waivers of investment management fees by Royce.
Royce has voluntarily committed to waive its fees and reimburse fund
expenses through December 31, 1998 to the extent necessary to maintain
total fund annual expenses of each Fund at or below _.__%.
Scudder Variable Life Investment Fund
The portfolios of the Scudder Variable Life Investment Fund in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
24
<PAGE>
Balanced Portfolio: Seeks a balance of growth and income, as well as long-term
preservation of capital, from a diversified portfolio of equity and fixed income
securities.
Bond Portfolio: Seeks high income from a high quality portfolio of bonds.
Capital Growth Portfolio: Seeks to maximize long-term capital growth from a
portfolio consisting primarily of equity securities.
Global Discovery Portfolio: Seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located around the world.
Growth & Income Portfolio: Seeks long-term growth of capital, current income and
growth of income from a portfolio consisting of primarily common stocks and
securities convertible into common stocks.
International Portfolio: Seeks long-term growth of capital principally from a
diversified portfolio of foreign equity securities.
The investment adviser for each portfolio is Scudder Kemper Investments, Inc.
("Scudder Kemper"). Scudder Kemper's principal business address is Two
International Place, Boston, Massachusetts 02110-4103. The principal underwriter
of the portfolios is Scudder Investor Services, Inc., a Scudder Kemper
subsidiary, located at Two International Place, Boston, Massachusetts
02110-4103.
<TABLE>
<CAPTION>
=========================================================================================================================
12b-1 Other Total Fund
Funds Management Fee Fee Expenses Annual Expenses
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Variable Life Investment Fund-
(Class B Shares)
Balanced Portfolio _.__% _.__% _.__% _.__%
Bond Portfolio _.__% _.__% _.__% _.__%
Capital Growth Portfolio _.__% _.__% _.__% _.__%
Global Discovery Portfolio (1) _.__% _.__% _.__% _.__%
Growth & Income Portfolio _.__% _.__% _.__% _.__%
International Portfolio _.__% _.__% _.__% _.__%
=========================================================================================================================
</TABLE>
(1) The Adviser agreed to waive all or a portion of its management fee to limit
the expenses of the Global Discovery Portfolio to _.__% of average daily
net assets. Had the fee been imposed, the management fee would have been
_.__% and the total operating expenses would have been _.__%.
The Strong Funds
The Strong Funds in which the Separate Account may currently invest and their
investment objectives and fees are as follows:
25
<PAGE>
Strong Discovery Fund II: Seeks capital growth by investing primarily in equity
securities that are believed to represent attractive growth opportunities. The
Fund also has the flexibility to invest in debt obligations and short-term fixed
income securities. The fund's investment advisor seeks companies, regardless of
size or maturity, that are poised for accelerated earnings growth due to
innovative products or services, new management, or favorable economic or market
cycles.
Strong Growth Fund II: Seeks capital growth by investing primarily in equity
securities that are believed to have above-average growth prospects. The fund
will generally invest in companies whose earnings are believed to be in a
relatively strong growth trend, and to a lesser extent, in companies in which
significant further growth is not anticipated but whose market value is thought
to be undervalued.
Strong International Stock Fund II: Seeks capital growth by investing primarily
in equity securities of issuers located outside the United States. The fund will
normally invest in securities of issuers in at least three different countries.
Strong Opportunity Fund II: Seeks capital growth by investing in equity
securities emphasizing investments in medium-sized companies that the investment
advisor believes are under-researched and attractively valued. The fund's
investment advisor looks for companies with fundamental value or growth
potential that is not yet reflected in their current market prices.
The Strong Funds are not available to California residents.
The investment adviser for each fund is Strong Capital Management, Inc.
("Strong"). Strong's principal business address is P.O. Box 2936, Milwaukee,
Wisconsin 53201. The principal underwriter of the funds is Strong Funds
Distributors, Inc., located at P.O. Box 2936, Milwaukee, Wisconsin 53201.
<TABLE>
<CAPTION>
============================================================================================================
Investment Other Total Fund
Funds Management Fee Expenses Annual Expenses
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Strong Funds
Strong Discovery Fund II (1)
Strong Growth Fund II (1)(2)
Strong International Stock Fund II (1)
Strong Opportunity Fund II (1)
============================================================================================================
</TABLE>
(1) Calculated on an annualized basis as of December 31, 1997 through the
fiscal year end.
(2) The Fund's advisor is currently absorbing expenses of _.__%. Without the
absorptions, total fund annual expenses would have been _.__%.
26
<PAGE>
T. Rowe Price Variable Funds
The portfolios of the T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc., and the T. Rowe Price Fixed Income Series, Inc. in
which the Separate Account may currently invest and their investment objectives
and fees are as follows:
Equity Income Portfolio: Seeks to provide substantial dividend income as well as
long-term growth of capital by investing primarily in the common stocks of
established companies paying above-average dividends, with favorable prospects
for both increasing dividends and capital appreciation.
International Stock Portfolio: Seeks to provide long-term growth of capital
through investments primarily in the common stocks of established companies
based outside the United States.
Limited-Term Bond Portfolio: Seeks a high level of income consistent with
moderate fluctuations in principal value by investing primarily in short- and
intermediate-term investment-grade, corporate bonds.
Mid-Cap Growth Portfolio: Seeks to provide long-term capital appreciation by
investing primarily in a diversified portfolio of common stocks of medium-sized
(mid-cap) companies whose earnings T. Rowe Price expects to grow at a faster
rate than the average company. Mid-cap companies are defined as those with a
market capitalization within the range of companies in the S&P 400 Mid-Cap
Index.
New America Growth Portfolio: Seeks to provide long-term growth of capital by
investing primarily in common stocks of U.S. growth companies operating in
service industries. The portfolio invests in stocks that range from large to
small service companies expected by the fund's investment adviser to show
superior earnings growth and that are above-average performers in their fields.
Personal Strategy Balanced Portfolio: Seeks the highest total return over time,
with an emphasis on both capital growth and income by investing in a diversified
portfolio typically consisting of 60% stocks, 30% bonds, and 10% money market
securities.
The investment manager for each portfolio, except the International Stock
Portfolio, is T. Rowe Price Associates, Inc. ("T. Rowe Price"). T. Rowe Price's
principal business address is 100 East Pratt Street, Baltimore, Maryland 21202.
Rowe Price-Fleming International Inc. ("Price- Fleming"), an affiliate of T.
Rowe Price, serves as investment adviser to the International Stock Portfolio
and its U.S. office is located at 100 East Pratt Street, Baltimore, Maryland
21202. T. Rowe Price also serves as the principal underwriter of the portfolios.
27
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
Funds Investment Other Total Fund
Management Fee Expenses Annual Expenses
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price Variable Funds
Equity Income Portfolio (1) _.__% _.__% _.__%
International Stock Portfolio (1) _.__% _.__% _.__%
Limited-Term Bond Portfolio (1) _.__% _.__% _.__%
Mid-Cap Growth Portfolio (1) _.__% _.__% _.__%
New America Growth Portfolio (1) _.__% _.__% _.__%
Personal Strategy Balanced Portfolio (1) _.__% _.__% _.__%
==============================================================================================================
</TABLE>
(1) The investment management fee includes the ordinary expenses of operating
the Funds.
Warburg Pincus Portfolios
The portfolios of Warburg Pincus Trust I and Warburg Pincus Trust II in which
the Separate Account may currently invest and their investment objectives and
fees are as follows:
Emerging Markets Portfolio: Seeks long-term growth of capital by investing
primarily in equity securities of non-U.S. issuers consisting of companies in
emerging securities markets.
Fixed Income Portfolio: Seeks total return consistent with prudent investment
management.
Global Fixed Income Portfolio: Seeks total return consistent with prudent
investment management, consisting of a combination of interest income, currency
gains and capital appreciation.
International Equity Portfolio: Seeks long-term capital appreciation by
investing primarily in a broadly diversified portfolio of equity securities of
non-U.S. issuers.
Post-Venture Capital Portfolio: Seeks long-term growth of capital by investing
primarily in equity securities of issuers in their post-venture capital stage of
development and pursues an aggressive investment strategy.
Small Company Growth Portfolio: Seeks capital growth by investing in equity
securities of small-sized domestic companies.
The investment adviser for each portfolio is Warburg Pincus Asset Management,
Inc. ("Warburg"). Warburg's principal business address is 466 Lexington Avenue,
New York, New York 10017-3147. The principal underwriter of the portfolios is
Counsellors Securities, Inc., a Warburg subsidiary, located at 466 Lexington
Avenue, New York, New York 10017-3147.
28
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
Total Fund
Investment Other Annual Expenses (After
Portfolios Management Fee Expenses Expense
Reimbursements)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warburg Pincus Trust I
Emerging Markets Portfolio (1) _.__% _.__% _.__%
International Equity Portfolio (2) _.__% _.__% _.__%
Post-Venture Capital Portfolio (2) _.__% _.__% _.__%
Small Company Growth Portfolio (2) _.__% _.__% _.__%
Warburg Pincus Trust II
Fixed Income Portfolio (3) _.__% _.__% _.__%
Global Fixed Income Portfolio (3) _.__% _.__% _.__%
===============================================================================================================
</TABLE>
(1) Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, the investment management fee for the Emerging Markets
Portfolio would equal _.__%; other expenses would equal _.__%; and total
fund annual expenses would equal _.__%. Other expenses for the Portfolio
are based on annualized estimates of expenses for the fiscal year ending
December 31, 1997, net of any fee waivers or expense reimbursements. The
investment adviser and co-administrator have undertaken to limit the
Portfolio's total fund annual expenses to the limits shown in the table
above through December 31, 1999.
(2) Investment management fees, other expenses and total fund annual expenses
are based on actual expenses for the fiscal year ended December 31, 1997,
net of any fee waivers or expense reimbursements. Without such waivers or
reimbursements, investment management fees would have equalled _.__%, _.__%
and _.__%; other expenses would have equalled _.__%, _.__% and _.__%; and
total fund annual expenses would have equalled _.__%, _.__% and _.__% for
the International Equity, Post-Venture Capital and Small Company Growth
Portfolios, respectively. The investment adviser and co-administrator have
undertaken to limit total fund annual expenses to the limits shown in the
table above through December 31, 1999.
(3) Absent the waiver of fees by the Portfolio's investment adviser and
co-administrator, investment management fees would equal _.__% and _.__%,
other expenses would equal __.__% and _.__% and total portfolio annual
expenses would equal __.__% and _.__% for the Fixed Income and Global Fixed
Income Portfolios, respectively. Other expenses are based upon annualized
estimates of expenses for the fiscal year ending December 31, 1997, net of
any fee waivers or expense reimbursements. The investment adviser and
co-administrator have undertaken to limit each portfolio's total annual
expenses to the limits shown in the table above through December 31, 1999.
Certain of the Funds have investment objectives and policies closely resembling
those of mutual funds within the same complex that are sold directly to
individual investors.
29
<PAGE>
Despite such similarities, there can be no assurance that the investment
performance of any such Fund will resemble that of its retail fund counterpart.
You will receive a prospectus for each available Fund. That prospectus will
describe the Fund, its investment objective and strategies, its risks, and its
management fees and other expenses. You should read the Fund prospectuses
together with this prospectus. As with all mutual funds, a Fund may not meet its
investment objective. Subject to applicable law, Prudential may stop offering
one or more funds or may substitute a different mutual fund for any Fund.
Each Fund has provided Prudential with information about its management fees and
other expenses. Except for the Series Fund, Prudential has not verified that
information independently.
Illustrations of Death Benefits and Cash Surrender Values
On the following pages, we show you two examples of how the Death Benefit and
the Cash Surrender Value of your Certificate can change as a result of the
performance of the investment options you select. The examples are not our
prediction of how value will grow. They are hypothetical examples and are just
intended to show you how a Certificate works.
We call these examples "illustrations." The illustrations are based on several
assumptions about the age of the Participant, the amount of insurance, and the
rules of the Group Contract that the Participant is covered under.
Assumptions we used for both illustrations
Here's what we assumed about the Certificate in both illustrations:
o The Participant was 40 years old when he or she bought the Group Variable
Universal Life Insurance Certificate.
o The Face Amount of insurance under the Certificate is $100,000.
o The Participant paid a premium of $1,200 when the Certificate was first
issued. He or she pays the same premium amount each year on the Certificate
Anniversary.
30
<PAGE>
Illustration #1
In Illustration #1, here's what we assumed about the charges that Prudential
will deduct from the Certificate:
o The charge deducted from each premium payment for taxes on premium payments
is 2.6%.
o The charge each month for administrative expenses is $3.
o Prudential deducts its current level of charges for sales, mortality and
expense risk, administrative expenses, and processing. We assumed the
current level of charges will stay in effect for the entire time the
Certificate is in effect.
o The Participant has current standardized cost of insurance charges from the
following table, which is excerpted from Table I under Section 79 of the
Internal Revenue Code:
Monthly Current Cost
of Insurance Rates
-------------------------------------
Age Rate Per Thousand
Dollars of
Insurance
-------------------------------------
40 to 44 $0.17
-------------------------------------
45 to 49 $0.29
-------------------------------------
50 to 54 $0.48
-------------------------------------
55 to 59 $0.75
-------------------------------------
60 to 64 $1.17
-------------------------------------
65 to 69 $2.10
-------------------------------------
70 to 79 $3.76
-------------------------------------
Illustration #2
In Illustration #2, we changed our assumptions about the charges Prudential will
deduct from the Certificate -- instead of current charges, we assumed that
maximum charges would be made.
Here's what we assumed:
o The charge deducted from each premium payment for taxes on premium payments
is 2.6%. (Since Prudential would increase this charge only if a state
increases its tax charge to us, we left this charge at the current level.)
31
<PAGE>
o The charge each month for administrative expenses is $6.
o Prudential deducts the maximum level of charges for sales, mortality and
expense risk, administrative expenses, and processing. We assumed the
maximum level of charges will stay in effect for the entire time the
Certificate is in effect.
o The Participant has cost of insurance charges equal to the maximum rates.
(The maximum rates that Prudential can charge are 150% of the 1980
Commissioner's Standard Ordinary Mortality Table [Male], Age Last Birthday
(the "1980 CSO")).
Assumptions about how the Certificate Fund was invested
We assumed that the Certificate Fund was invested in equal amounts in each of
the 136 Funds available under Group Variable Universal Life Insurance. (We used
all 136 only for the purpose of this illustration. As we told you earlier in
this prospectus, Prudential will permit each Group Contractholder to make no
more than 20 Funds available to its Participants.)
Each illustration shows four different assumptions about the investment
performance -- or "investment return" -- of the Funds. The four different
assumptions are:
o gross annual rate of return is 0%
o gross annual rate of return is 4%
o gross annual rate of return is 8%
o gross annual rate of return is 10%
These are only assumptions to show how the Death Benefit and Cash Surrender
Value change depending on the investment return. Actual investment return will
depend on the investment options you select and will vary from year to year.
Walking Through The Illustrations
Here's what to look for in the illustrations:
o The first column shows the Certificate Year.
o The second column gives you some context for comparing the investment
return under the Certificate to the return you might expect from a savings
account. It shows the amount you would accumulate if you invested the same
premiums in a savings account paying a 4%
32
<PAGE>
effective annual rate. (Of course, a savings account does not offer life
insurance protection like the Certificate does.)
o The next four columns show what the Death Benefit would be for each of the
four investment return assumptions (0%, 4%, 8% and 10%).
o The last four columns show what the Cash Surrender Value would be for each
of the four investment return assumptions (0%, 4%, 8%, and 10%).
You should note that:
o Both "gross" and "net" investment returns are shown.
o "Gross" investment return reflects the combined effect of both income on
the investment and capital gains. It is the amount of return before
Prudential takes out any of its charges and before any Fund investment
management fees and other expenses are taken out.
o "Net" investment return is the amount of the investment return after
Prudential takes out its charges and after Fund investment management fees
and other expenses are taken out. Since Illustration #1 and Illustration #2
use different assumptions about charges, the "net" investment returns for
each illustration are different.
o Fund investment management fees and other expenses were assumed to
equal X.XX%, which was the average Fund expense in 1998.
o For Illustration #1, Prudential's mortality and expense risk charges
are 0.45% per year. (In Illustration #1, we assumed that Prudential's
current charges are in effect.) So, gross returns of 0%, 4%, 8% and
10% become net returns of X.XX%, X.XX%, X.XX%, and X.XX%.
o For Illustration #2, Prudential's mortality and expense risk charges
are 0.90% per year. (In Illustration #2, we assumed that Prudential's
maximum charges are in effect.) So, gross returns of 0%, 4%, 8% and
10% become net returns of X.XX%, X.XX%, X.XX%, and X.XX%.
o The Death Benefits and Cash Surrender Values are shown with all of
Prudential's charges and Fund investment management fees and other expenses
taken out.
o We assumed no loans or partial withdrawals were taken.
o Neither illustration reflects Dividends or Experience Credits. (Prudential
may pay Dividends or Experience Credits to Group Contractholders. See the
Dividends or Experience Credits section on page XX.)
33
<PAGE>
If you ask, Prudential will give you a similar illustration for a Certificate
that shows your age, risk class, proposed Face Amount of insurance, and proposed
premium payments. We refer to this as a "personalized illustration."
Illustrations
[To be added by post-effective amendment.]
We show these rates of investment return only to help you understand how
the Certificate works. You should not assume that the investment rates of
return are actual rates of return. You should also not assume that these
rates are examples of past or future investment performance. Neither
Prudential nor the Funds can tell you whether these rates of investment
return can actually be achieved.
The actual rates of investment return for your Certificate will depend on
how the investment options that you choose perform. You may earn more or
less than what is shown in the illustration.
The Death Benefits and Cash Surrender Values would be different from those
shown if the actual rate of return for a Certificate Year varied above or
below the average, hypothetical rates of 0%, 4%, 8%, and 10%.
34
<PAGE>
PROSPECTUS
May 1, 1999
The Prudential Insurance Company of America
The Prudential Variable Contract Account GI - 2
Group Variable Universal Life Insurance
This document is a prospectus. It tells you about a Group Variable Universal
Life Insurance contract issued by The Prudential Insurance Company of America
("Prudential," "we," "our," or "us") for group insurance sponsored by the
American Institute of Certified Public Accountants ("AICPA") Insurance Trust.
Prudential has issued the Group Contract to Bankers Trust Company, as Trustee of
the AICPA Insurance Trust. We refer in this prospectus to Bankers Trust Company
as "your Group Contractholder."
We will give a Certificate to each Eligible Group Member or Applicant Owner who
buys coverage under the Group Contract. We will refer to each person who buys
coverage as a "Participant." When we use the terms "you" or "your", we mean a
Participant.
The Group Contract and Certificates provide life insurance protection with
flexible premium payments and a choice of underlying investment options. The
Death Benefit and Cash Surrender Value will change daily, depending on the
performance of the investment options you select. The Death Benefit will usually
not be less than the Face Amount of the Certificate. Surrenders, partial
withdrawals and loans are available but certain rules and limits apply to how
they work.
We have tried to make this prospectus easy to understand. Still, the meaning of
some terms are special because they describe concepts used mostly in insurance
contracts. To help you understand what these terms mean, we added a Definitions
of Special Terms section on page XX. It's easy to recognize a defined term -- we
capitalize them.
A word about replacing your life insurance. You should know that, most times, it
is not in your best interest to replace one life insurance policy with another
one. When you need additional life insurance, it is usually better for you to
add coverage -- either by asking for a new policy or by buying additional
insurance -- than it is for you to replace a policy. In that way, you don't lose
benefits under the policy you already have.
If you are thinking about replacing a life insurance policy you already have so
that you can obtain Group Variable Universal Life Insurance, you should consider
your choices carefully. Compare the costs and benefits of adding coverage to
your current policy against the costs and benefits of Group Variable Universal
Life Insurance. You should also get advice from a tax advisor.
You should read this prospectus carefully and keep it for future reference. This
document will be followed by prospectuses for each of the available Funds.
The U.S. Securities and Exchange Commission has not approved or disapproved
these securities, or determined that this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Telephone (800) 562-9874
The SEC maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference and other information regarding issuers that file
electronically with the SEC.
<PAGE>
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (called the "Separate Account")
has a number of variable investment options, ten of which are currently
available to Participants. We call each option a "Subaccount." We will invest
the assets of each Subaccount in The Prudential Series Fund, Inc. (called the
"Series Fund") or in certain other mutual fund portfolios. When we refer to
"Funds" in this prospectus, we mean all or any of these funds.
Participants may choose as investment options from among the ten Funds selected
by your Group Contractholder. Participants may also choose to invest in the
Fixed Account. (The Fixed Account is an investment option for which Prudential
guarantees that the effective annual interest rate will be at least 4%.) Your
Group Contractholder may, in the future, select up to ten additional Funds that
would then be available to Participants.
Once you select the investment options you want, Prudential will direct your
premium payments to the Subaccount associated with those Funds or to the Fixed
Account.
We describe the ten Funds chosen by your Group Contractholder briefly in the
section called "The Funds." It starts on page X. We will send you a prospectus
for each Fund. The Fund prospectuses tell you about the objectives and policies
for each Fund, as well as about the risks of investing in each Fund.
<PAGE>
Table of Contents
Page
Brief Description of the Group Contract and Certificate..................
Illustrations of Death Benefits and Cash Surrender Values................
General Information about Prudential, The Prudential Variable
Contract Account
GI-2, and The Variable Investment Options under the Certificates.........
The Prudential Insurance Company of America.....................
The Prudential Variable Contract Account GI-2...................
The Funds................................................................
Fund Names and Objectives.......................................
Fund Fees and Expenses..........................................
Fund Advisers .....................................
The Fixed Account...............................................
Detailed Information About the Certificates..............................
How Prudential Issues Certificates..............................
A "Free Look" Period............................................
Procedures......................................................
Premiums........................................................
Effective Date of Insurance.....................................
How Prudential Will Deposit and Invest Premium Payments.........
How You Can Change the Way Prudential Allocates
Future Premium Payments....................................
How You Can Transfer Amounts In Your Certificate Fund
From One Investment Option to Another......................
Dollar Cost Averaging...........................................
Death Benefits..................................................
Changes in Face Amount..........................................
Charges and Expenses............................................
Dividends or Experience Credits.................................
Cash Surrender Value............................................
Full Surrenders.................................................
Paid-up Coverage................................................
Partial Withdrawals.............................................
Loans...........................................................
Lapse...........................................................
Termination of the Group Contractholder's Participation
in the Group Contract......................................
ii
<PAGE>
Participants Who Are No Longer Eligible Group Members...........
Options on Termination of Coverage..............................
Reinstatement...................................................
Tax Treatment of Certificate Benefits...........................
When Proceeds Are Paid..........................................
Beneficiary.....................................................
Incontestability................................................
Misstatement of Age.............................................
Suicide Exclusion...............................................
Modes of Settlement.............................................
Assignment......................................................
Applicant Owner Provision.......................................
Voting Rights...................................................
Substitution of Fund Shares.....................................
Additional Insurance Benefits...................................
Reports.........................................................
Sale of the Contract............................................
Ratings and Advertisements......................................
State Regulation................................................
Experts.........................................................
Litigation......................................................
Year 2000 Compliance............................................
Definitions of Special Terms Used in this Prospectus.....................
Directors and Officers of Prudential.....................................
Financial Statements.....................................................
Consolidated Financial Statements of The Prudential Insurance
Company of America and Subsidiaries......................................
You should not consider this prospectus to be an offering in any
jurisdiction where an offering may not be lawfully made. You should rely on the
information contained in this prospectus and any supplement to it. We have not
authorized anyone to provide you with information that is different.
iii
<PAGE>
Brief Description of the Group Contract and Certificate
In this section of the prospectus, we answer some questions that are frequently
asked about Group Variable Universal Life Insurance issued under the AICPA
Insurance Trust. You can find more detailed information on later pages of the
prospectus.
The Group Contract and Certificate provide even more detailed information. You
will get a Certificate if you buy the Group Variable Universal Life Insurance.
What is the Group Variable Universal Life Insurance contract?
It is the insurance contract issued by Prudential to Bankers Trust Company, as
trustee of the AICPA Insurance Trust.
The Group Contract states all the terms of the agreement between Prudential and
the sponsoring group. It forms the entire agreement between them. Among other
things, the Group Contract defines which members of the group are eligible to
buy the Group Variable Universal Life Insurance. Eligible Group Members may buy
coverage for certain dependents.
We will give a Certificate to each Eligible Group Member or Applicant Owner who
buys coverage under the Group Contract. The Certificate provides for a Death
Benefit and a Cash Surrender Value. The Death Benefit and the Cash Surrender
Value can change every day. They change based on the performance of the
investment options you selected.
On the date of the Contract Anniversary, if all required premium payments have
been paid for the year and the Group Contract remains in force, Prudential will
determine whether a divisible surplus exists. If a divisible surplus exists,
Prudential will determine the share to allocate to the Group Contract. You will
receive your portion of the divisible surplus in the form of an annual refund
that ordinarily will be applied as a premium payment. However, you may choose to
receive your refund in cash by notifying Aon Securities Corporation in writing.
How does Prudential calculate the Certificate's Death Benefit?
When you buy Group Variable Universal Life Insurance, you will choose a Face
Amount of insurance, based on the amounts available for your group. Prudential
will calculate the Death Benefit like this:
1
<PAGE>
o The Death Benefit is the Face Amount of insurance plus the value of your
Certificate Fund on the date of your death minus any Certificate Debt and
outstanding charges.
(In some cases, we will increase the Death Benefit to an amount that is more
than the Face Amount plus the value of the Certificate Fund. We will do that to
make sure that the Certificate meets the definition of "life insurance" under
the Internal Revenue Code. We will still deduct any Certificate Debt and
outstanding charges.)
The Certificate Fund consists of the Net Premiums that we invest in the
investment options you selected. Prudential will deduct its charges for the
insurance from the Certificate Fund. The value of the Certificate Fund will
change each day based on the performance of those investment options and to
reflect the deduction of daily charges.
See the Death Benefits section on page X.
How does Prudential calculate the Cash Surrender Value of the Certificate?
Prudential calculates the Cash Surrender Value of a Certificate like this:
o The Cash Surrender Value is the value of the Certificate Fund on the day of
the surrender minus any Certificate Debt and outstanding charges.
See the Cash Surrender Value section on page X.
What premiums must I pay?
You can usually choose how often you pay premiums and the amount of premiums.
Prudential will keep your insurance in force as long as the balance in your
Certificate Fund is enough to pay the charges that are due to Prudential each
month. Prudential also requires you to pay an initial premium for the cost of
coverage for the first two months.
If the balance in your Certificate Fund is not enough to pay any month's
charges, you must make a premium payment that is enough to bring your
Certificate Fund balance above this minimum amount. You must make that payment
during the grace period. If you don't, your insurance coverage will end.
See the Premiums section on page X.
2
<PAGE>
What investment options are available?
The Separate Account has ten Subaccounts currently available to Participants. We
invest the assets of each Subaccount in its corresponding Fund.
We will not permit your Group Contractholder to substitute other Funds for the
ten Funds it has already selected. However, in the future your Group
Contractholder may select up to ten additional Funds.
You may invest only in the Funds chosen by your Group Contractholder and in the
Fixed Account. (The Fixed Account is an investment option for which Prudential
guarantees that the effective annual interest rate will be at least 4%. See The
Fixed Account section on page X.)
See The Funds section on page X. Each Fund prospectus provides more detailed
information about the specific Fund.
Does Group Variable Universal Life Insurance offer choice and flexibility in the
amount of insurance protection I can get?
Yes. The Death Benefit under a Certificate includes, among other things, the
value of your Certificate Fund. The value of your Certificate Fund will vary
with the investment performance of the investment options you select. So, your
Death Benefit could grow more than it could under a certificate that does not
include investment options. But, the Death Benefit may also go down if the
investment options in your Certificate Fund have poor investment performance.
You choose how to invest the amount you have in your Certificate Fund. You may
choose more aggressive Funds or less aggressive Funds. What you choose depends
on your personal circumstances and your investment objectives and how they may
change over time.
If you prefer to avoid or reduce the risks that come with investing in the
Funds, you can choose to direct some or all of the amount in your Certificate
Fund to the Fixed Account. Prudential guarantees that the part of your
Certificate Fund that is directed to the Fixed Account will earn interest daily
at a rate that Prudential declares periodically. That rate will change from time
to time, but it will never be lower than 4%. See The Fixed Account section on
page X.
3
<PAGE>
What charges does Prudential make?
We deduct certain charges from each premium payment that you make and from the
amounts that are held in each investment option. These charges compensate us for
insurance costs, risks and expenses.
All charges made by Prudential are described in detail in the Charges and
Expenses section on page XX. This chart briefly outlines the charges that may be
made:
- --------------------------------------------------------------------------------
You make a premium payment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Then, Prudential deducts:
o A charge for taxes on premium payments. Currently, this charge is
2.5%. (In some states, this charge is known as a premium-based
administrative charge.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The remainder is your Net Premium Amount
This is the amount that you can invest in one or more of the investment
options selected by your Group Contractholder.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Daily Charges
After your Net Premium Amount is directed to your investment option(s),
Prudential deducts these daily charges from the Subaccounts (but not from
the Fixed Account):
o A daily charge for mortality and expense risks. This charge is
deducted from the assets of the Subaccount(s) that correspond to the
Fund(s) you selected.
Currently, this charge is equivalent to an effective annual rate of
0.45%. Prudential guarantees that this charge will not be more than an
effective annual rate of 0.90%.
o A daily charge for investment management fees and expenses. These
charges are deducted from the assets of the Fund(s) you selected. The
Funds set these charges. The charges are described more fully on pages
X to XX.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
In 1998, the total expenses (after expense reimbursement) of the Funds
ranged from X.XX% to X.XX% of their average net assets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Charges
Prudential deducts these charges from your Certificate Fund each month:
o A charge for the cost of insurance.
o Currently, there is no monthly administrative expense charge.
Prudential reserves the right to deduct such a charge in the future,
but such a charge will not exceed $4 per month.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Possible Additional Charges
Your Group Contract also permits Prudential to make the following
transaction charges:
o When you make a withdrawal from your Certificate Fund. The charge is
$10 or 2% of the amount you withdraw, whichever amount is less.
Prudential may increase this charge in the future, but it will not
exceed $20.
o Each time you request an additional statement about your Certificate
Fund. The charge is $10. Prudential may increase this charge in the
future, but it will not exceed $20.
o When you request more than 12 transfers between investment options in
a Certificate Year. The charge is $10 for each transfer after the 12th
one. Prudential may increase this charge in the future, but it will
not exceed $20.
Prudential does not assess a charge for any taxes that may be imposed on
the operations of the Separate Account, but reserves the right to do so.
- --------------------------------------------------------------------------------
5
<PAGE>
Can I make withdrawals from the Certificate Fund?
Yes. You may request a partial withdrawal from the Certificate Fund. You may
also surrender your insurance and receive its Cash Surrender Value. See the
Partial Withdrawals section on page XX and the Full Surrenders section on page
XX.
Can I take loans?
Yes. You may borrow money from your Certificate Fund. The Loan Value, which is
the maximum amount you may borrow, is 90% of your Certificate Fund minus any
existing loan (and its accrued interest), outstanding charges, and the amount of
the next month's charges. In states that require it, you may borrow a greater
amount.
When you take a loan from your Certificate Fund, here's what happens:
o The amount of the loan is transferred from your investment options to a
Loan Account. This Loan Account is still part of your Certificate Fund.
o The Loan Account earns interest at an effective annual rate equal to the
crediting rate of the Fixed Account, which will never be less than 4%.
Generally, the interest rate Prudential charges on the loan will range from
1% to 2% greater than the rate of interest Prudential will credit to your
Loan Account. Currently, the interest rate on the loan is 1% greater than
the interest Prudential will credit to your Loan Account.
The term "Certificate Debt" is used to mean any outstanding loan plus its
accrued interest. Certificate Debt is deducted from any amount payable at the
Covered Person's death. It is also deducted from the Certificate's Cash
Surrender Value.
How is my insurance coverage affected when I am no longer a member of the group?
You may surrender the insurance for its Cash Surrender Value, elect to use the
Cash Surrender Value to buy Paid-up Coverage, or convert the insurance to an
individual life insurance policy.
See the Options on Termination of Coverage section on page XX.
6
<PAGE>
What is the Federal income tax status of amounts received under the Certificate?
Variable life insurance contracts receive the same Federal income tax treatment
as conventional life insurance contracts (those where the amount of the death
benefit is fixed instead of variable). Here's what that means:
o First, the Death Benefit is generally not included in the gross income of
the beneficiary.
o Second, increases in the value of the Certificate Fund are generally not
included in the taxable income of the Participant. This is true whether the
increases are from income or capital gains.
o Third, surrenders and partial withdrawals are generally treated first as a
return of your investment in the Certificate and then as a distribution of
taxable income.
o Fourth, loans are not generally treated as distributions.
See the Tax Treatment of Certificate Benefits section on page XX. You should
consult your tax advisor for guidance on your specific situation.
7
<PAGE>
Illustrations of Death Benefits and Cash Surrender
Values
On the next two pages, we show you examples of how the Death Benefit and the
Cash Surrender Value of your Certificate can change as a result of the
performance of the investment options you select. The examples are not our
prediction of how value will grow. They are hypothetical examples and are just
intended to show you how a Certificate works.
We call these examples "illustrations." The illustrations are based on several
assumptions about the age of the Participant, the amount of insurance, and the
rules of the Group Contract that the Participant is covered under.
Two sets of three illustrations follow. For each set, we offer three
illustrations of how the Certificate works under different assumptions.
Assumptions we used for the illustrations
In the first set of illustrations, the Participant was 35 years old when he or
she bought the Group Variable Universal Life Insurance Certificate.
In the second set of illustrations, the Participant was 50 years old when he or
she bought the Group Variable Universal Life Insurance Certificate.
Here's what we assumed about the Certificate in the illustrations in both sets
of illustrations:
o The Face Amount of insurance under the Certificate is $100,000.
o The Participant paid a premium of $1,200 when the Certificate was first
issued. He or she pays the same premium amount each year on the Certificate
Anniversary.
o Prudential deducted a 2.5% charge from each premium payment for taxes.
We offer three different illustrations for each set. The illustrations make the
same assumptions in both sets, but the outcome will be different because the age
of the Participant when he or she bought the insurance is different in each set.
8
<PAGE>
Illustration #1
In Illustration #1, here's what we assumed about the charges that Prudential
will deduct from the Certificate:
o Prudential deducts the maximum level of charges for mortality and expense
risk, administrative expenses, and cost of insurance charges.
Specifically,
o The charge each month for administrative expenses is $4.
o Prudential deducts daily charges for mortality and expense risks equivalent
to an annual charge of 0.90%.
o The Participant has cost of insurance charges equal to the maximum rates.
(The maximum rates that can be charged are the 1980 Commissioner's Standard
Ordinary Mortality Table [Male], Age Last Birthday (the "1980 CSO")).
Illustration #2
In Illustration #2, we changed our assumptions about the charges Prudential will
deduct from the Certificate -- instead of maximum charges, we assumed that
current charges would be made for the indefinite future.
Specifically,
o There is no monthly administrative charge.
o Prudential deducts daily charges for mortality and expense risks equivalent
to an annual charge of 0.45%.
o The Participant has cost of insurance charges equal to the current rates
for the indefinite future for a Covered Person in the standard risk class.
9
<PAGE>
Illustration #3
In Illustration #3, we make the same assumptions about the charges Prudential
will deduct from the Certificate as in Illustration #2 -- we assumed that
current charges would be made for the indefinite future.
However, we changed our assumptions about the Participant's cost of insurance
charges. Instead of using rates for a Covered Person in the standard risk class,
we assumed that the Participant has cost of insurance charges for a Covered
Person in the select risk class.
Assumptions about how the Certificate Fund was invested
We assumed that the Certificate Fund was invested in equal amounts in each of
the ten Funds available to you under the Group Variable Universal Life Insurance
contract
Each illustration shows four different assumptions about the investment
performance - or "investment return" -- of the Funds. The four different
assumptions are:
o gross annual rate of return is 0%
o gross annual rate of return is 4%
o gross annual rate of return is 8%
o gross annual rate of return is 10%
These are only assumptions to show how the Death Benefit and Cash Surrender
Value change depending on the investment return. Actual investment return will
depend on the investment options you select and will vary from year to year.
Walking Through The Illustrations
Here's what to look for in the illustrations:
o The first column shows the Certificate Year.
o The second column gives you some context for comparing the investment
return under the Certificate to the return you might expect from a savings
account. It shows
10
<PAGE>
the amount you would accumulate if you invested the same premiums in a
savings account paying a 4% effective annual rate. (Of course, a savings
account does not offer life insurance protection like the Certificate
does.)
o The next four columns show what the Death Benefit would be for each of the
four investment return assumptions (0%, 4%, 8% and 10%).
o The last four columns show what the Cash Surrender Value would be for each
of the four investment return assumptions (0%, 4%, 8%, and 10%).
You should note that:
o Both "gross" and "net" investment returns are shown.
o "Gross" investment return reflects the combined effect of both income on
the investment and capital gains. It is the amount of return before
Prudential takes out any of its charges and before any Fund investment
management fees and other expenses are taken out.
o "Net" investment return is the amount of the investment return after
Prudential takes out its charges and after Fund investment management fees
and other expenses are taken out. Since Illustration #1 and Illustration #2
use different assumptions about charges, the "net" investment returns for
each illustration are different.
o Fund expenses equaled X.XX%, which was the average Fund expense in 1998.
o For Illustration #1, Prudential's charges are at 0.90% per year. (In
Illustration #1, we assumed that Prudential's maximum charges are in
effect.) So, gross returns of 0%, 4%, 8% and 10% become net returns of
X.XX%, X.XX%, X.XX%, and XX.XX%.
o For Illustrations #2 and #3, Prudential's charges are at 0.45% per year.
(In Illustrations #2 and #3, we assumed that Prudential's current charges
are in effect.) So, gross returns of 0%, 4%, 8% and 10% become net returns
of X.XX%, X.XX%, X.XX%, and XX.XX%.
o The Death Benefits and Cash Surrender Values are shown with all of
Prudential's charges and investment management fees and other expenses
taken out.
o We assumed no loans or partial withdrawals were taken.
11
<PAGE>
o None of the illustrations reflects Dividends or Experience Credits.
(Prudential may pay Dividends or Experience Credits to your Group
Contractholder, which would be distributed to Participants through annual
refunds. See the Dividends or Experience Credits section on page XX.)
If you ask, Prudential will give you a similar illustration for a Certificate
that shows your age, risk class, proposed Face Amount of insurance, and proposed
premium payments. We refer to this as a "personalized illustration."
Illustrations
[To be added by post-effective amendment.]
We show these rates of investment return only to help you understand how
the Certificate works. You should not assume that the investment rates of
return are actual rates of return. You should also not assume that these
rates are examples of past or future investment performance. Neither
Prudential nor the Funds can tell you whether these rates of investment
return can actually be achieved.
The actual rates of investment return for your Certificate will depend on
how the investment options that you choose perform. You may earn more or
less than what is shown in the illustration.
The Death Benefits and Cash Surrender Values would be different from those
shown if the actual rate of return for a Certificate Year varied above or
below the average, hypothetical rates of 0%, 4%, 8%, and 10%.
12
<PAGE>
General Information About:
o Prudential
o The Prudential Variable Contract Account GI-2
o The Variable Investment Options under the Certificates
The Prudential Insurance Company of America
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
years to complete. No plan of demutualization has been adopted yet by
Prudential's Board of Directors. Adoption of a plan of demutualization would
occur only after enactment of appropriate legislation in New Jersey and would
have to be approved by Prudential policyholders and appropriate state insurance
regulators. Throughout the process, there will be continuing evaluation by the
Board of Directors and management of Prudential as to the desirability of
demutualization. The Board of Directors, in its discretion, may choose not to
demutualize or to delay demutualization for a time.
Prudential is licensed to sell life insurance and annuities in all states, in
the District of Columbia, and in all United States territories and possessions.
Prudential's consolidated financial statements begin on page A-1 (following page
X) and should be considered only as bearing upon Prudential's ability to meet
its obligations under the Group Contracts and the insurance provided thereunder.
Prudential and its affiliates act in a variety of capacities with respect to
registered investment companies including as depositor, adviser, and principal
underwriter.
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (the "Separate Account") was
established on June 14, 1988 under New Jersey law as a separate investment
account. The Separate Account meets the definition of a "separate account" under
the federal securities laws. The Separate Account holds assets that are
segregated from all of Prudential's other assets.
The obligations arising under the Group Contracts and the Certificates are
general corporate obligations of Prudential. Prudential is also the legal owner
of the assets in the
13
<PAGE>
Separate Account. Prudential will maintain assets in the Separate Account with a
total market value at least equal to the liabilities relating to the benefits
attributable to the Separate Account. These assets may not be charged with
liabilities which arise from any other business Prudential conducts. In addition
to these assets, the Separate Account's assets may include funds contributed by
Prudential to commence operation of the Separate Account and may include
accumulations of the charges Prudential makes against the Separate Account. From
time to time, these additional assets will be transferred to Prudential's
general account. Before making any such transfer, Prudential will consider any
possible adverse impact the transfer might have on the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission (
("SEC") under the federal securities laws as a unit investment trust, which is a
type of investment company. This does not involve any supervision by the SEC of
the management or investment policies or practices of the Separate Account. For
state law purposes, the Separate Account is treated as a part or division of
Prudential. There are currently 136 Subaccounts within the Separate Account,
each of which invests in a corresponding Fund. Currently, ten Subaccounts are
available to Participants as investment options. Prudential reserves the right
to take all actions in connection with the operation of the Separate Account
that are permitted by applicable law (including those permitted upon regulatory
approval).
The Funds
Set out below is a list of each available Fund, its investment objectives,
investment management fees and other expenses, and its investment
advisor/investment manager. Some Funds also provide information about their
principal strategies.
Two of the Funds have adopted distribution plans under the federal securities
laws, and under those plans, the Fund may make payments to Prudential and/or its
affiliate for certain marketing efforts.
Fund Names and Objectives
The Prudential Series Fund, Inc.
The portfolios of the Series Fund in which the Separate Account may currently
invest and their investment objectives, principal strategies and fees are as
follows:
14
<PAGE>
Equity Portfolio: The investment objective is capital appreciation. The
Portfolio invests primarily in common stocks of major established corporations
as well as smaller companies that offer attractive prospects of appreciation.
Flexible Managed Portfolio: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
Money Market Portfolio: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity. The
Portfolio invests in short-term debt obligations that mature in 13 months or
less.
Stock Index Portfolio: The investment objective is to achieve an investment
return that corresponds to the performance of publicly-traded common stocks
generally. The Portfolio invests to duplicate the price and yield performance of
the S&P 500 Index.
Dreyfus Corporation Funds
Dreyfus Variable Investment Fund - Small Cap Portfolio: Seeks to maximize
capital appreciation. This portfolio invests primarily in common stocks of
domestic and foreign issuers. This portfolio will be particularly alert to
companies that The Dreyfus Corporation considers to be emerging smaller-sized
companies which are believed to be characterized by new or innovative products,
services, or processes which should enhance prospects for growth in future
earnings.
Franklin Templeton
Templeton Variable Products Series Fund - Developing Markets Fund: The fund's
investment goal is long-term capital appreciation. Under normal market
conditions, the fund will invest at least 65% of its total assets in equity
securities that trade in emerging markets and are issued by companies that have
their principal activities in emerging market countries.
Templeton Variable Products Series Fund - International Fund: The fund's
investment goal is long-term capital growth. Under normal market conditions, the
fund will invest at least 65% of its total assets in the equity securities of
companies located outside the U.S., including emerging markets.
15
<PAGE>
Investors Fund -- Kemper Series
Investors Fund Series - High Yield Portfolio: Seeks to provide a high level of
current income by investing in fixed-income securities.
MFS Variable Insurance Trust
MFS Research Series: Seeks to provide long-term growth of capital and future
income.
Neuberger Berman Management Inc. ("NBMI")
Neuberger Berman Advisers Management Trust ("AMT") - Limited Maturity Bond
Portfolio: Seeks the highest current income consistent with low risk to
principal and liquidity; and secondarily, total return. Investments are made in
a diversified portfolio primarily consisting of U.S. Government and Agency
securities and investment grade debt securities issued by financial
institutions, corporations, and others.
16
<PAGE>
Fund Fees and Expenses
<TABLE>
<CAPTION>
=============================================================================================================================
Funds Investment 12b-1 Other Expenses Total Fund
Management Fee Fees Annual Expenses
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Prudential Series Fund
Equity Portfolio (1) __% ____% ____%
Flexible Managed Portfolio (1) __% ____% ____%
Money Market Portfolio (1) __% ____% ____%
Stock Index Portfolio (1) __% ____% ____%
- -----------------------------------------------------------------------------------------------------------------------------
Dreyfus Variable Investment Fund
Small Cap Portfolio __% ____% ____%
- -----------------------------------------------------------------------------------------------------------------------------
Templeton Variable Product
Series Fund Class 2 Shares
Developing Markets Fund (2) __% __% ____% ____%
International Fund (3) __% __% ____% ____%
- -----------------------------------------------------------------------------------------------------------------------------
Investors Fund-Kemper Series
High-Yield Portfolio ____% ____% ____%
- -----------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance
Trust
MFS Research Series (4) ____% ____% ____%
- -----------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Advisers
Management
AMT Limited Maturity
Bond Portfolio (5) ____% ____% ____%
=============================================================================================================================
</TABLE>
(1) The Prudential Series Fund. With respect to the Series Fund portfolios,
Prudential reimburses a portfolio when its ordinary operating expenses,
excluding taxes, interest, and brokerage commissions, exceed 0.75% of the
portfolio's average daily net assets. The amounts listed for the portfolios
under Other Expenses are based on amounts incurred in the last fiscal year.
(2) Franklin Templeton Variable Products Series Fund Class 2 Shares. Class 2 of
the Developing Markets Fund has a distribution plan or "Rule 12b-1 plan"
which is described in the Fund's prospectus. Because Class 2 shares were
not offered until May 1, 1997, figures (other than "Rule 12b-1 Fees") are
estimates for 1998 based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1997.
17
<PAGE>
(3) Franklin Templeton Variable Products Series Fund Class 2 Shares. Class 2 of
the International Fund has a distribution plan or "Rule 12b-1 Plan" which
is described in the Fund's prospectus. Because Class 2 shares were not
offered until May 1, 1997, figures (other than "Rule 12b-1 Fees") are
estimates for 1998 based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1997, except that Management
Fees and Total Fund Operating Expenses have also been restated to reflect
the management fee schedule approved by shareholders and effective May 1,
1997. Actual Management Fees and Total Fund Operating Expenses during 1997
were lower. See fund prospectus for details.
(4) MFS Variable Insurance Trust. The Series has an expense offset arrangement
which reduces the Series' custodian fees based upon the amount of cash
maintained by the Series with its custodian and dividend disbursing agent,
and may enter into other such arrangements and directed brokerage
arrangements (which also have the effect of reducing the Series' expenses).
Any such fee reductions are not reflected under "Other Expenses."
(5) Neuberger Berman Advisers Management Trust. Shares of the separate
Portfolios of Neuberger&Berman Advisers Management Trust are sold only
through the currently effective prospectus and are not available to the
general public. Shares of the AMT Portfolios may be purchased only by life
insurance companies to be used with their separate accounts which fund
variable annuity and variable life insurance policies.
Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Managers Trust ("Managers
Trust"), an open-ended management investment company. The figures reported
under "Investment Management/Administrative Fees" include the aggregate of
the administration fees paid by the Portfolio and the management fees paid
by its corresponding Series. Similarly, "Other Expenses" includes all other
expenses of the Portfolio and its corresponding Series.
Fund Advisers
Prudential is the investment adviser of each of the portfolios of the Prudential
Series Fund. Prudential's principal business address is 751 Broad Street,
Newark, New Jersey 07102-3777. Prudential has a service agreement with its
wholly-owned subsidiary The Prudential Investment Corporation ("PIC"), which
provides that, subject to Prudential's supervision, PIC will furnish investment
advisory services in connection with the management of the Series Fund. Further
detail is provided in the prospectus and
18
<PAGE>
statement of additional information for the Series Fund. Prudential and PIC are
registered as investment advisers under the Investment Advisers Act of 1940.
The Dreyfus Corporation ("Dreyfus") is the investment adviser to the Dreyfus
Variable Investment Small Cap Portfolio. Dreyfus' principal business address is
200 Park Avenue, New York, New York 10166. The principal underwriter of the
Small Cap Portfolio is Premier Mutual Fund Services, Inc., located at 60 State
Street, Boston, Massachusetts 02109.
Templeton Investment Counsel, Inc. ("TICI") serves as the investment manager for
the Templeton Variable Products International Fund. TICI is a Florida
corporation with offices at Broward Financial Centre, Fort Lauderdale, Florida
33394-3091. The Investment Manager for the Developing Markets Fund is Templeton
Asset Management Ltd., a Singapore corporation with offices at 7 Temasek Blvd.,
#38-03, Suntec Tower One, Singapore 038987. The principal underwriter of the
Funds is Franklin Templeton Distributors, Inc., 100 Fountain Parkway, St.
Petersburg, Florida 33716-1205.
The asset manager of the Investors Fund Series High-Yield Portfolio is Scudder
Kemper Investments, Inc. ("Scudder Kemper"). Scudder Kemper's principal business
address is Two International Place, Boston, Massachusetts 02110-4103.
The investment adviser for the MFS Research Series is Massachusetts Financial
Services Company ("MFS"). MFS' principal business address is 500 Boylston
Street, Boston, Massachusetts 02116. The principal underwriter of the series is
MFS Fund Distributors, Inc. located at 500 Boylston Street, Boston,
Massachusetts 02116.
Neuberger Berman Management Inc. ("NBMI") serves as the investment manager of
the AMT Limited Maturity Bond Portfolio and is also the principal underwriter of
the portfolio. NBMI's principal business address is 605 Third Avenue, New York,
New York 10158-0180.
Certain of the Funds have investment objectives and policies closely resembling
those of mutual funds within the same complex that are sold directly to
individual investors. Despite such similarities, there can be no assurance that
the investment performance of any such Fund will resemble that of its retail
fund counterpart.
You will receive a prospectus for each available Fund. That prospectus will
describe the Fund, its investment objective and strategies, its risks, and its
management fees and other expenses. You should read the Fund prospectuses
together with this prospectus. As with all mutual funds, a Fund may not meet its
investment objective. Subject to applicable law, Prudential may stop offering
one or more funds or may substitute a different mutual fund for any Fund.
19
<PAGE>
Each Fund has provided Prudential with information about its management fees and
other expenses. Except for the Series Fund, Prudential has not verified that
information independently.
The Fixed Account
You may invest all or part of your Certificate Fund in the Fixed Account. The
amount invested in the Fixed Account becomes part of Prudential's general
assets, commonly referred to as the general account. The part of the Certificate
Fund that you invest in the Fixed Account will accrue interest daily at a rate
that Prudential declares periodically. This rate will not be less than an
effective annual rate of 4%. Prudential may in its sole discretion sometimes
declare a higher rate. At least annually and anytime you ask, we will tell you
what interest rate currently applies.
We strictly limit your right to make transfers out of the Fixed Account. See
Transfers, page XX. Prudential has the right to delay payment of any Cash
Surrender Value attributable to the Fixed Account for up to 6 months. See When
Proceeds Are Paid, page XX.
Because of exemptive and exclusionary provisions, Prudential has not registered
the Fixed Account or the general account under the federal securities laws.
Prudential has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosure in this Prospectus relating to the
Fixed Account. Disclosures concerning the Fixed Account may, however, be subject
to certain provisions of the federal securities laws relating to the accuracy of
statements made in a prospectus.
20
<PAGE>
Detailed Information About the Certificates
How Prudential Issues Certificates
To apply for coverage under a Group Variable Universal Life Insurance Contract,
an Eligible Group Member must fill out and submit an enrollment form. Prudential
may ask questions about the health of the person whose life is to be covered,
and may ask that person to have a medical exam. If Prudential approves the
person for coverage, that person will become a Covered Person under the Group
Variable Universal Life Insurance.
The Eligible Group Member is usually the Participant. But, under your Group
Contract, an Eligible Group Member may allow another person the right to make
decisions about the coverage. When that happens, Prudential considers the other
person to be a Participant. See the Assignment and Applicant Owner sections on
page X.
Prudential will issue a Certificate to each Participant. The Certificate tells
you about the rights, benefits, coverage, and obligations of the Group Variable
Universal Life Insurance. The minimum Face Amount of insurance for a Certificate
is $10,000.
Maximum ages. Prudential will not issue Certificates for a person who is older
than age 74. And, Prudential will generally end a Participant's coverage at the
maximum age shown in the Certificate (usually, that is age 100).
When a Participant reaches the maximum age, we make available these two options:
o You may ask to receive the Cash Surrender Value of the Certificate.
(Prudential believes that a cash surrender upon termination of coverage
will be subject to the same tax treatment as other surrenders. See the Tax
Treatment of Certificate Benefits on page XX.)
o You can remain invested in your investment options. Under this option, we
will no longer deduct monthly charges for the cost of insurance. The Death
Benefit will change. Specifically, the Death Benefit will be equal to the
amount of the Certificate Fund, minus any Certificate Debt and outstanding
charges. The Death Benefit will no longer include the Face Amount of
insurance. Also, we will no longer allow you to make premium contributions.
You can still make loan repayments.
The Face Amount of your life insurance coverage may be reduced when you become
75 years old, and again when you become 80 years old. See Changes in Face Amount
on page XX. Also, additional insurance coverages, such as Accidental Death and
21
<PAGE>
Dismemberment, will end according to special rules. See Additional Insurance
Benefits on page XX. You should refer to your Certificate to learn when coverage
under your Certificate will end.
A "Free Look" Period
Generally, you may return a Certificate for a refund within 30 days after you
receive it. This 30 day period is known as the "free look" period. Some states
allow a longer period. You can ask for a refund by mailing or delivering the
Certificate to Aon Securities Corporation. (You may not ask for a refund if your
Certificate is a replacement for one previously issued under the Group
Contract.)
If you cancel your coverage during the free look period, we will generally
refund the premium payments you made, minus any loans or withdrawals that you
took. We will not add or subtract any gain or loss that would have come from the
investment options you chose (unless a state law requires that we take those
gains or losses into account when we make a refund). When we make a refund, we
will not deduct any charges.
During the first 30 days after the initial Group Variable Universal Life
Insurance Certificate Date, your premium payments will be invested in the Fixed
Account. Prudential reserves the right to limit contributions and transactions
during the free look period.
If there is a change in your Group Variable Universal Life Insurance Coverage
which results in a new Certificate Date, the "free look" provision will not
apply.
Procedures
Your Group Contract has procedures for how you will conduct transactions under
your Group Variable Universal Life Insurance - for example, how you will submit
an enrollment form, make premium payments, take loans and withdrawals, and
transfer or reallocate money in your Certificate Fund. You should consult the
appropriate form to learn what those procedures are.
You should submit all forms to Aon Securities Corporation, which is a
wholly-owned subsidiary of Aon Corporation and an affiliate of Aon Insurance
Services, the plan agent for the Contract. Aon Securities Corporation will
forward the forms to Prudential. Prudential will consider enrollment forms,
payments, orders and other documents to be "received" when Prudential receives
them in good order at the address on the forms.
22
<PAGE>
Premiums
Routine premium payments. You will usually be able to decide when to make
premium payments and how much each premium payment will be. You just have to
make sure that there is enough money in your Certificate Fund - minus
Certificate Debt and outstanding charges -- to cover each month's charges. If
there is not, your insurance will end (in insurance terms, it will "lapse"). See
the Lapse section on page XX to learn how your insurance will end and what you
can do to stop it from ending.
You will also be required to pay a minimum initial premium to become a
Participant. The minimum initial premium equals the cost of coverage for the
first two months.
Additional premium payments. In addition to routine premium payments, you may
make additional premium payments, called "lump sums," at any time. Each lump sum
must be at least $100. Prudential reserves the right to limit the amount of
additional premiums.
How you will pay premiums. Participants will remit payments to Aon Securities
Corporation (who will pass them on to us).
Deducting premiums by automatic debit. You may choose to have your premium
deducted automatically from your checking account.
Effect of premium payments on tax status. If you pay additional premiums, we may
need to increase your Death Benefit (and corresponding cost of insurance
charges) to continue to qualify it as life insurance for federal tax purposes.
Also, if you make premium payments above certain limits, the tax status of the
insurance may change to that of a Modified Endowment Contract under the Internal
Revenue Code. That status could have significant disadvantages from a tax
standpoint.
We reserve the right to return any premium payment that would cause your
insurance to fail to qualify as life insurance under applicable tax laws, or
that would increase the Death Benefit by more than it increases the Certificate
Fund.
See the Tax Treatment of Certificate Benefits section on page XX.
23
<PAGE>
Effective Date of Insurance
When your insurance begins depends on what day of the month Prudential approves
your completed enrollment form. If we approve your completed enrollment form
prior to the 20th day of a month, your insurance will begin on the first day of
the month after you meet all of the requirements. If we approve your completed
enrollment form on or after the 20th day of a month, your insurance will begin
on the first day of the second month after you meet all of the requirements.
How Prudential Will Deposit and Invest Premium Payments
Prudential will deposit premium payments in your Certificate Fund after we
deduct any charges that apply. The amount of your premium after we deduct those
charges is called "Net Premiums." See the Charges and Expenses section on page
XX.
Here's how Prudential will deposit and invest your Net Premiums. We will make
deposits to your investment options at the end of the Business Day on which
Prudential receives the payment. Any payments received before the Certificate
Date will be deposited as of the Certificate Date.
o Before the Certificate Date. Prudential will hold any premium payment that
it receives before the Certificate Date in our general account (on your
behalf). We will not pay interest on those amounts.
o During the first 30 days that your Certificate is in effect. We will invest
any Net Premiums that we receive during the first 30 days in the Fixed
Account. We will leave the Net Premiums in the Fixed Account for those
first 30 days. After that, we will allocate the Net Premiums plus any
interest earned to the investment options you selected.
o After your Certificate has been in effect for 30 days. After your
Certificate has been in effect for 30 days, Prudential will invest Net
Premiums in your Certificate Fund and allocate them to the investment
options you selected.
If you have not given us complete instructions on how you want Net Premiums to
be invested, we will leave your Net Premiums invested in the Fixed Account until
you furnish complete information.
24
<PAGE>
How You Can Change the Way Prudential Allocates Future Premium
Payments
You may ask Prudential to change the way your future premium payments will be
allocated among the available investment options. Aon Securities Corporation
will give you a form to use for this purpose. We will start to allocate premium
payments in the new way as of the end of the Business Day on which Aon
Securities Corporation receives your request form in good order.
The minimum percent that you may allocate to an available investment option is
5%. All allocations must be in whole percents.
You may not change the way Prudential allocates future premiums if, at the time
we receive your request, there is not enough money in your Certificate Fund -
minus Certificate Debt and outstanding charges -- to cover each month's charges.
See the Lapse section on page XX.
We do not charge for changing the allocation of your future premiums.
How You Can Transfer Amounts In Your Certificate Fund From One
Investment Option To Another
You may transfer amounts from one investment option to another. You may request
a transfer in terms of dollars (such as transfer of $10,000 from one available
option to another) or in terms of a percent reallocation (such as a reallocation
to put 25% of the Certificate Fund in each available option).
There are some rules about how transfers can be made:
o The minimum amount you may transfer from one option to another is $100 (or
the entire balance in the investment option, if it is less than $100).
o The minimum percent that you may allocate to an available investment option
is 5%. All allocations must be in whole percents.
o We limit the number of times you may transfer amounts out of the Fixed
Account. You may make only one transfer from the Fixed Account to one of
the available Funds each Certificate Year. The transfer cannot be for more
than $5,000 or 25% of
25
<PAGE>
the amount you have invested in the Fixed Account, whichever is greater. We
may change these limits in the future.
Transfers will take effect as of the end of the Business Day in which a proper
transfer request is received by Aon Securities Corporation on the form we
require you to use for this purpose. Aon Securities Corporation will give you a
form to use to request a transfer.
Prudential charges $10 for each transfer if you make more than twelve transfers
in a Certificate Year. Prudential may increase this charge in the future, up to
a maximum of $20.
Group Variable Universal Life Insurance was not designed for professional market
timing organizations or for other organizations or persons that use programmed,
large or frequent transfers. We will discourage a pattern of exchanges that
coincides with a "market timing" strategy, since they may be disruptive to the
Separate Account and the Funds. If we were to find such a pattern, we might
modify the transfer procedures, including not accepting transfer requests of an
agent acting under a power of attorney on behalf of more than one Certificate
owner.
Dollar Cost Averaging
Dollar Cost Averaging (which we refer to as "DCA") lets you systematically
transfer specified dollar amounts from the Series Fund Money Market Portfolio to
the other available Funds at monthly intervals. You can request that a
designated number of transfers be made under the DCA feature. When we make
transfers under the DCA feature, the transfers are effective as of the end of
the first Business Day following the first of the month.
You may use DCA at any time after your Certificate becomes effective. But, to
start the DCA feature, you usually have to make a premium payment of at least
$1,000 to the Series Fund Money Market Portfolio. And, the minimum transfer
amount is $100.
Aon Securities Corporation will give you a form to request DCA. If Aon
Securities Corporation receives your request form in good order by the tenth of
a month, we will start DCA processing during the next month. If Aon Securities
Corporation receives it after the tenth day of a month, we will start DCA
processing during the month after the next month.
We will terminate the DCA arrangement when any of the following events occurs:
26
<PAGE>
o We have completed the designated number of transfers.
o The amount you have invested in the Series Fund Money Market Portfolio is
not enough to complete the next transfer.
o Aon Securities Corporation receives your written request to end the DCA
arrangement. (If Aon Securities Corporation receives your request by the
tenth of a month, we will cancel the transfer scheduled for the next
following month. If Aon Securities Corporation receives it after the tenth
day of a month, we will cancel the transfer scheduled for the month after
the next month.)
o You no longer have coverage under the Group Variable Universal Life
Insurance.
We do not charge for the DCA arrangement. Transfers made under the DCA
arrangement do not count against the number of transfers that may be subject to
the transfer charge described in the How You Can Transfer Amounts In Your
Certificate Fund From One Investment Option To Another section on page XX.
The main objective of DCA is to shield investments from short-term price
fluctuations. Since the same dollar amount is transferred to an available Fund
with each transfer, you buy more of the Fund when its price is low and less of
the Fund when its price is high. Therefore, you may achieve a lower than average
cost over the long term. This plan of investing does not assure a profit or
protect against a loss in declining markets.
Death Benefits
Prudential will pay a Death Benefit to the beneficiary when the Covered Person
dies.
Amount of the Death Benefit. The Death Benefit is the Face Amount of Insurance
plus the value of the Certificate Fund as of the date of death minus any
Certificate Debt and any past due monthly charges.
Adjustment in the Death Benefit. The Certificate Fund may have grown to the
point where we would need to increase the Death Benefit to be certain that the
insurance will meet the Internal Revenue Code's definition of life insurance
using the "Cash Value Accumulation Test."
If that were the case for your Certificate, we would increase the Death Benefit
(before we deduct any Certificate Debt and outstanding charges) to make it equal
the Certificate
27
<PAGE>
Fund divided by the Net Single Premium per dollar of insurance for the Covered
Person's Attained Age, at 4% interest. For this purpose, we base the Net Single
Premium on the 1980 CSO Table.
The following table shows the Net Single Premiums by Attained Age.
TABLE OF NET SINGLE PREMIUMS
(Per $1.00 of Insurance Amount)
<TABLE>
<CAPTION>
PERSON'S PERSON'S PERSON'S
ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C>
0 0.08507 34 0.24280 68 0.63861
1 0.08607 35 0.25097 69 0.65210
2 0.08857 36 0.25940 70 0.66554
3 0.09122 37 0.26808 71 0.67888
4 0.09399 38 0.27700 72 0.69204
5 0.09692 39 0.28616 73 0.70495
6 0.10000 40 0.29556 74 0.71751
7 0.10326 41 0.30519 75 0.72970
8 0.10669 42 0.31505 76 0.74150
9 0.11029 43 0.32515 77 0.75295
10 0.11405 44 0.33548 78 0.76411
11 0.11796 45 0.34604 79 0.77503
12 0.12196 46 0.35684 80 0.78573
13 0.12604 47 0.36787 81 0.79617
14 0.13015 48 0.37916 82 0.80631
15 0.13428 49 0.39068 83 0.81605
16 0.13843 50 0.40245 84 0.82531
17 0.14260 51 0.41445 85 0.83407
18 0.14683 52 0.42665 86 0.84238
19 0.15116 53 0.43904 87 0.85029
20 0.15562 54 0.45159 88 0.85791
21 0.16025 55 0.46429 89 0.86536
22 0.16507 56 0.47713 90 0.87279
23 0.17012 57 0.49011 91 0.88038
24 0.17540 58 0.50324 92 0.88834
25 0.18095 59 0.51652 93 0.89693
26 0.18676 60 0.52993 94 0.90640
27 0.19285 61 0.54346 95 0.91689
28 0.19920 62 0.55706 96 0.92836
29 0.20581 63 0.57071 97 0.94040
30 0.21269 64 0.58436 98 0.95211
31 0.21983 65 0.59798 99 0.96154
32 0.22722 66 0.61156
33 0.23488 67 0.62510
</TABLE>
28
<PAGE>
How your beneficiary may receive the Death Benefit: Your beneficiary may receive
the Death Benefit in the following ways:
o Prudential's Alliance Account. The Alliance Account is an interest-bearing
account that holds the Death Benefit while your beneficiary takes time to
consider other options. Your beneficiary has complete ownership of funds
held in the Alliance Account, and may draw on all or part of the funds by
writing a draft. Interest earnings in the Alliance Account are compounded
daily and credited monthly. Your beneficiary can transfer proceeds from the
Alliance Account to other modes of settlement at any time. Proceeds in the
Alliance Account are part of Prudential's general account. If your
beneficiary does not want the money to go to the Alliance Account, he or
she can ask Prudential to issue a check instead.
o Other Options. Your beneficiary can arrange with Prudential for the Death
Benefit to be paid in a different way (known as "modes of settlement"), if
the Death Benefit is $1,000 or more. (You can also elect a different mode
of settlement for your beneficiary while you are living). See the Modes of
Settlement section on page XX.
Changes in Face Amount
The Face Amount of Insurance may increase or decrease.
You may choose to increase or decrease the Face Amount of your insurance at
certain times according to the Group Contract and Prudential's rules. The Face
Amount may also decrease automatically when you reach age 75 and age 80.
Here are some things to keep in mind about changes to the Face Amount of your
insurance. You should read your Certificate for more information about how
changes work in your case.
When your Face Amount of insurance changes - whether it increases or decreases -
the change may cause your insurance to be treated as a Modified Endowment
Contract under the Internal Revenue Code. Also, a decrease in coverage may limit
the amount of premiums that you may contribute in the future. See the Tax
Treatment of Certificate Benefits on page XX. You should consult your tax
advisor before you change the Face Amount of your insurance.
29
<PAGE>
Increases in the Face Amount of Insurance
Whether you are eligible to increase the Face Amount will depend on several
factors at the time you request an increase. These factors include:
o your current Face Amount;
o your age;
o your AICPA membership;
o your State Society of CPA memberships; and
o the schedule of coverage available.
o Whenever the Face Amount of insurance increases, Prudential may ask
questions about the Covered Person's health, or require the Covered Person
to have a medical exam, before the increase can become effective. Based on
the answers to the questions or on the exam, Prudential may not allow the
increase.
o An increase in the Face Amount will result in higher insurance charges
because our net amount at risk will increase.
Decreases in the Face Amount of Insurance
o You may also be eligible to decrease the Face Amount of your insurance at
certain times. The reduced Face Amount must be a scheduled amount available
to you.
o A Participant may not decrease the Face Amount to less than $10,000 or
below the minimum amount required to maintain status as life insurance
under federal tax laws.
o The Face Amount may decrease automatically when you attain ages 75 and 80.
How We Calculate the Face Amount of Your Insurance When You Reach Age 75 and Age
80.
o When you reach age 75, we will reduce the Face Amount to:
(1) twice the value of the Certificate Fund, or
30
<PAGE>
(2) 75% of the Face Amount prior to age 75,
whichever is greater.
o When you reach age 80, we will reduce the Face Amount to:
(1) twice the value of the Certificate Fund, or
(2) 25% of the Face Amount prior to age 75,
whichever is greater.
We will calculate the amount of any reduction that occurs on the first Business
Day on or after your 75th or 80th birthday, but the reduction will not take
effect until the next Contract Anniversary (October 1). We will not reduce the
Face Amount if the Face Amount is already less than (or equal to) twice the
value of the Certificate Fund on your 75th or 80th birthday.
Charges and Expenses
For a Certificate that is in effect, Prudential reserves the right to increase
the charges that we currently make, but we currently have no intention to do so.
We will not in any case increase charges above the maximum charges described
below. You should refer to your particular Certificate to learn what charges
apply to you.
Charge Deducted From Each Premium Payment. We will deduct the following charge
from each premium payment you make before we invest the payment in the
investment options you selected.
o Charge for taxes on premium payments. We will deduct a charge for taxes
we must pay on premiums. These taxes include federal, state or local
income, premium, excise, business or any other type of tax (or part of one)
that is based on the amount of premium we receive.
This charge is currently made up of two parts:
o The first part is for state and local premium taxes. Currently, it is
2.15% of the premium Prudential receives. (In some states, this charge
is called a premium-based administrative charge.)
31
<PAGE>
o The second part is for federal income taxes that are based on
premiums. Currently, it is 0.35% of premiums received by Prudential.
We believe that this second charge is a reasonable estimate of the
increased cost for premium-based federal income taxes resulting from a
1990 change in the Internal Revenue Code.
We may increase this charge if the cost of our taxes related to premiums is
increased.
Monthly Certificate Fund Charges. Prudential will deduct the following charges
from your Certificate Fund each month. We will take the charges from each
investment option you selected, in the same proportion that the value of your
Certificate Fund is invested.
Generally, we will deduct these charges on the Monthly Deduction Date.
1. Charge for the cost of insurance. We will deduct a charge for the cost of
your insurance.
To calculate the cost of insurance charge, we multiply:
your Certificate's "net amount at risk" by the "cost of insurance
rate" for the Covered Person.
"Net amount at risk" means the amount by which your Certificate's Death Benefit
(computed as if there were no Certificate Debt) exceeds your Certificate Fund.
The "cost of insurance rate" is based on many factors, including:
o the Covered Person's age
o the Covered Person's rate class (such as classes for standard and select
status)
o the life expectancy of the people covered under your Group Contract
o the additional insurance benefits that the Group Contractholder elected to
buy as shown in the Additional Insurance Benefits section on page XX
The cost of insurance rate will generally increase as the Covered Person ages.
We may adjust the cost of insurance rates from time to time. The changes in cost
of insurance rates for each Group Contractholder are based on a number of
factors, including:
32
<PAGE>
o the number of Certificates in effect
o the number of new Certificates issued
o the number of Certificates surrendered
o the expected claims (death benefits, living benefits and surrenders)
o the expected cost of additional insurance benefits that the Group
Contractholder elected to buy
o the expected expenses
o administrative services provided by the Group Contractholder.
In addition to the list above, the past claims, expenses and the costs of
additional insurance benefits of the group are reviewed since they are an
important factor in calculating the expected claims, expenses and costs.
However, we are prohibited from recovering past losses by state insurance law.
If we change the cost of insurance rates, we will change them the same way for
all persons of the same age and rate class. We will not change them to be higher
than the guaranteed cost of insurance rates shown in your Certificate. The
guaranteed rates are the 1980 CSO Table.
2. Charge for administrative expenses. Currently, we do not impose a monthly
charge for administrative expenses, but we may deduct such a charge in the
future. This charge would pay for maintaining records and for communicating
with Participants and your Group Contractholder. If we did deduct such a
charge, it would not exceed $4 per month.
3. Charge for other taxes. We reserve the right to deduct a charge to cover
federal, state or local taxes that are imposed on the operations of the
Separate Account. These are taxes other than those described under "Charge
for taxes on premium payments" section above. Currently, we do not charge
for these other taxes.
Daily Deduction from the Separate Account: Each day, Prudential deducts a charge
from the assets of the Separate Account in an amount currently equal to an
effective
33
<PAGE>
annual rate of 0.45%. We guarantee that the charge will not be more than an
effective annual rate of 0.90%.
This charge compensates us for assuming the mortality and expense risks of the
insurance provided under the Group Contract. The "mortality risk" is the risk
that Covered Persons may live for shorter periods of time than Prudential
estimated when we determined the mortality charge. The "expense risk" is the
risk that expenses for issuing and administering the insurance will be more than
Prudential estimated when we determined the charge for administrative expenses.
We will earn a profit from this risk charge to the extent we do not need it to
provide benefits and pay expenses under the Certificate. We do not assess this
charge on amounts allocated to the Fixed Account.
Transaction Charges. A Participant may incur a charge for partial withdrawals,
transfers, reinstatements and additional statement requests. See the sections of
this prospectus that describe each of those transactions. Those sections also
describe the charges that Prudential may deduct.
Expenses Incurred by the Funds. Participants indirectly bear the charges and
expenses of the Funds. To find out details about the investment management fees
and other underlying Fund expenses, you should see The Funds section on page XX.
You should also read the prospectuses for the available Funds.
Dividends or Experience Credits
The Group Variable Universal Life Contract is eligible to receive Dividends or
Experience Credits. We do not guarantee, however, that we will pay Dividends or
Experience Credits.
If there is a Dividend or Experience Credit, Prudential will pay it to your
Group Contractholder, who will pass it on to you in the form of a refund.
Ordinarily, any refund will be reinvested in your insurance -- that is, as a
premium payment. However, you may choose to receive your refund in cash by
notifying Aon Securities Corporation in writing.
Cash Surrender Value
The Cash Surrender Value of your Certificate is equal to your Certificate Fund
minus any Certificate Debt and outstanding charges. On any day, your Certificate
Fund equals the
34
<PAGE>
sum of the amounts in the Funds, the amount invested in the Fixed Account, and
the Loan Account (see the Loans section on page XX).
The Cash Surrender Value will change daily to reflect:
o Net Premiums;
o withdrawals;
o increases or decreases in the value of the Funds you selected;
o interest credited on any amounts allocated to the Fixed Account and on the
Loan Account;
o interest accrued on any loan;
o the daily asset charge for mortality and expense risks assessed against the
variable investment options; and
o monthly charges that Prudential deducts from your Certificate Fund.
If you ask, Aon Securities Corporation will tell you what the Cash Surrender
Value of your Certificate is. Prudential does not guarantee a minimum Cash
Surrender Value. It is possible for the Cash Surrender Value of your Certificate
to go down to zero.
The tables on pages T-1 through T-6 (following page X) of this prospectus give
examples of what Cash Surrender Values would be for selected sample
Certificates. The examples assume there would be uniform investment results in
the selected Subaccount portfolios. The examples are only hypothetical and are
only meant to help you understand how the Certificate works.
Full Surrenders
You may surrender your Certificate for its Cash Surrender Value at any time. If
you do, all insurance coverage will end. Prudential will calculate the Cash
Surrender Value as of the end of the Business Day on which Aon Securities
Corporation receives your request form in good order.
35
<PAGE>
We will pay the proceeds as described in the When Proceeds Are Paid section on
page XX.
A surrender may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
Paid-up Coverage
At any time, you may elect to use the Cash Surrender Value of your Certificate
to buy Paid-up Coverage. The minimum amount of Cash Surrender Value that you can
exchange is $1,000.
The amount of Paid-up Coverage that you can have will be limited to the amount
that you can buy with your Certificate's Cash Surrender Value. Also, it cannot
be more than the Death Benefit under your Certificate at the time you make the
exchange.
Paid-up coverage will start as of the end of the Business Day on which Aon
Securities Corporation receives your request form in good order. Once the
Paid-up coverage starts, all other coverage under your Certificate, including
any additional insurance benefits, will end. If you later decide to enroll under
the Group Contract again, Prudential may limit your future amount of coverage.
If you did not use your entire Cash Surrender Value to buy the Paid-up coverage,
Prudential will pay you the remaining amount as of the end of the first Business
Day after Aon Securities Corporation receives your request form. We will pay it
as described in the When Proceeds are Paid section on page XX. This withdrawal
may affect the way you are taxed. See the Tax Treatment of Certificate Benefits
section on page XX.
The purchase of Paid-up coverage could make your Certificate a Modified
Endowment Contract. See the Tax Treatment of Certificate Benefits section on
page XX.
Partial Withdrawals
While your Certificate is in effect, you may withdraw part of your Certificate's
Cash Surrender Value. We will take it from each investment option you selected
in the same proportions as the value of your Certificate Fund is invested,
unless your request tells us to take the withdrawal from only selected
investment options.
36
<PAGE>
Partial withdrawals will be effective as of the end of the Business Day on which
Aon Securities Corporation receives your request form. We will pay you the
withdrawn money as described in the When Proceeds Are Paid section on page XX.
You must withdraw at least $200 in any partial withdrawal. You may withdraw any
amount that is more than $200, but you must leave enough in your Certificate
Fund (less any Certificate Debt and outstanding charges) to pay the next month's
charges. If you ask, Aon Securities Corporation will tell you the maximum amount
you may withdraw.
There is no limit on the number of partial withdrawals you can make in a year.
However, there is a transaction charge for each partial withdrawal. Currently,
this charge is $10 or 2% of the amount you withdraw, whichever is less. In the
future, Prudential may raise this charge, but not above $20. We will deduct the
transaction charge from the amount you withdraw.
You may not repay any amount that you withdraw.
Withdrawals may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
Loans
You may borrow up to the Loan Value of your Certificate Fund. The Loan Value is
90% of your Certificate Fund minus any existing loan (and its accrued interest),
any outstanding charges, and the amount of the next month's charges. In states
that require it, you may borrow a greater amount.
The minimum amount that you can borrow at any one time is $200. You cannot take
a loan if Certificate Debt exceeds the Loan Value, or if the Loan Value is less
than the $200 minimum. Prudential will pay loan proceeds as described in the
When Proceeds Are Paid section on page XX.
Interest on the loan will accrue daily at a rate of between 5% and 8%. Interest
payments are due the day before the Contract Anniversary. If you do not pay the
interest when it is due, we will add it to the principal amount of the loan.
When this happens, we will take an amount out of your investment options to make
the Loan and the Loan Account equal in value.
When you take a loan from your Certificate Fund, here's what happens:
37
<PAGE>
o We will take an amount equal to the loan out of each of your investment
options on a pro-rata basis unless you tell us to take it only from
selected investment options.
o We will start a Loan Account for you and will credit the Loan Account with
an amount equal to the loan.
o We will generally credit interest to the amount in the Loan Account at an
effective annual rate that is currently 1% less than the rate Prudential
charges as interest on the loan. This may change in the future, but the
difference in the rates will range between 1% and 2%. The crediting rate
will generally be equal to the Fixed Account crediting rate, but will never
be less than 4%.
You may repay all or part of a loan at any time. We will apply a loan repayment
first against any unpaid loan interest and then to reduce the principal amount
of the loan. You may repay a loan either by repayment or by withdrawing amounts
from the Certificate Fund. You should send your loan repayments directly to
Prudential. You may request loan repayment form from Aon Securities Corporation.
If you repay a loan by using the Certificate Fund, we will treat the repayment
as a partial withdrawal from the Certificate Fund. A partial withdrawal may have
tax consequences. See the Partial Withdrawals section on page XX and the Tax
Treatment of Certificate Benefits section on page XX.
Your Loan Account plus accrued interest (together, these are called "Certificate
Debt") may not exceed the value of your Certificate Fund. If Certificate Debt
exceeds the value of your Certificate Fund, you will not have enough money in
your Certificate Fund to cover the month's charges. See the Lapse section on
page XX.
If you still have Certificate Debt outstanding when you surrender your
Certificate or when you allow your Certificate to lapse, the amount you borrowed
may become taxable. Also, loans from Modified Endowment Contracts may be treated
for tax purposes as distributions of income. See the Tax Treatment of
Certificate Benefits section on page XX.
If we pay the Death Benefit or the Cash Surrender Value while a loan is
outstanding, we will reduce the Death Benefit or the Cash Surrender Value by the
Certificate Debt.
A loan will have a permanent effect on your Certificate's Cash Surrender Value.
It may also have a permanent effect on the Death Benefit. This happens because
the investment results of the investment options you selected will apply only to
the amount remaining in those investment options after the loan amount is
transferred to the Loan Account. The longer a loan is outstanding, the greater
the effect is likely to be.
38
<PAGE>
Lapse
In general, your Certificate will remain in force as long as the balance in your
Certificate Fund (less any Certificate Debt and outstanding charges) is enough
to pay the monthly charges when due. If it is not enough, Aon Securities
Corporation will send you a notice to tell you that your insurance is going to
end, how much you must pay to stop it from ending, and when you must pay it.
In insurance terms, we call it a lapse when insurance ends because the charges
for it are not paid.
How you can stop your insurance from lapsing. You must make a payment that is
enough to pay outstanding charges. Aon Securities Corporation must receive the
payment by the later of:
o 61 days after the Monthly Deduction Date; or
o 30 days after the date we mailed you the notice.
If you do not, your insurance will lapse and your Certificate will no longer
have any value. A Certificate that lapses with Certificate Debt may affect the
way you are taxed. See the Tax Treatment of Certificate Benefits section on page
XX.
We will send the notice to your last known address on file with Aon Securities
Corporation. If the Covered Person dies during the grace period, we will reduce
the Death Benefit by any past due monthly charges and by any Certificate Debt.
Termination of the Group Contractholder's Participation in the Group Contract
Your Group Contractholder may decide to terminate the Group Contract with
Prudential. In addition, Prudential may terminate a Group Contract:
o If the aggregate Face Amount of all Certificates, or the number of
Certificates issued, falls below the permitted minimum, by giving the Group
Contractholder 90 days' written notice.
39
<PAGE>
o If the Group Contractholder fails to remit premium payments to Prudential
in a timely way, at the end of the grace period.
o For any other reason, effective on a Contract Anniversary, by giving the
Group Contractholder 31 days' written notice.
Termination of the Group Contract means that your Group Contractholder will not
remit premiums to Prudential. In that event, no new Certificates will be issued
under the Group Contract. How the termination affects you is described in the
Options on Termination of Coverage section on page XX. The options that are
available to you from Prudential may depend on what other insurance options are
available to you. You should refer to your particular Certificate to find out
more about your options at termination of coverage.
Participants Who Are No Longer Eligible Group Members
If you are no longer a member of either the AICPA or any Qualified State Society
of CPAs, you are no longer eligible for coverage. Your Group Variable Universal
Life Insurance will end on the last day of the month in which Aon Securities
Corporation receives notice that you are no longer eligible for coverage.
If your insurance ends, you have the options of Conversion, Paid-up Coverage,
and payment of Cash Surrender Value, which are described in the Options on
Termination of Coverage section on page XX.
If you are a member of both the AICPA and a Qualified State Society of CPAs, and
you end one of those memberships, your coverage may be reduced. If that happens,
you will have a Conversion Privilege to the extent of the reduction.
Options on Termination of Coverage
Your insurance coverage under the Group Contract will end when the Group
Contract itself ends or when you are no longer an Eligible Group Member.
When your Group Contractholder ends a Group Contract, the effect on Participants
depends on whether or not your Group Contractholder replaces the Group Contract
with another life insurance contract that allows for the accumulation of cash
value. Generally, here is what will happen:
40
<PAGE>
o If your Group Contractholder does replace the Group Contract with another
life insurance contract that allows for the accumulation of cash value,
Prudential will terminate your Certificate. We will also transfer the Cash
Surrender Value of your Certificate directly to that new contract, unless
you elect to receive the Cash Surrender Value.
o If your Group Contractholder does not replace the Group Contract with
another life insurance contract that allows for the accumulation of cash
value, you will have the options listed below.
Conversion. You may elect to convert your Certificate to an individual life
insurance policy without giving Prudential evidence that the Covered Person is
in good health. To elect this option, you must apply for it:
o within 45 days after your Certificate ends, if you were given written
notice more than 15 days, but less than 90 days, after coverage under the
Group Contract ends, or
o within 90 days after your Certificate ends, if you were not given written
notice.
You may select any form of individual life insurance policy (other than term
insurance) that Prudential normally makes available to persons who are the same
age as you and who are asking for the same amount of life insurance. Your
premiums for the individual life insurance policy will be based on the type and
amount of life insurance you select, your age and your risk class.
If your Certificate ended because you are no longer an Eligible Group Member,
you may not convert more than the Face Amount of your Certificate. If your
Certificate ended because the Group Contract ended, the amount you are able to
convert may be limited to the Face Amount of your Certificate minus the amount
of any group insurance that you become eligible for within 45 days after your
Certificate ends.
If a Covered Person dies within 90 days after the Certificate ends and you had
the right to convert to an individual policy, we will pay a Death Benefit under
the Certificate. But, the Death Benefit will be equal to the amount of
individual insurance you could have had if you had actually made the conversion
to the individual policy.
Paid-up Coverage. You may elect to use your Certificate's Cash Surrender Value
to buy fixed Paid-up Coverage on the Covered Person. To use this option, you
must have at least $1,000 of Cash Surrender Value on the day your Certificate
ends. The insurance amount will depend on how much the Cash Surrender Value is
and on the age of the Covered
41
<PAGE>
Person. But, the amount of Paid-up Coverage cannot be more than your
Certificate's Death Benefit right before you buy the Paid-up Coverage.
You may elect this option within 91 days of the date your Certificate ended.
Prudential will make the Paid-up Coverage effective as of the end of the
Business Day on which Aon Securities Corporation receives your request on the
form we require you to use for this purpose. If you elect this option, your
insurance may become a Modified Endowment Contract under the Internal Revenue
Code. See the Tax Treatment of Certificate Benefits section on page XX.
Payment of Cash Surrender Value. You may receive the Cash Surrender Value by
surrendering your Certificate. To do this, you must make a request to Aon
Securities Corporation on the form that we require you to use for this purpose.
If you do not choose one of the options described above within 91 days of the
date the Certificate ends, we will exchange your Certificate Fund for Paid-up
Coverage if your Certificate Fund value is at least $1,000. If it does not have
that much value, we will pay the Cash Surrender Value.
Reinstatement
You may request reinstatement of a lapsed Certificate any time within 3 years
after the end of the grace period. But, you must be less than the maximum age at
which a Certificate may be held. We will not reinstate a lapsed Certificate if
the Group Contract under which the Certificate was issued ended or if you are no
longer an Eligible Group Member. (If you are an Applicant Owner, we will not
reinstate a lapsed Certificate if the Covered Person is no longer eligible for
coverage under the Group Contract.)
To reinstate your Certificate, you must send the following items to Aon
Securities Corporation:
o A written request for reinstatement.
o Evidence of the good health of the Covered Person. The evidence must be
satisfactory to Prudential.
o A premium payment (less any charges that apply) that is at least enough to
pay the monthly charges for the grace period and for two more months. See
the Charges and Expenses section on page XX.
42
<PAGE>
o If your Certificate Debt was not repaid at Lapse, you must repay it upon
reinstatement. (Such repayment would not be subject to any charges deducted
from premium payments.)
o We will make your Certificate effective again on the Monthly Deduction Date
that occurs after we approve your request for reinstatement. The terms of
your original Certificate will still apply. We will apply a new 2-year
period of incontestability, and the period during which the suicide
exclusion applies will start over again. See the Incontestability section
on page XX and the Suicide Exclusion section on page XX.
o Currently, we do not charge for a reinstatement. But, we reserve the right
to charge for reinstatements in the future.
Tax Treatment of Certificate Benefits
Introduction
This summary provides general information on the federal income tax treatment of
a Certificate under the Group Contract. It is not a complete statement of what
the federal income taxes will be in all circumstances. It is based on current
law and interpretations, which may change. It does not cover state taxes or
other taxes. It is not intended as tax advice. You should consult your own tax
advisor for complete information and advice.
Treatment as Life Insurance and Investor Control
The Certificate must meet certain requirements to qualify as life insurance for
tax purposes. These requirements include certain definitional tests and rules
for diversification of investments. For further information on the
diversification requirements, see Dividends, Distributions and Taxes in the
applicable Fund prospectuses.
We believe we have taken adequate steps to insure that the Certificate qualifies
as life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Certificate Fund,
unless you receive a distribution,
o the Certificate's Death Benefit will be tax free to your beneficiary.
43
<PAGE>
Although we believe that the Certificate should qualify as life insurance for
tax purposes, there are some uncertainties, particularly because the Secretary
of Treasury has not yet issued permanent regulations that bear on this question.
Moreover, regulations issued to date do not provide guidance concerning the
extent to which Participants may direct their investments to the particular
available subaccounts of a separate account without causing the Participants
(instead of Prudential) to be considered the owners of the underlying assets.
The ownership rights under the Certificate are similar to, but different in
certain respects from, those addressed by the Internal Revenue Service in
rulings holding that the insurance company was the owner of the assets. For
example, Participants have the choice of more funds and the ability to
reallocate amounts among available Subaccounts more frequently than in the
rulings. While we believe that Prudential will be treated as the owner of the
Separate Account assets, it is possible that the Participants may be considered
to own the assets.
Because of these uncertainties, we reserve the right to make changes -- which
will be applied uniformly to all Participants after advance written notice --
that we deem necessary to insure that the Certificates under the Group Contract
will qualify as life insurance and that Prudential will be treated as the owner
of the underlying assets.
Distributions
The tax treatment of any distribution you receive before the Covered Person's
death depends on whether your Certificate is classified as a Modified Endowment
Contract.
44
<PAGE>
Certificates Not Classified as Modified Endowment Contracts
o If you surrender your Certificate or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will be
treated as receiving any portion of the Cash Surrender Value used to repay
Certificate Debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Certificate less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Certificate Years, all or a portion of a
withdrawal may be taxed if the Certificate Fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Certificate for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Certificate are ordinarily treated as debt and
are not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Certificate is classified as a Modified Endowment
Contract. The Certificate could be classified as a Modified Endowment
Contract if premiums substantially in excess of scheduled premiums are paid
or a decrease in the Face Amount of insurance is made (or a rider removed).
The addition of a rider or an increase in the Face Amount of insurance may
also cause the Certificate to be classified as a Modified Endowment
Contract. You should first consult a tax advisor if you are contemplating
any of these steps.
o If the Certificate is classified as a Modified Endowment Contract, then
amounts you receive under the Certificate before the Covered Person's
death, including loans and withdrawals, are included in income to the
extent that the Certificate Fund before surrender charges exceeds the
premiums paid for the Certificate increased by the amount of any loans
previously included in income and reduced by any untaxed amounts previously
received other than the amount of any loans excludible from income. An
assignment of a Modified Endowment Contract is taxable in the same way.
These rules also apply to loans, withdrawals, and full surrenders made
during the two-year period before the time that the Certificate became a
Modified Endowment Contract.
45
<PAGE>
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty tax of 10 percent unless the amount is received on
or after age 59 1/2 , on account of your becoming disabled or as a life
annuity.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Certificate for purposes of applying
these rules.
Withholding
You must affirmatively elect that no taxes be withheld from a pre-death
distribution. Otherwise, the taxable portion of any amounts you receive will be
subject to withholding. You are not permitted to elect out of withholding if you
do not provide a social security number or other taxpayer identification number.
You may be subject to penalties under the estimated tax payment rules if your
withholding and estimated tax payments are insufficient to cover the tax due.
Other Tax Considerations
If you transfer or assign the Certificate to someone else, there may be gift,
estate and/or income tax consequences. If you transfer the Certificate to a
person two or more generations younger than you (or designate such a younger
person as a beneficiary), there may be Generation Skipping Transfer tax
consequences. Deductions for interest paid or accrued on Certificate Debt or on
other loans that are incurred or continued to purchase or carry the Certificate
may be denied. Your individual situation or that of your beneficiary will
determine the federal estate taxes and the state and local estate, inheritance
and other taxes due if you or the Covered Person dies.
The earnings of the Separate Account are taxed as part of Prudential's
operations. The Separate Account does not intend to qualify as a regulated
investment company under the Internal Revenue Code.
When Proceeds Are Paid
Prudential will generally pay any Death Benefit, Cash Surrender Value, partial
withdrawal or loan proceeds within 7 days after Aon Securities Corporation
receives the request for payment. We will determine the amount of the Death
Benefit as of the date of the Covered Person's death. For other types of
redemptions, we will determine the amount of the proceeds as of the end of the
Business Day on which we received the request in good order. There are certain
circumstances when we delay payment of proceeds:
46
<PAGE>
o We may delay payment of proceeds that come from the Funds and the variable
part of the Death Benefit if any of the following events occurs: the New
York Stock Exchange is closed (other than for a regular holiday or a
weekend), trading is restricted by the SEC, or the SEC declares that an
emergency exists.
o We expect to pay proceeds that come from the Fixed Account or from Paid-up
Coverage promptly upon request. But, we do have the right to delay these
payments (other than the Death Benefit) for up to six months (or a shorter
period, if required by state law). We will pay interest at the current rate
for settlement options left with Prudential to accumulate with interest if
we delay payment for more than 10 days.
Beneficiary
You have the right to name the beneficiary who will receive the Death Benefit
from your Certificate. You must use the form that Prudential requires you to
use. You may change the beneficiary at any time. You do not need the consent of
the present beneficiary. If you have more than one beneficiary at the time the
Covered Person dies, we will pay the Death Benefit in equal parts to each
beneficiary, unless you have given us other instructions.
Incontestability
After your Certificate has been in force for two years or more during the
Covered Person's lifetime, Prudential will not contest liability under the
Certificate. We will also not contest liability for any change in your
Certificate that required our approval after the change has been in force for
two years or more during the Covered Person's lifetime.
Misstatement of Age
If the Covered Person's age is stated incorrectly in the Certificate, we will
adjust the monthly cost of insurance deduction to reflect the proper amount
based on the correct age.
If an adjustment results in an increased cost of insurance, Aon Securities
Corporation will bill for the difference. If an adjustment results in a
decreased cost of insurance, Aon Securities Corporation will refund the
difference. If the change in age affects the amount of the person's insurance,
Prudential will change the amount and the cost of insurance accordingly.
47
<PAGE>
Suicide Exclusion
Generally, if the Covered Person dies by suicide within one year from the
Certificate Date or reinstatement, Prudential will not pay the Death Benefit
described in other sections of this prospectus. Instead, we will pay your
beneficiary an amount equal to your premium payments minus any Certificate Debt,
outstanding charges, and any partial withdrawals since the Certificate Date or
reinstatement. This limit will apply whether the suicide occurred while the
Covered Person was sane or insane.
If the Covered Person dies by suicide within one year after the effective date
of an increase in the Face Amount of your Certificate that required our
approval, we will not pay the increased amount of insurance. Instead of the
amount of the increase, we will pay your beneficiary the monthly charges that
were attributable to the increased amount. Again, this limit will apply whether
the suicide occurred while the Covered Person was sane or insane.
Modes of Settlement
The Death Benefits section describes how your beneficiary may receive the Death
Benefit. In addition to the methods described in the Death Benefits section,
Prudential also makes these methods available. They are known as "modes of
settlement":
Option 1: Payments for a Fixed Period
The Death Benefit plus interest is paid over a fixed number of years (1 -
25). The payment may be received monthly, quarterly, semi-annually or
annually. The payment amount will be higher or lower depending on the
period selected. The interest rate can change, but will not be less than
the guaranteed rate shown in the claim settlement certificate that your
beneficiary will receive. Your beneficiary may withdraw the total present
value of payments not yet made at any time.
Option 2: Payment in Installments for Life
The Death Benefit provides monthly payments in installments for as long as
your beneficiary lives. Your beneficiary may choose a guaranteed minimum
payment period (5,10 or 20 years) or an installment refund, which will
guarantee that the sum of the payments equals the amount of the Death
Benefit payable under this option. If your beneficiary dies before
Prudential has made all guaranteed payments, Prudential will
48
<PAGE>
pay the present value of the remaining guaranteed payments to a payee your
beneficiary designated.
Option 3: Interest Income
The Death Benefit remains with Prudential and earns interest. This option
allows you or your beneficiary to leave the Death Benefit with Prudential
and choose another settlement option at a later time. Withdrawals of $100
or more (including the entire unpaid Death Benefit) can be made at any
time. The interest income may be received monthly, quarterly, semi-annually
or annually.
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that you or your beneficiary will
receive.
Option 4: Payments of a Fixed Amount
Your beneficiary receives a guaranteed specified sum for a limited number
of years. This guaranteed specified sum represents a return of the
principal (Death Benefit) and interest paid. The payment may be received
monthly, quarterly, semi-annually, or annually, as determined by the
beneficiary.
The interest rate can change, but will not be less than the guaranteed rate
shown in the claim settlement certificate that your beneficiary will
receive. Any interest credited will be used to extend the payment period.
Option 5: Certificate of Deposit
The Death Benefit is used to purchase a certificate of deposit that is
issued by The Prudential Bank. Certificates of Deposit (CDS) are
investments that allow your beneficiary to choose a variety of short- and
long-term deposit options. They are designed to accrue interest monthly,
quarterly, semi-annually, annually or at maturity. Interest rates are
guaranteed for the term of the CD. There is generally a $10,000 minimum
amount for this option.
Under each of the above options, each payment must generally be at least $20.
If your beneficiary elects one of these settlement options, the tax treatment of
the Death Benefit may be different than it would have been had the option not
been elected. Your beneficiary should get advice from a tax advisor.
49
<PAGE>
Assignment
You may assign your Certificate, including all rights, benefits and privileges
that you have. Prudential will honor the assignment only if: (1) you make the
assignment in writing; (2) you sign it; and (3) Aon Securities Corporation
receives a copy of the assignment, or Prudential receives a copy of the
assignment at the Prudential office shown in your Certificate. We are not
responsible for determining whether the assignment is legal or valid.
Throughout this prospectus, we describe various rights that you have. You may
assign those rights to someone else. If you do, you should consider the
references to "you" in this prospectus as applying to the person to whom you
validly assigned your Certificate.
If you assign a Certificate that is a Modified Endowment Contract, it might
affect the way you are taxed. It might also affect the way the person to whom
you assign the Certificate is taxed. See the Tax Treatment of Certificate
Benefits section on page XX.
Applicant Owner Provision
The Group Contract has an "applicant owner" provision. An Applicant Owner is a
person who may apply for coverage on the life of an Eligible Group Member. And,
as with an assignment, if a Participant agrees to let another person be the
Applicant Owner of the Certificate, that person would have all of the rights to
make decisions about the coverage. References to "Participant" and "you" in this
prospectus apply to both (1) an Eligible Group Member who has obtained insurance
coverage on his or her own life, and (2) an Applicant Owner who has obtained
insurance coverage on the life of an Eligible Group Member.
When naming an Applicant Owner, the Eligible Group Member must agree to have his
or her life covered. Examples of people who may be Applicant Owners are the
Eligible Group Member's spouse, child, parent, grandparent, grandchild, sister,
brother, or the trustee of any trust set up by the Eligible Group Member. A
person must have attained the age of majority to be an Applicant Owner. At any
one time, only one person may be an Applicant Owner under a Certificate.
An Applicant Owner must fill out an enrollment form. The Eligible Group Member
must sign the enrollment form to show his or her agreement. Prudential may
require the Eligible Group Member to answer questions about his or her health,
or to have a medical examination. If we approve the enrollment form, we will
issue the Certificate to the Applicant Owner.
50
<PAGE>
Voting Rights
The assets that are held in the Separate Account are invested in the Funds.
Prudential is the legal owner of those shares. Because we are the owner, we have
the right to vote on any matter that shareholders of the Funds vote on. The
voting happens at regular and special shareholder meetings. We will (as required
by law) vote in accordance with voting instructions we receive from
Participants. A Fund may not hold annual shareholder meetings when not required
to do so under the laws of the state of its incorporation or under the federal
securities laws.
If we do not receive timely voting instructions for Fund shares from
Participants, we will vote those shares in the same proportion as shares in the
Funds for which we do receive instructions. We will do the same thing for shares
held as general account investments of Prudential. If federal securities laws
change so that Prudential is allowed to vote on Fund shares in our own right, we
may decide to do so.
Generally, you may give us voting instructions on matters that would be changes
in fundamental investment policies of the Funds. You may also give us voting
instructions on any matter that requires a vote of the Fund's shareholders. But,
if a Fund that you participate in has a vote on approval of the investment
advisory agreement or any change in a Fund's fundamental investment policy, you
will vote separately by Fund. This practice is dictated by the federal
securities laws.
Here's how we will determine the number of Fund shares and votes for which you
may give instructions:
o To determine the number of Fund shares, we will divide the part of your
Certificate Fund that is derived from participation in a Subaccount by the
value of one share in the corresponding portfolio of the applicable Fund.
o The number of votes will be determined as of the record date chosen by the
Board of Directors of the applicable Fund.
We will give you the proper forms and proxies to give these instructions. We
reserve the right to change the way in which we calculate the weight we give to
voting instructions. We would make such a change to comply with federal
regulations.
51
<PAGE>
If we are required by state insurance regulations, we may disregard voting
instructions in certain instances. We may disregard instructions if: (1) the
instructions would require shares to be voted in a way that would cause a change
in the sub-classification or investment objectives of one or more of the Funds'
portfolios, or (2) the instruction would approve or disapprove an investment
advisory contract for a Fund. Also, Prudential itself may disregard voting
instructions that would require changes in the investment policy or investment
advisor of one or more of the Funds' portfolios, provided that Prudential
reasonably disapproves such changes in accordance with applicable federal
regulations. If Prudential does disregard voting instructions, we will tell you
that we did and our reasons for it in the next annual or semi-annual report to
Participants.
Substitution of Fund Shares
If Prudential's management thinks that an available portfolio of the Funds
becomes unsuitable for investment by Participants, we may substitute the shares
of another portfolio or of an entirely different mutual fund. Our management
might find a portfolio to be unsuitable because of investment policy changes,
tax law changes or considerations, the unavailability of shares for investment
or other reasons, including our discretion. Before Prudential can substitute
shares, the SEC, and possibly one or more state insurance departments, must
approve the substitution. We would notify you and your Group Contractholder if
we were to make such a substitution.
Additional Insurance Benefits
The following additional insurance benefits are available to you, either
automatically or as options.
If you choose Extension of Coverage and Waiver of Cost of Insurance Charges
During Total Disability, any annual refund you might receive will generally be
reduced. (You may receive an annual refund if your Group Contractholder receives
a share of Prudential's divisible surplus. See Dividends or Experience Credits
on page XX.)
Accelerated Death Benefit. You are automatically covered for the Accelerated
Death Benefit. Under an accelerated death benefit, you can elect to receive an
early payment of part of the Certificate's Death Benefit when the Covered Person
is diagnosed as being terminally ill. "Terminally ill" means the Covered Person
has a life expectancy of 6 months or less. You must give Prudential satisfactory
evidence that the Covered Person is terminally ill. You may receive the
accelerated payment in a lump sum.
52
<PAGE>
When we pay the Death Benefit under this option, it will be adjusted to reflect
its present value. The adjusted Death Benefit will always be less than the Death
Benefit, but may be greater than the Certificate's Cash Surrender Value.
We will not pay an accelerated death benefit if coverage was assigned or if you
are required to elect it to meet the claims of creditors or to obtain a
government benefit. We can furnish details about the amount of accelerated death
benefit that is available to you. Unless required by law, you can no longer
request an increase in the Face Amount of your Certificate once you have elected
to receive an accelerated death benefit. The amount of future premium payments
you can make will also be limited.
Adding the Accelerated Death Benefit to your Certificate will not affect the way
you are taxed. This income tax exclusion may not apply if the benefit is paid to
someone other than the Participant. But, if you actually receive proceeds from
the Accelerated Death Benefit, it could have tax consequences and may affect
your eligibility for certain government benefits or entitlements. In general,
the accelerated death benefit is excluded from income if the Covered Person is
terminally ill or chronically ill as defined in the tax law (although the
exclusion in the latter case may be limited). You should consult a tax advisor
before you elect to receive this benefit.
Accidental Death and Dismemberment Benefit. If you are younger than age 75, you
are automatically covered for an Accidental Death and Dismemberment Benefit.
This benefit provides you insurance, up to the Face Amount, for accidental loss
of life, sight, hand, or foot. This benefit excludes certain types of losses.
For example, losses due to suicide or attempted suicide, diseases and
infirmities and acts of war are not covered. The benefit may be subject to other
exclusions from coverage, age limitations, and benefit limitations. You should
refer to your Certificate to learn the details of any benefit that may be
available to you. This benefit ends when you reach age 75.
Extension of Coverage and Waiver of Cost of Insurance During Total Disability.
You may choose an extended death benefit that provides protection during your
total disability. Under this provision, we will waive your monthly charges if
you become totally disabled for at least 9 months prior to age 60. The amount of
insurance that will be extended is your Face Amount of insurance.
We will extend your insurance coverage for successive one-year periods,
generally until age 75. You must provide satisfactory proof of continued total
disability. At age 75, Monthly Charges will again be deducted and coverage may
lapse if the Certificate Fund is insufficient. See Lapse, page XX. If you choose
this optional benefit, it will reduce the amount of the annual refund that you
would otherwise receive from your Group Contractholder.
53
<PAGE>
Reports
Prudential will send you quarterly statements that gives you certain information
about your insurance. These statements will give you details about the value of
your Certificate Fund, about transactions that you made, and specific insurance
data about your coverage.
If you make a request, we will also send you a current statement about your
insurance. It will give you the same kind of information as the quarterly
statement does. We may limit the number of current statements you may request.
We will charge you $10 for additional statements. We may increase this charge in
the future, but we will not increase it above $20 for each additional report.
We will also send to you and to your Group Contractholder, annual and
semi-annual reports that list the securities held in each available portfolio of
the Funds. The federal securities laws require these reports. Prudential keeps
records about the Separate Account pursuant to the federal securities laws.
If you invest in the Series Fund through more than one variable insurance
contract, you will ordinarily receive only one copy of each annual and
semi-annual report issued by the Series Fund. But, if you want another copy of a
report, you may ask us for one by calling the telephone number listed on the
inside cover page of this prospectus.
Sale of the Contract
Prudential Investment Management Services LLC (referred to as "PIMS") acts as
the principal underwriter of the Group Contracts and Certificates. PIMS is a
direct, wholly-owned subsidiary of Prudential.
PIMS, organized in 1996 under Delaware law, is registered as a broker-dealer
under the federal securities laws. PIMS is also a member of the National
Association of Securities Dealers, Inc. PIMS's principal business address is 751
Broad Street, Newark, New Jersey 07102. PIMS also acts as principal underwriter
with respect to the securities of other Prudential investment companies.
The Group Contracts and Certificates are sold by persons who are registered
representatives of PIMS and who are also authorized by state insurance
departments. The Group Contracts and Certificates may also be sold through other
broker-dealers authorized by PIMS and applicable law to do so.
54
<PAGE>
The distribution agreement between PIMS and Prudential will terminate
automatically upon its assignment (as that term is defined in the federal
securities laws). But, PIMS may transfer the agreement, without the prior
written consent of Prudential, under the circumstances set forth in the federal
securities laws. Either party may terminate the agreement at any time if the
party gives 60 days written notice to the other party.
Ratings and Advertisements
Independent financial rating services -- including Moody's, Standard & Poors,
Duff & Phelps and A.M. Best Company -- rate Prudential. These ratings reflect
our financial strength and claims-paying ability. They are not intended to rate
the investment experience or financial strength of the Separate Account. We may
advertise these ratings from time to time. Furthermore, we may include in
advertisements comparisons of currently taxable and tax-deferred investment
programs, based on selected tax brackets, or discussions of alternative
investment vehicles and general economic conditions.
State Regulation
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. We
reserve the right to change the Group Contract and Certificate to comply with
applicable state insurance laws and interpretations thereof.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, we are required to file
with New Jersey and other jurisdictions a separate statement with respect to the
operations of all our variable contract accounts, in a form promulgated by the
National Association of Insurance Commissioners.
Experts
The financial statements in this registration statement for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996 have been audited by
______________________, independent accountants, as stated in their reports in
this
55
<PAGE>
prospectus. Prudential is relying on ___________________'s reports, which are
given on their authority as accounting and auditing experts. _______________'s
principal business address is ____________________________________. [Actuarial
expert sentence to be added by post-effective amendment.]
Litigation
On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales practices. (In re Prudential Insurance Company
of America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate, and later issued a Final Order and Judgement in the
consolidated class actions before the court, 962 F. Supp. 450 (March 17, 1997,
as amended April 14, 1997). The Court's Final Order and Judgement approving the
class Settlement was appealed to the United States Court of Appeals for the
Third Circuit, which upheld the district court's approval of the Stipulation of
Settlement on July 23, 1998. As of now no further appeal has been taken.
Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance contracts. As of December 31, 1997, based on a reasonable estimate of
losses associated with ADR claims, management estimated the cost, before taxes,
of remedying policyholder claims in the ADR process to be approximately $2.05
billion. While management believed these to be reasonable estimates based on
information then available, further estimates are currently being developed in
connection with the availability of more recent data. The ultimate amount of the
total cost of remedied policyholder claims is dependent on complex and varying
factors, including actual claims by eligible policyholders, the relief options
chosen and the dollar value of those options. There are also additional elements
of the ADR process which cannot be fully evaluated at this time (e.g., claims
which may be successfully appealed) which could increase this estimate.
In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation
56
<PAGE>
plan, whose terms closely parallel the Settlement approved in the MDL
proceeding, and agreed to a series of payments allocated to all 50 states and
the District of Columbia amounting to a total of approximately $65 million.
These agreements are now being implemented through Prudential's implementation
of the class Settlement.
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted. It is also not possible to
predict the likely results of any regulatory inquiries or their effect on
litigation which might be initiated in response to widespread media coverage of
these matters.
Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods, could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not have a material adverse effect on Prudential's
financial position, after consideration of applicable reserves.
Year 2000 Compliance
The services provided to the Group Contractholders by Prudential depend on the
smooth functioning of its computer systems. The year 2000, however, holds the
potential for significant disruption in the operation of these systems. Many
computer systems are programmed to recognize only the last two digits in a date.
As a result, any computer system that has date-sensitive programming may
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem can affect non-information technology systems that include embedded
technology, such as microprocessors included in "infrastructure" equipment used
for telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly which could in turn affect the accuracy
and compromise the integrity of business records. Business operations could be
interrupted when companies are unable to process transactions, send invoices, or
engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide
57
<PAGE>
progress of each component of Prudential's program for conversion and upgrading
of systems for Year 2000 compliance.
Business Applications
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000 compliant
systems, and the remaining 17% are being retired from production. At December
31, 1998, the percentage of business applications (based on application count)
in the implementation phase for Year 2000 compliance for renovation, replacement
and retirement are 99%, 96% and 99%, respectively. The interim target date for
completing renovations and retirements is March 1999, with an overall completion
date for Business Applications of June 1999.
Infrastructure
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The interim target date for
completion of certain Infrastructure components is March 1999 with an overall
completion date for Infrastructure of June 1999.
Business Partners
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency
58
<PAGE>
plans to address the potential that a business partner could experience a Year
2000 failure. Approximately 30% of our business partners have been identified as
highly critical and the remaining 70% as less critical. Project phases include
inventory, risk assessment, and contingency planning activities. All project
phases for highly critical business partner readiness were achieved in December
1998; we have an overall completion date for less critical business partner
readiness of June 1999.
The Cost of Year 2000 Readiness
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including those businesses not engaged in
providing services to Group Contractholders. Accordingly, while the expense is
substantial in the aggregate, it is not expected to have a material impact on
Prudential's ability to meet its contractual commitments to Group
Contractholders.
Year 2000 Risks and Contingency Planning
The major portion of Prudential's transactions are of such volume that they can
only be effectively processed through the use of automated systems. Therefore,
substantially all of Prudential's contingency plans include the ultimate
resolution of any causative technology failures that may be encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
significant impact on the timing of the project as a whole. During the course of
the Year 2000 program, some discretionary technology projects have been delayed
in favor of the completion of Year 2000 projects. However, this impact has been
minimized by Prudential's strategic decision to outsource most of the Year 2000
renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, Prudential is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the results of operations, liquidity or financial condition. In the worst case,
it is possible that any technology failure, including an internal or external
Year 2000 failure, could have a material impact on Prudential's results of
operations, liquidity, or financial position.
59
<PAGE>
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature.
60
<PAGE>
Definitions of Special Terms
Used in this Prospectus
Aon Securities Corporation -- A direct wholly-owned subsidiary of Aon
Corporation and an affiliate of Aon Insurance Services, the plan agent for the
Contract.
Applicant Owner -- A person other than the Eligible Group Member who obtains new
insurance coverage on the life of an Eligible Group Member. An Applicant Owner
may be, but is not limited to, the Eligible Group Member's spouse, child,
parent, grandparent, grandchild, sister, brother, or the trustee of any trust of
which the Eligible Group Member is the grantor.
Attained Age -- Your age on your last birthday on or prior to October 1 of each
year.
Business Day -- A day on which the New York Stock Exchange is open for trading.
Cash Surrender Value -- The amount you receive upon surrender of the
Certificate. The Cash Surrender Value is equal to your Certificate Fund on the
date of surrender, less any Certificate Debt and outstanding charges.
Certificate -- A document issued to you under the Group Contract, setting forth
or summarizing your rights and benefits.
Certificate Anniversary -- The same date each year as the Certificate Date.
Certificate Date -- The effective date of coverage under a Certificate.
Certificate Debt -- The principal amount of any outstanding loans you borrowed
under your Certificate plus any accrued interest.
Certificate Fund -- The total amount credited to you under your Certificate. On
any date it is equal to the sum of the amounts under that Certificate allocated
to: (1) the Subaccounts, (2) the Fixed Account, and (3) the Loan Account.
Certificate Year -- The year from the Certificate Date to the first Certificate
Anniversary or from one Certificate Anniversary to the next.
Contract Anniversary -- October 1 of each year.
Contract Date -- The date as of which the Group Contract is issued.
Covered Person -- The person whose life is insured under the Group Contract. The
Covered Person is generally the Participant.
Death Benefit -- The amount payable upon the death of the Covered Person (before
the deduction of any Certificate Debt or any outstanding charges).
Dividend -- A portion of Prudential's divisible surplus allocable to the Group
Contract that may be credited to the Group
61
<PAGE>
Contract as determined annually by Prudential's Board of Directors.
Eligible Group Members -- Members of the AICPA and/or a Qualified State Society
of CPAs who are less than age 75 and not disabled under the terms of the CPA
Flexible Life Insurance Plan. You may only be covered under either the CPA
Flexible Life Insurance Plan (Contract GO-14273) or the Group Variable Universal
Life Coverage, but not both.
Experience Credit -- A refund that Prudential may pay based on favorable
experience under the Group Contract.
Face Amount -- The amount of life insurance in your Certificate. The Face
Amount, along with your Certificate Fund, is a part of your Death Benefit.
Fixed Account -- An investment option under which Prudential guarantees that
interest will be added to the amount deposited at a rate we declare periodically
in advance of the effective date of the new rate.
Funds -- The Series Fund portfolios and other mutual fund portfolios in which
the Separate Account invests. Your investment options include the Funds and the
Fixed
Account.
Group Contract -- A Group Variable Universal Life insurance contract that
Prudential issues to Bankers Trust Company, as Trustee of the American Institute
of Certified Public Accountants Insurance Trust.
Group Contractholder -- Bankers Trust Company, as Trustee of the American
Institute of Certified Public Accountants Insurance Trust.
Issue Age -- The Covered Person's Attained Age on the date that the insurance on
that Covered Person goes into effect as defined by the Group Contract.
Loan Account -- An account within Prudential's general account to which we
transfer from the Separate Account and/or the Fixed Account an amount equal to
the amount of any loan.
Loan Value -- The amount (before any applicable transaction charge) that you may
borrow at any given time under your Certificate. We calculate the Loan Value by
multiplying the Certificate Fund by 90% (or higher where required by state law)
and then subtracting any existing loan with accrued interest, any outstanding
charges, and the amount of the next month's charges.
Modified Endowment Contract -- A type of life insurance contract or Certificate
under the Internal Revenue Code which has been funded in excess of
certain IRS limits. In general, a Certificate may be classified as a Modified
Endowment Contract (or "MEC") if premiums substantially in excess of scheduled
premiums are paid or a decrease in the Face Amount of insurance is made (or an
additional insurance benefit removed). Less favorable tax rules, and in some
cases a penalty tax, apply if you take distributions (such as withdrawals, loans
or assignments) from a MEC. Regardless of classification as a MEC, cash value
accrues on a tax deferred basis and the Death Benefit is generally received free
of income tax. See Tax Treatment of
62
<PAGE>
Certificate Benefits for a more complete description of the MEC rules.
Monthly Deduction Date -- The Contract Date and the first day of each succeeding
month, except that whenever the Monthly Deduction Date falls on a date other
than Business Day, the Monthly Deduction Date will be the next Business Day.
Net Premium -- Your premium payment minus any charges for taxes attributable to
premiums or any other charges deducted from premium payments. Net Premiums are
the amounts we allocate to the Separate Account and/or the Fixed Account.
Paid-up Coverage -- This type of life insurance coverage pays a Death Benefit of
a specific amount that does not change. You make one initial premium payment to
begin the coverage and never make any additional payments.
Participant -- An Eligible Group Member or Applicant Owner under a Group
Contract who obtains insurance under the Group Contract and is eligible to
exercise the rights described in the Certificate. We refer to Participants as
"you" in this prospectus. If you validly assign your rights as a Participant to
someone else, then that person may exercise those rights.
Separate Account -- Prudential Variable Contract Account GI-2, a separate
investment account registered as a unit investment trust under the federal
securities laws and established by Prudential to receive some or all of the Net
Premiums and to invest them in the Funds.
Series Fund -- The Prudential Series Fund, Inc., a mutual fund with separate
portfolios, some of which are available as investment options for the Group
Contract.
Subaccount -- A division of the Separate Account. Each Subaccount invests its
assets in the shares of a corresponding Fund.
We -- The Prudential Insurance Company of America.
You -- A Participant.
63
<PAGE>
Directors and Officers of Prudential
Directors of Prudential
Franklin E. Agnew - Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc. John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address: 600
Grant Street, Suite 660, Pittsburgh, PA 15219.
Frederick K. Becker - Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.
James G. Cullen - Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
Carolyne K. Davis - Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102.
Roger A. Enrico - Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.
Allan D. Gilmour - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995.
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford
64
<PAGE>
in 1960. Mr. Gilmour is also a director of Whirlpool Corporation, USWest, Inc.,
The Dow Chemical Company and DTE Energy Company. Age 63. Address: 751 Broad
Street, 23rd Floor, Newark, NJ 07102.
William H. Gray, III - Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979 to 1991. Mr.
Gray is also a director of Chase Manhattan Corporation, The Chase Manhattan
Bank, Lotus Development Corporation, Municipal Bond Investors Assurance
Corporation, Rockwell International Corporation, Union-Pacific Corporation,
Warner-Lambert Company, Westinghouse Electric Corporation, and Electronic Data
Systems. Age 56. Address: 8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.
Jon F. Hanson - Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
Glen H. Hiner, Jr. - Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.
Constance J. Horner - Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
Gaynor N. Kelley - Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.
Burton G. Malkiel - Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65.
65
<PAGE>
Address: Princeton University, 110 Fisher Hall, Prospect Avenue, Princeton, NJ
08544-1021.
Arthur F. Ryan - Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.
Ida F.S. Schmertz - Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994. Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
Charles R. Sitter - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.
Donald L. Staheli - Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.
Richard M. Thomson - Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.
James A. Unruh - Director since 1996 (current term expires April, 2000). Member,
Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.
P. Roy Vagelos, M.D. - Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.
66
<PAGE>
Stanley C. Van Ness - Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.
Paul A. Volcker - Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
Bankers Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite
420, New York, NY 10020.
Joseph H. Williams - Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74172.
Principal Officers of Prudential
Arthur F. Ryan - Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.
E. Michael Caulfield - Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.
Michele S. Darling - Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.
Robert C. Golden - Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.
Mark B. Grier - Executive Vice President, Financial Management since 1997; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 44.
67
<PAGE>
Rodger A. Lawson - Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.
John V. Scicutella - Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.
John R. Strangfeld - Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
R. Brock Armstrong - Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.
James J. Avery, Jr. - Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.
Martin A. Berkowitz - Senior Vice President and Comptroller since 1995; prior to
1995, Senior Vice President and CFO, Prudential Investment Corporation. Age 48.
William M. Bethke - Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.
Richard J. Carbone - Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.
Mark R. Fetting - President, Prudential Retirement Services since 1996; prior to
1996, President, Prudential Defined Contribution Services. Age 43.
William D. Friel - Senior Vice President and Chief Information Officer since
1993. Age 59.
Jean D. Hamilton - President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.
Ronald P. Joelson - Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.
Ira J. Kleinman - Executive Vice President, International Insurance Group, since
1997; prior to 1997, Senior Vice President. Age 51.
68
<PAGE>
Neil A. Mcguinness - Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.
Priscilla A. Myers - Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.
I. Edward Price - Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.
Kiyofumi Sakaguchi - President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.
Brian M. Storms - President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.
Robert J. Sullivan - Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.
Susan J. Blount - Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.
C. Edward Chaplin - Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
Prudential officers are elected annually.
69
<PAGE>
FINANCIAL STATEMENTS
[Financial statements to be added by post-effective amendment.]
70
<PAGE>
PROSPECTUS
May 1, 1999
The Prudential Insurance Company of America
The Prudential Variable Contract Account GI - 2
Group Variable Universal Life Insurance
For Employees of Morgan Guaranty Trust of NY
This document is a prospectus. It tells you about a Group Variable Universal
Life Insurance contract offered by The Prudential Insurance Company of America
("Prudential," "we," "our," or "us") to Morgan Guaranty Trust of NY ("Morgan
Guaranty"). The benefits available under the Group Variable Universal Life
Insurance Contract (the "Group Contract") are in addition to any Basic Employee
Term Life Insurance benefits.
Eligible Group Members are full-time and regular part-time employees of Morgan
Guaranty, including its subsidiaries and its affiliated companies, who are on
the U.S. payroll and scheduled to work 20 hours or more in a week.
We will give a Certificate to each Eligible Group Member or spouse who buys
coverage under the Group Contract. We will refer to each person who buys
coverage as a "Participant." When we use the terms "you" or "your", we mean a
Participant.
The Group Contract and Certificates provide life insurance protection with
flexible premium payments and a choice of underlying investment options. The
Death Benefit and Cash Surrender Value will change daily, depending on the
performance of the investment options you select. The Death Benefit will usually
not be less than the Face Amount of the Certificate. Surrenders, partial
withdrawals and loans are available but certain rules and limits apply to how
they work.
We have tried to make this prospectus easy to understand. Still, the meaning of
some terms are special because they describe concepts used mostly in insurance
contracts. To help you understand what these terms mean, we added a Definitions
of Special Terms section on page XX. It's easy to recognize a defined term -- we
capitalize any defined terms that we use.
A word about replacing your life insurance: You should know that, most times, it
is not in your best interest to replace one life insurance policy with another
one. When you need additional life insurance, it is usually better for you to
add coverage -- either by asking for a new policy or by buying additional
insurance -- than it is for you to replace a policy. In that way, you don't lose
benefits under the policy you already have.
If you are thinking about replacing a life insurance policy you already have so
that you can obtain Group Variable Universal Life Insurance, you should consider
your choices carefully. Compare the costs and benefits of adding coverage to
your current policy against the costs and benefits of Group Variable Universal
Life Insurance. You should get advice from a tax advisor.
You should read this prospectus carefully and keep it for future reference. This
document will be followed by prospectuses for each of the funds under the group
program that will be available to you.
The Group Contractholder chose the funds that are available to you.
The U.S. Securities and Exchange Commission has not approved or disapproved
these securities, or determined that this prospectus is accurate or complete.
Any representation to the contrary is a criminal offense.
The Prudential Insurance Company of America
751 Broad Street
Newark, New Jersey 07102-3777
Telephone (800) 562-9874
The SEC maintains a Web site (http://www.sec.gov) that contains material
incorporated by reference and other information regarding issuers that file
electronically with the SEC.
<PAGE>
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (called the "Separate Account")
has a number of investment options, twelve of which are currently available to
you. We call each option a "Subaccount." We will invest the assets of each
Subaccount in one of three families of mutual funds. They are:
o The Prudential Series Fund, Inc. (called the "Series Fund")
o The J.P. Morgan Series Trust II
o The American Century Variable Portfolios, Inc.
When we refer to "Funds" in this prospectus, we mean all or any of these funds.
You may choose investment options from among the twelve available Funds or you
may choose to invest in the Fixed Account. (The Fixed Account is an investment
option for which Prudential guarantees that the effective annual interest rate
will be at least 4%.)
Once you select the investment options you want, Prudential will direct your
premium payments to the Subaccount associated with those Funds or to the Fixed
Account.
We describe the twelve available Funds briefly in the section called "The
Funds." It starts on page X. We will send you a prospectus for each Fund
selected by your Group Contractholder. The Fund prospectuses tell you about the
objectives and policies for each Fund, as well as about the risks of investing
in each Fund.
<PAGE>
Table of Contents
Page
Brief Description of the Group Contract and Certificate.....................
Illustrations of Death Benefits and Cash Surrender Values...................
General Information about Prudential, The Prudential Variable Contract
Account GI-2, and The Variable Investment Options under the Certificates....
The Prudential Insurance Company of America..............................
The Prudential Variable Contract Account GI-2............................
The Funds................................................................
Fund Names and Objectives................................................
Fund Fees and Expenses...................................................
Fund Advisers............................................................
The Fixed Account........................................................
Detailed Information About the Certificates.................................
Who is Eligible for Coverage.............................................
How Prudential Issues Certificates.......................................
A "Free Look" Period.....................................................
Evidence of Good Health..................................................
Procedures...............................................................
Premiums.................................................................
Effective Date of Insurance..............................................
How Prudential Will Deposit and Invest Premium Payments..................
How You Can Change the Way Prudential Allocates Future Premium Payments..
How You Can Transfer Amounts In Your Certificate Fund
From One Investment Option to Another....................................
Dollar Cost Averaging....................................................
Death Benefits...........................................................
Changes in Face Amount...................................................
Charges and Expenses.....................................................
Cash Surrender Value.....................................................
Full Surrenders..........................................................
Paid-up Coverage.........................................................
Partial Withdrawals......................................................
Loans....................................................................
Lapse....................................................................
Termination of the Group Contract........................................
Participants Who Are No Longer Eligible Group Members
(or Spouses of Eligible Group Members)...................................
Options on Termination of Coverage.......................................
Reinstatement............................................................
ii
<PAGE>
Tax Treatment of Certificate Benefits....................................
ERISA Considerations.....................................................
When Proceeds Are Paid...................................................
Beneficiary..............................................................
Incontestability.........................................................
Misstatement of Age......................................................
Suicide Exclusion........................................................
Assignment...............................................................
Voting Rights............................................................
Substitution of Fund Shares..............................................
Reports..................................................................
Sale of the Contract and Sales Commissions...............................
Ratings and Advertisements...............................................
Services Performed by Third Parties......................................
State Regulation.........................................................
Experts..................................................................
Litigation...............................................................
Year 2000 Compliance.....................................................
Definitions of Special Terms Used in this Prospectus........................
Directors and Officers of Prudential........................................
Financial Statements........................................................
Consolidated Financial Statements of The Prudential Insurance
Company of America and Subsidiaries.........................................
You should not consider this prospectus to be an offering in any jurisdiction
where an offering may not be lawfully made. You should rely on the information
contained in this prospectus and any supplement to it. We have not authorized
anyone to provide you with information that is different.
iii
<PAGE>
Brief Description of the Group Contract and Certificate
In this section of the prospectus, we answer some questions that are frequently
asked about the Group Variable Universal Life Insurance issued to Morgan
Guaranty and about the Certificates issued under the Group Contract. You can
find more detailed information on later pages of the prospectus.
The Group Contract and Certificate provide even more detailed information. You
will get a Certificate if you buy the Group Variable Universal Life Insurance.
What is the Group Variable Universal Life Insurance contract?
It is an insurance contract issued by Prudential to Morgan Guaranty. It states
all the terms of the agreement between Prudential and Morgan Guaranty. It forms
the entire agreement between them. Among other things, the Group Contract
defines which members of the group are eligible to buy the Group Variable
Universal Life Insurance.
We will give a Certificate to each Eligible Group Member and spouse who buys
coverage under the Group Contract. The Certificate provides for a Death Benefit
and a Cash Surrender Value. The Death Benefit and the Cash Surrender Value can
change every day. They change based on the performance of the investment options
you selected.
How does Prudential calculate the Certificate's Death Benefit?
When you buy Group Variable Universal Life Insurance, you will choose a Face
Amount of insurance, within certain limits. Prudential will calculate the Death
Benefit like this:
o The Death Benefit is the Face Amount of insurance plus the value of your
Certificate Fund on the date of your death minus any Certificate Debt and
outstanding charges.
(In some cases, we will increase the Death Benefit to an amount that is more
than the Face Amount plus the value of the Certificate Fund. We will do that to
make sure that the Certificate meets the definition of "life insurance" under
the Internal Revenue Code. We will still deduct any Certificate Debt and
outstanding charges.)
The Certificate Fund consists of the Net Premiums that we invest in the
investment options you selected. Prudential will deduct its charges for the
insurance from the Certificate Fund. The value of the Certificate Fund will
change each day based on the performance of those investment options and to
reflect the deduction of daily charges.
See the Death Benefits section on page X.
1
<PAGE>
How does Prudential calculate the Cash Surrender Value of the Certificate?
Prudential calculates the Cash Surrender Value of a Certificate like this:
o The Cash Surrender Value is the value of the Certificate Fund on the day of
the surrender minus any Certificate Debt and outstanding charges.
See the Cash Surrender Value section on page X.
What premiums must I pay?
You can usually choose how often you pay premiums and the amount of premiums.
Participants and spouses employed by Morgan Guaranty, its subsidiaries and
affiliates will generally make premium payments by automatic payroll deduction.
Prudential will keep your insurance in force as long as the balance in your
Certificate Fund is enough to pay the charges that are due to Prudential each
month. If the balance in your Certificate Fund is not enough to pay any month's
charges, you must make a premium payment that is enough to bring your
Certificate Fund balance above this minimum amount. You must make that payment
during the grace period. If you don't, your insurance coverage will end.
See the Premiums section on page X.
What investment options are available?
The Separate Account has twelve Subaccounts that are currently available to
Participants. We invest the assets of each Subaccount in its corresponding Fund.
In the future, Morgan Guaranty may make additional Funds available, up to a
maximum of twenty Funds.
You may invest in any of the twelve Funds and in the Fixed Account. (The Fixed
Account is an investment option for which Prudential guarantees that the
effective annual interest rate will be at least 4%. See The Fixed Account
section on page X.)
See The Funds section on page X. The prospectuses for each Fund also give more
information about each Fund.
2
<PAGE>
Does Group Variable Universal Life Insurance offer choice and flexibility in the
amount of insurance protection I can get?
Yes. The Death Benefit under a Certificate includes, among other things, the
value of your Certificate Fund. The value of your Certificate Fund will vary
with the investment performance of the investment options you select. So, your
Death Benefit could grow more than it could under a certificate that does not
include investment options. But, the Death Benefit may also go down if the
investment options in your Certificate Fund have poor investment performance.
You choose how to invest the amount you have in your Certificate Fund. You may
choose more aggressive Funds or less aggressive Funds. What you choose depends
on your personal circumstances and your investment objectives and how they may
change over time.
If you prefer to avoid or reduce the risks that come with investing in the
Funds, you can choose to direct some or all of the amount in your Certificate
Fund to the Fixed Account. Prudential guarantees that the part of your
Certificate Fund that is directed to the Fixed Account will earn interest daily
at a rate that Prudential declares periodically. That rate will change from time
to time, but it will never be lower than 4%. See The Fixed Account section on
page X.
What charges does Prudential make?
We deduct certain charges from each premium payment that you make and from the
amounts that are held in each investment option. These charges compensate us for
insurance costs, risks, and expenses.
All charges made by Prudential are described in detail in the Charges and
Expenses section on page XX. This chart briefly outlines the charges that may be
made:
- --------------------------------------------------------------------------------
You make a premium payment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Then, Prudential deducts these charges:
o A charge for taxes on premium payments. Currently, this charge is 2.3%. (In
some states, this charge is known as a premium-based administrative
charge.)
o A processing charge of up to $2. We do not currently impose this charge.
o A sales charge of up to 3 1/2%. We do not currently impose this charge.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
The remainder is your Net Premium Amount
This is the amount that you can invest in one or more of the available
investment options.
- --------------------------------------------------------------------------------
Daily Charges
After your Net Premium Amount is directed to your investment option(s),
Prudential deducts these daily charges from the Subaccounts (but not from the
Fixed Account):
o A daily charge for mortality and expense risks. This charge is deducted
from the assets of the Subaccount(s) that correspond to the Fund(s) you
selected.
Currently, this charge is equivalent to an effective annual rate of 0.45%.
Prudential guarantees that this charge will not be more than an effective
annual rate of 0.90%.
o A daily charge for investment management fees and expenses. These charges
are deducted from the assets of the Fund(s) you selected. The Funds set
these charges. The charges are described more fully on pages X to XX.
In 1998, the total expenses (after expense reimbursement) of the Funds ranged
from X.XX% to X.XX% of their average net assets.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Monthly Charges
Prudential deducts these charges from your Certificate Fund each month:
o A charge for administrative expenses. Currently, this charge may be up to
$2 per month. Prudential guarantees that it will not be more than $6 per
month.
o A charge for the cost of insurance.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
Additional Charges
The Group Contract also permits Prudential to make the following transaction
charges:
o When you request more than 12 transfers between investment options in a
Certificate Year. The charge may be up to $20 for each transfer after the
12th one. This charge will not increase.
o When a Participant who is no longer an Eligible Group Member continues
coverage on a Portable basis. The additional administrative charge for
direct billing is $3 per bill. The Participant may elect to receive
quarterly, semi-annual or annual bills.
Also, Prudential has the right to make a charge for any taxes that may be
imposed on the operations of the Separate Account. No such charge is currently
made. Prudential also has the right to assess charges for certain other
transactions.
- --------------------------------------------------------------------------------
Can I make withdrawals from the Certificate Fund?
Yes. You may request a partial withdrawal from the Certificate Fund. You may
also surrender your insurance and receive its Cash Surrender Value. See the
Partial Withdrawals section on page XX and the Full Surrenders section on page
XX.
Can I take loans?
Yes. You may borrow money from your Certificate Fund. The Loan Value, which is
the maximum amount you may borrow, is 90% of your Certificate Fund minus any
existing loan (and its accrued interest), outstanding charges, and the amount of
the next month's charges. In states that require it, you may borrow a greater
amount.
When you take a loan from your Certificate Fund, here's what happens:
o The amount of the loan is transferred from your investment options to a
Loan Account. This Loan Account is still part of your Certificate Fund.
o The Loan Account earns interest at an effective annual rate that is
currently 1% less than the rate Prudential charges as interest on the loan.
The term "Certificate Debt" is used to mean any outstanding loan plus its
accrued interest. Certificate Debt is deducted from any amount payable at the
Covered Person's death. It is also deducted from the Certificate's Cash
Surrender Value.
5
<PAGE>
How is my insurance coverage affected when I am no longer a member of the group?
You may continue your insurance even though you are no longer part of the group
or no longer the spouse of an Eligible Group Member, if you meet eligibility
requirements. The charges for continued insurance may be higher.
You may also surrender the insurance for its Cash Surrender Value, elect to use
the Cash Surrender Value to buy Paid-up Coverage, or convert the insurance to an
individual life insurance policy.
See the Options on Termination of Coverage section on page XX.
What is the Federal income tax status of amounts received under the Certificate?
Variable life insurance contracts receive the same Federal income tax treatment
as conventional life insurance contracts (those where the amount of the death
benefit is fixed instead of variable). Here's what that means:
o First, the Death Benefit is generally not included in the gross income of
the beneficiary.
o Second, increases in the value of the Certificate Fund are generally not
included in the taxable income of the Participant. This is true whether the
increases are from income or capital gains.
o Third, surrenders and partial withdrawals are generally treated first as a
return of your investment in the Certificate and then as a distribution of
taxable income.
o Fourth, loans are not generally treated as distributions.
See the Tax Treatment of Certificate Benefits section on page XX. You should
consult your tax advisor for guidance on your specific situation.
Illustrations of Death Benefits and Cash Surrender Values
On the next two pages, we show you two examples of how the Death Benefit and the
Cash Surrender Value of your Certificate can change as a result of the
performance of the investment options you select. The examples are not our
prediction of how value will grow. They are hypothetical examples and are just
intended to show you how a Certificate works.
6
<PAGE>
We call these examples "illustrations." The illustrations are based on several
assumptions about the age of the Participant, the amount of insurance, and the
rules of the Group Contract that the Participant is covered under.
Assumptions we used for both illustrations:
Here's what we assumed about the Certificate in both illustrations:
o The Participant was 40 years old when he or she bought the Group Variable
Universal Life Insurance Certificate.
o The Face Amount of insurance under the Certificate is $100,000.
o The Participant makes a $100 payment on the first day of each month, for a
total of $1,200 over the course of each year.
o The Participant allocated the Certificate Fund so that an equal amount is
invested in each of the twelve available Funds.
o Prudential deducts monthly Certificate Fund charges on the first day of
each month.
o Prudential deducts a charge for taxes on premium payments of 2.3% of each
premium payment.
Illustration #1
In Illustration #1, we assumed that Prudential will make the maximum charges
permitted by the Group Contract for sales, processing, administrative expenses,
mortality and expense risk, cost of insurance and surrender charges. We assumed
the maximum level of charges will stay in effect for the entire time the
Certificate is in effect. (Current charges are less than these assumptions, but
Prudential has the right to charge up to these maximum amounts.)
Specifically:
o The sales charge is 3.5% of premiums.
o The premium processing charge is $2.
o The surrender charge is equal to the lesser of $20 and 2% of the amount you
receive upon surrender.
o The charge each month for administrative expenses is $6.
7
<PAGE>
o The daily charge for mortality and expense risks is equivalent to an
effective annual rate of 0.90%.
o The Participant has cost of insurance charges equal to the maximum rates.
(The maximum rates that can be charged are 150% of the 1980 Commissioner's
Standard Ordinary Mortality Table (Male), Age Last Birthday (the "1980 CSO
Table")).
Illustration #2
In Illustration #2, we changed our assumptions about the charges Prudential will
deduct instead of maximum charges, we assumed that Prudential will deduct its
current level of charges for sales, processing, administrative expenses,
mortality and expense risk, cost of insurance, and surrender charges. We assumed
the current level of charges will stay in effect for the entire time the
Certificate is in effect.
Specifically:
o Prudential will make no sales charge, processing charge, or surrender
charge.
o The charge each month for administrative expenses is $2.
o The daily charge for mortality and expense risks is equivalent to an
effective annual rate of 0.45%.
o The cost of insurance charges are those currently used for a non-smoker
under the Morgan Guaranty Group Contract.
Assumptions about investment performance
Each illustration shows three different assumptions about the investment
performance or "investment return" - of the Funds. The three different
assumptions are:
o Gross annual rate of return is 0%
o Gross annual rate of return is 4.5%
o Gross annual rate of return is 9%
These are only assumptions to show how the Death Benefit and Cash Surrender
Value change depending on the investment return. Actual investment return will
depend on the investment options you select and will vary from year to year.
8
<PAGE>
Walking Through The Illustrations
Here's what to look for in the illustrations:
o The first column shows the Certificate Year.
o The second column gives you some context for comparing the investment
return under the Certificate to the return you might expect from a savings
account. It shows the amount you would accumulate if you invested the same
premiums in a savings account crediting a 4% effective annual rate. (Of
course, a savings account does not offer life insurance protection like the
Certificate does.)
o The next three columns show what the Death Benefit would be for each of the
three investment return assumptions (0%, 4.5%, and 9%).
o The last three columns show what the Cash Surrender Value would be for each
of the three investment return assumptions (0%, 4.5%, and 9%).
You should note that:
o Both "gross" and "net" investment returns are shown.
o "Gross" investment return reflects the combined effect of both income on
the investment and capital gains. It is the amount of return before
Prudential takes out any of its charges and before any Fund investment
management fees and other expenses are taken out.
o "Net" investment return is the amount of the investment return after
Prudential takes out its charges and after Fund investment management fees
and other expenses are taken out. Since Illustration #1 and Illustration #2
use different assumptions about charges, the "net" investment returns for
each illustration are different.
o The net return reflects an average total annual expense ratio of the twelve
available Funds of X.XX% and the daily mortality and expense risk charges
described above.
o For Illustration #2, Prudential's charges are at 0.45% per year. So, gross
returns of 0%, 4.5%, and 9% become net returns of X.XX%, X.XX%, and X.XX%.
o For Illustration #1, Prudential's charges are at 0.90% per year. So, gross
returns of 0%, 4.5%, and 9% become net returns of X.XX%, X.XX%, and X.XX%.
o The Death Benefits and Cash Surrender Values are shown with all of
Prudential's charges and investment management fees and other expenses
taken out.
9
<PAGE>
o We assumed no loans or partial withdrawals were taken.
o Neither illustration reflects Dividends or Experience Credits. (Prudential
may pay Dividends or Experience Credits to Group Contractholders. See the
Dividends or Experience Credits section on page XX.)
If you ask, Prudential will give you a similar illustration for a Certificate
that shows your age, risk class, proposed Face Amount of insurance, and proposed
premium payments. We refer to this as a "personalized illustration."
Illustrations
1. Change title on first page to "Illustration #1" and title on second
page to Illustration #2.
2. Change caveats on both pages to:
We show these rates of investment return only to help you understand how the
Certificate works. You should not assume that the investment rates of return are
actual rates of return. You should also not assume that these rates are examples
of past or future investment performance. Neither Prudential nor the Funds can
tell you whether these rates of investment return can actually be achieved.
The actual rates of investment return for your Certificate will depend on how
the investment options that you choose perform. You may earn more or less than
what is shown in the illustration.
The Death Benefits and Cash Surrender Values would be different from those shown
if the actual rate of return for a Certificate Year varied above or below the
average, hypothetical rates of 0%, 4.5%, and 9%.
10
<PAGE>
General Information About:
o Prudential
o The Prudential Variable Contract Account GI-2
o The Variable Investment Options under the Certificates
The Prudential Insurance Company of America
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. Prudential
is currently considering reorganizing itself into a stock company. This form of
reorganization, known as demutualization, is a complex process that may take two
years or more to complete. No plan of demutualization has been adopted yet by
Prudential's Board of Directors. Any plan of reorganization adopted by the Board
of Directors would have to be approved by qualified policyholders and
appropriate state insurance regulators. Throughout the process, there will be a
continuing evaluation by the Board of Directors and management of Prudential as
to the desirability of demutualization. The Board of Directors, in its
discretion, may choose not to demutualize or to delay demutualization for a
time.
Prudential is licensed to sell life insurance and annuities in all states, in
the District of Columbia, and in all United States territories and possessions.
Prudential's consolidated financial statements begin on page XX and should be
considered only as bearing upon Prudential's ability to meet its obligations
under the Group Contracts and Certificates.
Prudential and its affiliates act in several ways with respect to registered
investment companies, including depositor, advisor, and principal underwriter.
The Prudential Variable Contract Account GI-2
The Prudential Variable Contract Account GI-2 (the "Separate Account") was
established on June 14, 1988 under New Jersey law as a separate investment
account. The Separate Account meets the definition of a "separate account" under
the federal securities laws. The Separate Account holds assets that are
segregated from all of Prudential's other assets.
The obligations arising under the Group Contracts and the Certificates are
general corporate obligations of Prudential. Prudential is also the legal owner
of the assets in the Separate Account. Prudential will maintain assets in the
Separate Account with a total
11
<PAGE>
market value at least equal to the liabilities relating to the benefits
attributable to the Separate Account. These assets may not be charged with
liabilities which arise from any other business Prudential conducts. In addition
to these assets, the Separate Account's assets may include funds contributed by
Prudential to commence operation of the Separate Account and may include
accumulations of the charges Prudential makes against the Separate Account. From
time to time, these additional assets will be transferred to Prudential's
general account. Before making any such transfer, Prudential will consider any
possible adverse impact the transfer might have on the Separate Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the federal securities laws as a unit investment trust, which is a
type of investment company. This does not involve any supervision by the SEC of
the management or investment policies or practices of the Separate Account. For
state law purposes, the Separate Account is treated as a part or division of
Prudential. There are currently 136 Subaccounts within the Separate Account,
each of which invests in a corresponding Fund. Prudential reserves the right to
take all actions in connection with the operation of the Separate Account that
are permitted by applicable law (including those permitted upon regulatory
approval).
The Funds
Set out below is a list of each Fund, its investment objectives, investment
management fees and other expenses, and its investment advisor/investment
manager. Some Funds also provide information about their principal strategies.
Certain of the Funds have adopted distribution plans pursuant to Rule 12b-1 of
the 1940 Act, and under those plans, the Fund may make payments to Prudential
and/or its affiliate for certain marketing efforts.
Fund Names and Objectives
The Prudential Series Fund, Inc.
The portfolios of the Series Fund in which the Separate Account may currently
invest and their investment objectives, principal strategies and fees are as
follows:
Flexible Managed Portfolio: The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
Portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
Global Portfolio: The investment objective is long-term growth of capital. The
Portfolio invests primarily in common stocks (and their equivalents) of foreign
and U.S. companies.
12
<PAGE>
High Yield Bond Portfolio: The investment objective is a high total return. The
Portfolio invests primarily in high yield/high risk debt securities.
Money Market Portfolio: The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity. The
Portfolio invests in short-term debt obligations that mature in 13 months or
less.
Prudential Jennison Portfolio: The investment objective is to achieve long-term
growth of capital. The Portfolio invests primarily in equity securities of major
established corporations that offer above average growth prospects.
American Century Variable Portfolios, Inc.
The portfolios of American Century Variable Portfolios, Inc. in which the
Separate Account may currently invest and their investment objectives and fees
are as follows:
VP Balanced Portfolio: The investment objective of the VP Balanced Portfolio is
capital growth and current income. Management of the Portfolio intends to
maintain approximately 60% of the Portfolio's assets in the equity securities
described in the prospectus, and intends to maintain approximately 40% of the
Portfolio's assets in fixed income securities.
VP International Portfolio: Seeks capital growth over time by investing in
common stocks of foreign companies considered to have better-than-average
prospects for appreciation.
VP Value Portfolio: Seeks long-term capital growth with income as a secondary
objective. The fund seeks to achieve its objectives by investing primarily in
equity securities of well-established companies that are believed by management
to be undervalued at the time of purchase.
J.P. Morgan Series Trust II
The portfolios of the J.P. Morgan Series Trust II in which the Separate Account
may currently invest and their investment objectives and fees are as follows:
J.P. Morgan Bond Portfolio: Seeks to provide a high total return consistent with
moderate risk of capital and maintenance of liquidity. Total return will consist
of realized and unrealized capital gains and losses plus income less expenses.
Although the net asset value of the Portfolio will fluctuate, the Portfolio
attempts to preserve the value of its investments to the extent consistent with
its objective.
J.P. Morgan Equity Portfolio: Seeks to provide a high total return from a
portfolio comprised of selected equity securities. Total return will consist of
realized and
13
<PAGE>
unrealized capital gains and losses plus income less expenses. The Portfolio
invests primarily in the common stock of U.S. corporations with market
capitalizations above $1.5 billion.
J.P. Morgan International Opportunities Portfolio: Seeks to provide a high total
return from a portfolio of equity securities of foreign corporations. Total
return will consist of realized and unrealized capital gains and losses plus
income less expenses.
J.P. Morgan Small Company Portfolio: Seeks to provide a high total return from a
portfolio of equity securities of small companies. Total return will consist of
realized and unrealized capital gains and losses plus income less expenses. The
Portfolio invests at least 65% of the value of its total assets in the common
stock of small U.S. companies primarily with market capitalizations less than $1
billion.
Fund Fees and Expenses
<TABLE>
<CAPTION>
================================================================================================================
Total Fund
Investment Other Annual Expenses
Funds Management Fee Expenses (After Expense
Reimbursements)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Series Fund
Flexible Managed Portfolio (1) _.__% _.__% _.__%
Global Portfolio (1) _.__% _.__% _.__%
High Yield Bond Portfolio (1) _.__% _.__% _.__%
Money Market Portfolio (1) _.__% _.__% _.__%
Prudential Jennison Portfolio (1) _.__% _.__% _.__%
================================================================================================================
American Century Variable Portfolios, Inc.
VP Balanced Portfolio (2) _.__% _.__% _.__%
VP International Portfolio (2) _.__% _.__% _.__%
VP Value Portfolio (2) _.__% _.__% _.__%
================================================================================================================
J.P. Morgan Series Trust II
J.P. Morgan Bond Portfolio (3) _.__% _.__% _.__%
J.P. Morgan Equity Portfolio (3) _.__% _.__% _.__%
J.P. Morgan International _.__% _.__% _.__%
Opportunities Portfolio (3)
J.P. Morgan Small Company Portfolio (3) _.__% _.__% _.__%
================================================================================================================
</TABLE>
(1) Series Fund. With respect to the Series Fund portfolios, except for the
Global Portfolio, Prudential reimburses a portfolio when its ordinary
operating expenses, excluding taxes, interest, and brokerage commissions
exceed _.__% of the portfolio's average daily net assets. The amounts
listed for the portfolios under Other Expenses are based on amounts
incurred in the last fiscal year.
14
<PAGE>
(2) Fees are all-inclusive.
(3) The information in the foregoing table has been restated to reflect an
agreement by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"),
an affiliate of Morgan, to reimburse the Trust to the extent certain
expenses exceed in any fiscal year _.__%, _.__%, _.__% and _.__% of the
average daily net assets of J.P. Morgan Bond Portfolio, J.P. Morgan Equity
Portfolio, J.P. Morgan International Opportunities Portfolio and J.P.
Morgan Small Company Portfolio, respectively. Without such reimbursements,
total fund annual expenses would have been _.__% for the J.P. Morgan Bond
Portfolio, _.__% for the J.P. Morgan Equity Portfolio, _.__% for the J.P.
Morgan International Opportunities Portfolio and _.__% for the J.P. Morgan
Small Company Portfolio.
Fund Advisers
Prudential is the investment adviser of each of the portfolios of the Series
Fund. Prudential's principal business address is 751 Broad Street, Newark, New
Jersey 07102- 3777. Prudential has a service agreement with its wholly-owned
subsidiary The Prudential Investment Corporation ("PIC"), which provides that,
subject to Prudential's supervision, PIC will furnish investment advisory
services in connection with the management of the Series Fund. In addition,
Prudential has entered into a subadvisory agreement with its wholly-owned
subsidiary Jennison Associates Capital Corp. ("Jennison"), under which Jennison
furnishes investment advisory services in connection with the management of the
Prudential Jennison Portfolio. Further detail is provided in the prospectus and
statement of additional information for the Series Fund. Prudential, PIC and
Jennison are registered as investment advisers under the Investment Advisers Act
of 1940.
The investment adviser for each fund is American Century Investment Management,
Inc. ("ACIM"). ACIM's principal business address is American Century Tower, 4500
Main Street, Kansas City, Missouri 64111. Funds Distributor, Inc. distributes
shares of American Century funds, and all sales of fund shares are subject to
approval by Funds Distributor, Inc.
J.P. Morgan Investment Management Inc. ("Morgan" or the "Adviser") serves as the
investment adviser to each of the above-mentioned portfolios. Morgan's principal
business address is 522 Fifth Avenue, New York, New York 10036. The Trust's
distributor is Funds Distributor, Inc. located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Certain of the Funds have investment objectives and policies closely resembling
those of mutual funds within the same complex that are sold directly to
individual investors. Despite such similarities, there can be no assurance that
the investment performance of any such Fund will resemble that of its retail
fund counterpart.
15
<PAGE>
You will receive a prospectus for each available Fund. That prospectus will
describe the Fund, its investment objective and strategies, its risks, and its
management fees and other expenses. You should read the Fund prospectuses
together with this prospectus. As with all mutual funds, a Fund may not meet its
investment objective. Subject to applicable law, Prudential may stop offering
one or more funds or may substitute a different mutual fund for any Fund.
Each Fund has provided Prudential with information about its management fees and
other expenses. Except for the Series Fund, Prudential has not verified that
information independently.
The Fixed Account
You may invest all or part of your Certificate Fund in the Fixed Account. The
amount invested in the Fixed Account becomes part of Prudential's general
assets, commonly referred to as the general account. The part of the Certificate
Fund that you invest in the Fixed Account will accrue interest daily at a rate
that Prudential declares periodically. This rate will not be less than an
effective annual rate of 4%. Prudential may in its sole discretion sometimes
declare a higher rate. At least annually and anytime you ask, we will tell you
what interest rate currently applies. Under some Group Contracts, Prudential may
determine interest rates based on the contract year we receive the premium
payments.
We strictly limit your right to make transfers out of the Fixed Account. See
Transfers, page XX. Prudential has the right to delay payment of any Cash
Surrender Value attributable to the Fixed Account for up to 6 months. See When
Proceeds Are Paid, page XX.
Because of exemptive and exclusionary provisions, Prudential has not registered
the Fixed Account or the general account under the federal securities laws.
Prudential has been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosure in this Prospectus relating to the
Fixed Account. Disclosures concerning the Fixed Account may, however, be subject
to certain provisions of the federal securities laws relating to the accuracy of
statements made in a prospectus.
Detailed Information About the Certificates
Who is Eligible for Coverage
Eligible Group Members are full-time and regular part-time employees of Morgan
Guaranty, including its subsidiaries and its affiliated companies, who are on
the U.S.
16
<PAGE>
payroll and scheduled to work 20 hours or more in a week. Subsidiaries and
affiliated companies include all companies that Morgan Guaranty asked Prudential
to include in the Group Contract, provided Prudential has agreed to include
them.
An Eligible Group Member's spouse may apply separately for coverage under the
Group Contract.
Former employees (and their spouses) who retire or otherwise end employment
after January 1, 1999 may continue their coverage on a Portable basis, if they
meet certain eligibility requirements. See the Participants Who Are No Longer
Eligible Group Members section on page XX.
How Prudential Issues Certificates
To apply for coverage under a Group Variable Universal Life Insurance Contract,
an Eligible Group Member or spouse must fill out an enrollment form. Prudential
may ask questions about the health of the person whose life is to be covered,
and may ask that person to have a medical exam. See the Evidence of Good Health
section on page XX.
If Prudential approves the person for coverage, that person will become a
Participant under the Group Variable Universal Life Insurance. Prudential will
issue a Certificate to each Participant. The Certificate tells you about the
rights, benefits, coverage, and obligations of the Group Variable Universal Life
Insurance.
Minimum and Maximum Face Amounts of Insurance: For a Certificate that covers an
Eligible Group Member's life, the minimum Face Amount of Insurance is generally
$50,000. The maximum Face Amount is generally the lesser of $1,500,000 and five
times that person's Annual Base Salary at the time of enrollment.
For a Certificate that covers the life of a spouse, the minimum Face Amount of
Insurance is $50,000. The maximum Face Amount is $300,000.
Minimum and Maximum Ages: Generally, Prudential will not issue Certificates for
a person who is younger than 18 or older than 74. And, Prudential will generally
end a Participant's coverage at age 100.
When a Participant reaches age 100, we make available these three options:
o You may ask to receive the Cash Surrender Value of the Certificate.
(Prudential believes that a cash surrender upon termination of coverage
will be subject to the same tax treatment as other surrenders. See the Tax
Treatment of Certificate Benefits on page XX.)
17
<PAGE>
o You may use some or all of the Certificate Fund to buy Paid-up Coverage.
See the Paid-up Coverage section on page X.
o You may remain invested in your investment options. Under this option, we
will no longer deduct monthly charges for the cost of insurance. The Death
Benefit will change. Specifically, the Death Benefit will be equal to the
amount of the Certificate Fund, minus any Certificate Debt and outstanding
charges. The Death Benefit will no longer include the Face Amount of
insurance. Also, we will no longer allow you to make premium contributions.
You can still make loan repayments.
A "Free Look" Period
You may return a Certificate for a refund within 10 days after you receive it.
These 10 days are known as the "free look" period. Some states allow a longer
period. You can ask for a refund by mailing the Certificate back to Prudential.
If you cancel your coverage during the free look period, we will generally
refund the premium payments you made, minus any loans or withdrawals that you
took. We will not add or subtract any gain or loss that would have come from the
investment options you chose (unless a state law requires that we take those
gains or losses into account when we make a refund). When we make a refund, we
will not deduct any charges.
During the first 10 days after the Certificate Date, your premium payments will
be invested in the Series Fund Money Market Portfolio. Prudential reserves the
right to limit contributions and transactions during the free look period.
Evidence of Good Health
For Face Amounts of Insurance up to the lesser of two times your Annual Base
Salary and $100,000, Prudential will ask you to answer questions about your
health. If you answer positively to any of the questions, Prudential may ask you
to have medical testing.
For amounts of insurance greater than the lesser of two times your Annual Base
Salary and $100,000, Prudential will ask you to have medical testing.
A Covered Person who was enrolled and approved prior to January 1, 1999 does not
have to provide evidence of good health for any amount of coverage already
approved by Prudential.
18
<PAGE>
Procedures
An Eligible Group Member or spouse who wants to buy Group Variable Universal
Life Insurance will submit an enrollment form to Prudential. Eligible Group
Members will generally make routine premium payments by automatic payroll
deduction. The spouse of an Eligible Group Member will generally make routine
premium payments by automatic deduction from the Eligible Group Member's pay.
Participants should submit other premium payments, transfer orders,
reallocations, loan and withdrawal requests and other communications about the
coverage directly to Prudential. Prudential has forms to use for each
transaction. The forms set out the procedures for each transaction. Forms are
available from Morgan Guaranty or from Prudential. Prudential will consider
enrollment forms, payments, orders and other documents to be "received" when
they are received in good order by Prudential at the address shown on the form.
When Prudential reconciles financial transactions. Prudential usually reconciles
financial transactions at the end of the day, when most banks and financial
institutions have closed for the evening. As a result, some transactions (for
example, premium payments, loan repayments, or withdrawals) cannot be completed
until the next business day. Usually, this will result in a one-day delay in the
movement of money from one investment option to another. During any delay,
Prudential may place this money in an unallocated account owned by Prudential
that pays a market rate of interest. The short term interest ("float") earned on
this money will be retained by Prudential as compensation for services rendered.
This interest will not be paid from a Participant's Certificate Fund, and will
not reduce the value of the Certificate Fund.
Transfers among the Funds and dollar cost averaging are not subject to this
possible delay.
Premiums
Routine premium payments: You will be responsible for making all premium
payments. You will usually be able to decide when to make premium payments and
how much each premium payment will be. You just have to make sure that there is
enough money in your Certificate Fund - minus Certificate Debt and outstanding
charges - to cover each month's charges. If there is not enough money on any
Semi-Monthly Deduction Day (or Monthly Deduction Day for a Participant who does
not generally pay premium payments by automatic payroll deduction), your
insurance will end (in insurance terms, it will "lapse"). See the Lapse section
on page XX to learn how your insurance will end and what you can do to stop it
from ending.
Participants who are Eligible Group Members generally pay routine premiums
through automatic payroll deduction. Eligible Group Members whose spouses are
Participants
19
<PAGE>
also generally pay the spouse's routine premiums through automatic payroll
deduction. If an Eligible Group Member does pay routine premiums through
automatic payroll deduction, the minimum deduction per payroll period is $10. If
you make routine premium payments below the minimum, you can make them directly
to Prudential.
Participants who continue their coverage on a Portable basis will be billed
directly by Prudential. The Participant may choose to be billed quarterly,
semi-annually, or annually.
Additional premium payments: In addition to routine premium payments, you may
make additional premium payments at any time directly to Prudential, subject to
the applicable charges. Each additional premium payment must be at least $100.
Prudential reserves the right to limit the amount of additional premiums.
Effect of premium payments on tax status: If you pay additional premiums, we may
need to increase your Death Benefit (and corresponding cost of insurance
charges) to continue to qualify it as life insurance for federal tax purposes.
Also, if you make premium payments above certain limits, the tax status of the
insurance may change to that of a Modified Endowment Contract under the Internal
Revenue Code. That status could have significant disadvantages from a tax
standpoint.
We reserve the right to return any premium payment that would cause your
insurance to fail to qualify as life insurance under applicable tax laws, or
that would increase the Death Benefit by more than it increases the Certificate
Fund.
See the Tax Treatment of Certificate Benefits section on page XX.
Effective Date of Insurance
When your insurance begins depends on what day of the month Prudential approves
your completed enrollment form. If we approve your completed enrollment form
prior to the 20th day of a month, your insurance will begin on the first day of
the next month. If we receive your completed enrollment form on or after the
20th day of a month, your insurance will begin on the first day of the month
after the next month.
How Prudential Will Deposit and Invest Premium Payments
Prudential will deposit premium payments in your Certificate Fund after we
deduct any charges that apply. The amount of your premium after we deduct those
charges is called "Net Premiums." See the Charges and Expenses section on page
XX.
Here's how Prudential will deposit and invest your Net Premiums. We generally
will make deposits to your investment options at the end of the Business Day on
which
20
<PAGE>
Prudential receives the payment. Any payments received before the Certificate
Date will be deposited as of the Certificate Date.
o Before the Certificate Date. Prudential will hold any premium payment that
it receives before the Certificate Date in our general account. We will not
pay interest on those amounts.
o During the first 10 days that your Certificate is in effect. We will invest
any Net Premiums that we receive during the first 10 days in the Series
Fund Money Market Portfolio. We will leave the Net Premiums in that Series
Fund Money Market Portfolio for those first 10 days. After that, we will
allocate the Net Premiums to the investment options you selected.
o After your Certificate has been in effect for 10 days. After your
Certificate has been in effect for 10 days, Prudential will invest Net
Premiums in your Certificate Fund and allocate them to the investment
options you selected.
If you do not give us complete instructions on how you want Net Premiums to be
invested, we will leave your Net Premiums invested in the Series Fund Money
Market Portfolio until you furnish complete information.
How You Can Change the Way Prudential Allocates Future Premium Payments
You may ask Prudential to change the way your future premium payments will be
allocated among the available investment options. Prudential will give you a
form to use for this purpose. We will start to allocate premium payments in the
new way as of the end of the Business Day on which we receive your request form
in good order.
The minimum percent that you may allocate to an available investment option is
5%. All allocations must be in whole percents.
You may not change the way Prudential allocates future premiums if, at the time
we receive your request, there is not enough money in your Certificate Fund -
minus Certificate Debt and outstanding charges - to cover each month's charges.
See the Lapse section on page XX.
We do not currently charge for changing the allocation of your future premiums.
But, we may charge for it in the future.
21
<PAGE>
How You Can Transfer Amounts In Your Certificate Fund From One Investment Option
To Another
You may transfer amounts from one investment option to another. You may request
a transfer in terms of dollars (such as transfer of $10,000 from one available
option to another) or in terms of a percent reallocation (such as a reallocation
to put 25% of the Certificate Fund in each available option).
There are some rules about how transfers can be made:
o The minimum amount you may transfer from one option to another is $100 (or
the entire balance in the investment option if it is less than $100).
o The minimum percent that you may allocate to an available investment option
is 5%. All allocations must be in whole percents.
o We limit the number of times you may transfer amounts out of the Fixed
Account. You may make only one transfer from the Fixed Account to one of
the available Funds each Certificate Year. The transfer cannot be for more
than $5,000 or 25% of the amount you have invested in the Fixed Account,
whichever is greater. We may change these limits in the future.
Transfers will take effect as of the end of the Business Day in which a proper
transfer request is received by Prudential on the form we require you to use for
this purpose.
Prudential will give you a form to use to request a transfer. Prudential will
make the transfer effective as of the end of the Business Day on which we
receive your request form in good order.
If you make more than twelve transfers in a Certificate Year, Prudential will
charge $20 for each transfer after the twelfth. This charge will not increase.
Group Variable Universal Life Insurance was not designed for professional market
timing organizations or for other organizations or persons that use programmed,
large or frequent transfers. We will discourage a pattern of exchanges that
coincides with a "market timing" strategy, since they may be disruptive to the
Separate Account and the Funds. If we were to find such a pattern, we might
modify the transfer procedures, including not accepting transfer requests of an
agent acting under a power of attorney on behalf of more than one Certificate
owner.
Dollar Cost Averaging
Dollar Cost Averaging (which we refer to as "DCA") lets you systematically
transfer specified dollar amounts from the Series Fund Money Market Portfolio to
the other
22
<PAGE>
available Funds at monthly intervals. You can request that a designated number
of transfers be made under the DCA feature. When we make transfers under the DCA
feature, the transfers are effective as of the end of the first Business Day
following the first of the month.
You may use DCA at any time after your Certificate becomes effective. But, to
start the DCA feature, you usually have to make a premium payment of at least
$1,000 to the Series Fund Money Market Portfolio. And, the minimum transfer
amount is $100.
Prudential will give you a form to request DCA. If we receive your request form
in good order by the tenth of a month, we will start DCA processing during the
next month. If we receive it after the tenth day of a month, we will start DCA
processing during the month after the next month.
We will terminate the DCA arrangement when any of the following events occurs:
o We have completed the designated number of transfers.
o The amount you have invested in the Series Fund Money Market Portfolio is
not enough to complete the next transfer.
o Prudential receives your written request to end the DCA arrangement. (If we
receive your request by the tenth of a month, we will cancel the transfer
scheduled for the next following month. If we receive it after the tenth
day of a month, we will cancel the transfer scheduled for the month after
the next month.)
o You no longer have coverage under the Group Variable Universal Life
Insurance.
Currently, we do not charge for the DCA arrangement but we may in the future.
Transfers made under the DCA arrangement do not count against the number of
transfers that may be subject to the transfer charge described in the How You
Can Transfer Amounts In Your Certificate Fund From One Investment Option To
Another section on page XX.
The main objective of DCA is to shield investments from short-term price
fluctuations. Since the same dollar amount is transferred to an available Fund
with each transfer, you buy more of the Fund when its price is low and less of
the Fund when its price is high. Therefore, you may achieve a lower than average
cost over the long term. This plan of investing does not assure a profit or
protect against a loss in declining markets.
Death Benefits
Prudential will pay a Death Benefit to the beneficiary when the Covered Person
dies.
23
<PAGE>
Amount of the Death Benefit. The Death Benefit is the Face Amount of Insurance
plus the value of the Certificate Fund as of the date of death minus any
Certificate Debt and any past due monthly charges.
Adjustment in the Death Benefit. The Certificate Fund may have grown to the
point where we would need to increase the Death Benefit to be certain that the
insurance will meet the Internal Revenue Code's definition of life insurance. If
that were the case for your Certificate, we would increase the Death Benefit
(before we deduct any Certificate Debt and outstanding charges) to make it equal
to the following "corridor percentage" of the Certificate Fund based on your
Attained Age:
24
<PAGE>
COVERED PERSON'S CORRIDOR COVERED PERSON'S CORRIDOR
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------ ----------
0-40 250% 70 115%
41 243 71 113
42 236 72 111
43 229 73 109
44 222 74 107
---- ---- --- ----
45 215 75 105
46 209 76 105
47 203 77 105
48 197 78 105
49 191 79 105
---- ---- --- ----
50 185 80 105
51 178 81 105
52 171 82 105
53 164 83 105
54 157 84 105
---- ---- --- ----
55 150 85 105
56 146 86 105
57 142 87 105
58 138 88 105
59 134 89 105
---- ---- --- ----
60 130 90 105
61 128 91 104
62 126 92 103
63 124 93 102
64 122 94 101
---- ---- --- ----
65 120 95 100
66 119 96 100
67 118 97 100
68 117 98 100
69 116 99 100
How your beneficiary may receive the Death Benefit: Generally, Prudential will
deposit the Death Benefit in the Prudential Alliance Account. The Alliance
Account is an interest-bearing account that holds the Death Benefit while your
beneficiary takes time to consider other options. Your beneficiary has complete
ownership of funds held in the Alliance Account, and may draw on all or part of
the funds by writing a draft. Interest earnings in the Alliance Account are
compounded daily and credited monthly. Proceeds in the Alliance Account are part
of Prudential's general account. Alternatively, your beneficiary can request to
receive the Death Benefit in a lump sum, in the form of a check.
25
<PAGE>
Changes in Face Amount
The Group Contract allows Participants to increase the Face Amount of their
insurance at any time if they can meet the requirements for giving evidence of
good health. The Face Amount must remain within the limits of coverage. See the
How Prudential Issues Certificates section on page XX.
An increase in the Face Amount will result in higher insurance charges because
the net amount at risk for Prudential will increase.
The Group Contract also permits Participants to decrease the Face Amount of
their insurance. In no event, however, may a Participant decrease the Face
Amount below $50,000 or below the minimum required to maintain status as life
insurance under the federal tax laws.
When your Face Amount of Insurance changes - whether it increases or decreases -
the change may cause your insurance to be treated as a Modified Endowment
Contract under the Internal Revenue Code. Also, a decrease in coverage may limit
the amount of premiums that you may contribute in the future.
See the Tax Treatment of Certificate Benefits on page XX. You should consult
your tax advisor before you change the Face Amount of your insurance.
Charges and Expenses
For a Certificate that is in effect, Prudential reserves the right to increase
the charges that we currently make, but we currently have no intention to do so.
We will not in any case increase charges above the maximum charges described
below. You should refer to your particular Certificate to learn what charges
apply to you.
Charges Deducted From Each Premium Payment. We will deduct the charges listed
below from each premium payment you make before we invest the payment in the
investment options you selected.
1. Charge for taxes on premium payments. We will deduct a charge for taxes we
must pay on premiums. These taxes include federal, state or local income,
premium, excise, business or any other type of tax (or part of one) that is
based on the amount of premium we receive. This charge is currently made up
of two parts:
o The first part is for state and local premium taxes. Currently, it is
1.95% of the premium Prudential receives. (In some states, this charge
is called a premium-based administrative charge.)
o The second part is for federal income taxes that are based on
premiums. Currently, it is 0.35% of premiums received by Prudential.
We believe that this second charge is a
26
<PAGE>
reasonable estimate of the increased cost for premium-based federal
income taxes resulting from a 1990 change in the Internal Revenue
Code.
o We may increase this charge if the cost of our taxes related to
premiums is increased.
2. Charge for processing premiums. We do not currently deduct a processing fee
from premium payments. But, we have the right to deduct up to $2 to cover
the costs of collecting and processing premiums. Participants who are
billed directly by Prudential should be aware that Prudential assesses a
charge of $3 per bill (you may choose whether to be billed quarterly,
semi-annually, or annually).
3. Charge for sales expenses. We do not currently deduct a sales charge. But,
we have the right to deduct a charge to pay part of the costs we incur in
selling the Group Contract and Certificates. If we were to deduct a sales
charge, it would not be more than 3.5% of each premium payment.
Monthly Certificate Fund Charges. Prudential will deduct the following charges
from your Certificate Fund either monthly or semi-monthly, depending on whether
you make routine premium payments by automatic payroll deduction or pay them
directly to Prudential. We will take the charges from each investment option you
selected, in the same proportion that the value of your Certificate Fund is
invested.
For Participants who make routine premium payments by automatic payroll
deduction: We will generally deduct the monthly Certificate Fund charges two
times per month, on the two Semi-Monthly Deduction Days. For each Semi-Monthly
Deduction Day, we will calculate the applicable monthly charges but will deduct
only one-half of these charges.
The Semi-Monthly Deduction Days will coincide with the two days that we credit
automatic payroll deduction premium payments we receive from Morgan Guaranty.
Morgan Guaranty has told Prudential that it will forward automatic payroll
deduction premium payments at the end of each pay period. Prudential expects
that the Semi-Monthly Deduction Days will fall around approximately the middle
and the end of each month, with the exact dates dependent upon when Morgan
Guaranty forwards the payment. But, if Morgan Guaranty has not transferred both
automatic payroll deduction premium payments by the 45th day following the first
day of a particular month, Prudential will deduct any remaining part of that
month's Certificate Fund charges on the next Business Day following that 45th
day.
For Participants who make routine premium payments directly to Prudential:
Prudential will deduct the full monthly charges on the Monthly Deduction Date,
which is the first Business Day of each Month.
1. Charge for the cost of insurance. We deduct a charge for the cost of your
insurance.
To calculate the cost insurance charge, we multiply:
27
<PAGE>
your Certificate's "net amount at risk" by the "cost of insurance rate" for
the Covered Person.
"Net amount at risk" means the amount by which your Certificate's Death Benefit
(computed as if there were no Certificate Debt) exceeds your Certificate Fund.
The "cost of insurance rates" are shown in your Certificate and are based on
many factors, including:
o the Covered Person's age;
o the Covered Person's rate class (such as classes for smokers and
non-smokers, or for active employees and retired employees);
o the life expectancy of the people covered under your Group Contract;
o whether The Group Contractholder elected to buy any of the additional
insurance benefits shown in the Additional Insurance Benefits section on
page XX; and
o whether or not the Certificate is provided on a Portable basis.
The cost of insurance rate will generally increase as the Covered Person ages.
The cost of insurance charges are generally lower than the 1980 CSO Table.
We may adjust the actual cost of insurance rates from time to time. The changes
in cost of insurance rates for each Group Contractholder are based on many
factors, including:
o the number of Certificates in effect;
o the number of new Certificates issued;
o the number of Certificates surrendered or becoming Portable;
o the expected claims (death benefits, living benefits and surrenders);
o the expected cost of any additional insurance benefits that the Group
Contractholder elected to buy;
o the expected expenses; and
o administrative services provided by Morgan Guaranty.
We will not change the cost of insurance rates before December 31, 2001, unless
the number of Covered Persons (including both the Group Contract and other
supplemental
28
<PAGE>
insurance cover obtained by Morgan Guaranty from Prudential) decreases by 10% or
more.
If we change the cost of insurance rates, we will change them for all persons of
the same age, rate class and group. Certificates continued on a Portable basis
may be considered a separate group. We will not change them to be higher than
the guaranteed cost of insurance rate shown in your Certificate. That guaranteed
rate will not be higher than a rate based on 150% of the 1980 Commissioner's
Standard Ordinary Mortality Table, Male, Age Last Birthday (also known as the
"1980 CSO Table"). Currently, the cost of insurance charges are lower than 100%
of the 1980 CSO Table.
2. Charge for administrative expenses. We currently deduct a charge of $2 for
administrative expenses. This charge pays for maintaining records and for
communicating with Morgan Guaranty and with Participants. We may increase
this charge in the future but we guarantee that it will not be more than $6
per month.
3. Charge for other taxes. We reserve the right to deduct a charge to cover
federal, state or local taxes that are imposed on the operations of the
Separate Account. These are taxes other than those described under "Charge
for taxes on premium payments" section above. Currently, we do not charge
for these other taxes.
Daily Deduction from the Separate Account. Each day, Prudential deducts a charge
from the assets of the Separate Account in an amount currently equal to an
effective annual rate of 0.45%. We guarantee that the charge will not be more
than an effective annual rate of 0.90%.
This charge compensates us for assuming the mortality and expense risks of the
insurance provided under the Group Contract. The "mortality risk" is the risk
that Covered Persons may live for shorter periods of time than Prudential
estimated when we determined the mortality charge. The "expense risk" is the
risk that expenses for issuing and administering the insurance will be more than
Prudential estimated when we determined the charge for administrative expenses.
We will earn a profit from this risk charge to the extent we do not need it to
provide benefits and pay expenses under the Certificate. We do not assess this
charge on amounts allocated to the Fixed Account.
Transaction Charges: For every transfer after the twelfth in a single
Certificate Year, Prudential will deduct a $20 charge. We may deduct charges for
other transactions. See the sections of this prospectus that describe each of
those transactions. Those sections also describe the charges that Prudential may
deduct.
Direct Billing Charge: Prudential will assess a direct billing charge of $3 per
bill for Participants who are no longer Eligible Group Members (or spouses of
Eligible Group
29
<PAGE>
Members) but who continue coverage on a Portable basis. The Participant may
choose to receive a bill quarterly, semi-annually, or annually.
Expenses Incurred by the Funds: Participants indirectly bear the charges and
expenses of the Funds. To find out details about the management fees and other
underlying Fund expenses, you should see The Funds section on page XX. You
should also read the prospectuses for the available Funds.
Cash Surrender Value
The Cash Surrender Value of your Certificate is equal to your Certificate Fund
minus any Certificate Debt and outstanding charges. On any day, your Certificate
Fund equals the sum of the amounts in the Funds, the amount invested in the
Fixed Account, and the Loan Account (see the Loans section on page XX).
The Cash Surrender Value will change daily to reflect:
o Net Premiums;
o withdrawals;
o increases or decreases in the value of the Funds you selected;
o interest credited on any amounts allocated to the Fixed Account and on the
Loan Account;
o interest accrued on any loan;
o the daily asset charge for mortality and expense risks assessed against the
variable investment options; and
o monthly charges that Prudential deducts from your Certificate Fund.
If you ask Prudential, we will tell you what the Cash Surrender Value of your
Certificate is. Prudential does not guarantee a minimum Cash Surrender Value. It
is possible for the Cash Surrender Value of your Certificate to go down to zero.
The tables on pages T-1 and T-2 (following page X) of this prospectus give
examples of what Cash Surrender Values would be for two sample Certificates. The
examples assume there would be uniform investment results in the selected
Subaccount portfolios. The examples are only hypothetical, and are only meant to
help you understand how the Certificate works.
30
<PAGE>
Full Surrenders
You may surrender your Certificate for its Cash Surrender Value at any time. If
you do, all insurance coverage will end. Prudential will calculate the Cash
Surrender Value as of the end of the Business Day on which we receive your
request form in good order.
We will pay the proceeds as described in the When Proceeds Are Paid section on
page XX. Prudential does not currently make a charge for a surrender but we have
the right to make such a charge in the future. If we do, the charge will not be
more than the lesser of $20 and 2% of the amount that you receive.
A surrender may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
Paid-up Coverage
At any time, you may elect to use the Cash Surrender Value of your Certificate
to buy Paid-up Coverage. The minimum amount of Cash Surrender Value that you can
exchange is $1,000.
The amount of Paid-up Coverage that you can have will be limited to the amount
that you can buy with your Certificate's Cash Surrender Value. Also, it cannot
be more than the Death Benefit under your Certificate at the time you make the
exchange.
Paid-up Coverage will start as of the end the Business Day on which we receive
your request form in good order. Once the Paid-up Coverage starts, all other
coverage under your Certificate, including any additional insurance benefits,
will end.
If you did not use your entire Cash Surrender Value to buy the Paid-up Coverage,
Prudential will pay you the remaining amount as of the end of the first Business
Day after we receive your request form. We will pay it as described in the When
Proceeds are Paid section on page XX. This withdrawal may affect the way you are
taxed. See the Tax Treatment of Certificate Benefits section on page XX.
The purchase of Paid-up Coverage could make your Certificate become a Modified
Endowment Contract. See the Tax Treatment of Certificate Benefits section on
page XX.
Partial Withdrawals
While your Certificate is in effect, you may withdraw part of your Certificate's
Cash Surrender Value. We will take it from each investment option you selected
in the same proportions as the value of your Certificate Fund is invested,
unless your request tells us to take the withdrawal from only selected
investment options.
31
<PAGE>
Partial withdrawals will be effective as of the end of the Business Day on which
we receive your request form. We will pay you the withdrawn money as described
in the When Proceeds Are Paid section on page XX.
You must withdraw at least $200 in any partial withdrawal. You may withdraw any
amount that is more than $200, but you must leave enough in your Certificate
Fund (less any Certificate Debt and outstanding charges) to pay the next month's
charges. We will tell you the maximum amount you may withdraw.
Prudential has the right to deduct a transaction charge for each partial
withdrawal. The charge can be up to the lesser of $20 or 2% of the amount you
withdraw. We will deduct the transaction charge from the amount you withdraw.
You may not repay any amount that you withdraw.
Withdrawals may have tax consequences. See the Tax Treatment of Certificate
Benefits section on page XX.
Loans
You may borrow up to the Loan Value of your Certificate Fund. The Loan Value is
90% of your Certificate Fund minus any existing loan (and its accrued interest),
outstanding charges, and the amount of the next month's charges. In states that
require it, you may borrow a greater amount.
The minimum amount that you can borrow at any one time is $200. You cannot take
a loan if Certificate Debt exceeds the Loan Value. Prudential will pay loan
proceeds as described in the When Proceeds Are Paid section on page XX.
Interest on the loan will accrue daily at a rate that Prudential sets each year.
Generally, the interest rate we charge will not be more than 1% above the
interest rate we credit on money in the Fixed Account. Interest payments are due
the day before the Contract Anniversary. If you do not pay the interest when it
is due, we will add it to the principal amount of the loan. When this happens,
we will take an amount out of your investment options to make the Loan and the
Loan Account equal in value.
When you take a loan from your Certificate Fund, here's what happens:
o We will take an amount equal to the loan out of each of your investment
options on a pro-rata basis unless you tell us to take it only from
selected investment options.
o We will start a Loan Account for you and will credit the Loan Account with
an amount equal to the loan.
32
<PAGE>
o We will generally credit interest to the amount in the Loan Account at the
same rate that we use to credit interest on money in the Fixed Account. The
interest rate we credit to the Loan Account will not be more than 1% less
than the interest rate that we charge on the loan.
You may repay all or part of a loan at any time. We will apply a loan repayment
first against any unpaid loan interest and then to reduce the principal amount
of the loan. You may repay a loan either by repayment or by withdrawing amounts
from the Certificate Fund. When you send us a payment, you should tell us
whether the payment is intended as a premium payment or as a loan repayment. If
you do not indicate whether it is a premium or a loan repayment, we will assume
it is a loan repayment.
If you repay a loan by using the Certificate Fund, we will treat the repayment
as a partial withdrawal from the Certificate Fund. A partial withdrawal may have
tax consequences. See the Partial Withdrawals section on page XX and the Tax
Treatment of Certificate Benefits section on page XX.
Your Loan Account plus accrued interest (together, these are called "Certificate
Debt") may not exceed the value of your Certificate Fund. If Certificate Debt
exceeds the value of your Certificate Fund, you will not have enough money in
your Certificate Fund to cover the month's charges. See the Lapse section on
page XX.
If you still have Certificate Debt outstanding when you surrender your
Certificate or when you allow your Certificate to lapse, the amount you borrowed
may become taxable. Also, loans from Modified Endowment Contracts may be treated
for tax purposes as distributions of income. See the Tax Treatment of
Certificate Benefits section on page XX.
If we pay the Death Benefit or the Cash Surrender Value while a loan is
outstanding, we will reduce the Death Benefit or the Cash Surrender Value by the
amount of the loan plus any accrued interest.
A loan will have a permanent effect on your Certificate's Cash Surrender Value.
It may also have a permanent effect on the Death Benefit. This happens because
the investment results of the investment options you selected will apply only to
the amount remaining in those investment options after the loan amount is
transferred to the Loan Account. The longer a loan is outstanding, the greater
the effect is likely to be.
Lapse
In general, your Certificate will remain in force as long as the balance in your
Certificate Fund (less any Certificate Debt and outstanding charges) is enough
to pay the monthly charges when due. If it is not enough, Prudential will send
you a notice to tell you that your insurance is going to end, how much you must
pay to stop it from ending, and when you must pay it.
33
<PAGE>
The due date of the monthly charges depends on whether you make routine premium
payments by automatic payroll deduction or pay them directly to Prudential. See
the Charges and Expenses section on page XX.
In insurance terms, we call it a lapse when insurance ends because the charges
for it are not paid.
How you can stop your insurance from lapsing. You must make a payment that is
enough to pay outstanding charges. Prudential must receive the payment by the
later of:
o 61 days after the first Business Day of the month in which your Certificate
Fund was insufficient to pay the monthly charges; and
o 30 days after the date we mailed you the notice.
If you do not, your insurance will lapse and your Certificate will no longer
have any value. A Certificate that lapses with Certificate Debt may affect the
way you are taxed. See the Tax Treatment of Certificate Benefits section on page
XX.
We will send the notice to the last known address we have on file for you. If
the Covered Person dies during the grace period, we will reduce the Death
Benefit by any past due monthly charges and by any Certificate Debt.
Termination of the Group Contract
Morgan Guaranty may decide to terminate the Group Contract with Prudential, by
giving Prudential 90 days' written notice.
In addition, Prudential may terminate a Group Contract:
o If the aggregate Face Amount of all Certificates, or the number of
Certificates issued, falls below the permitted minimum, by giving Morgan
Guaranty 90 days' written notice.
o If Morgan Guaranty fails to remit premium payments to Prudential in a
timely way, at the end of the grace period.
o For any other reason, effective on a Contract Anniversary, by giving Morgan
Guaranty 31 days' written notice.
Termination of the Group Contract means that Morgan Guaranty will not remit
premiums to Prudential. In that event, no new Certificates will be issued under
the Group Contract. How the termination affects you is described in the Options
on Termination of Coverage section on page XX. The options that are available to
you from Prudential may depend on what other insurance options are available to
you. You should refer to your particular Certificate to find out more about your
options at termination of coverage.
34
<PAGE>
Participants Who Are No Longer Eligible Group Members (or Spouses of Eligible
Group Members)
If a Participant is no longer an Eligible Group Member (or the spouse of an
Eligible Group Member), the Participant may be able to continue insurance
coverage on a Portable basis. This is called Portable Coverage. Portable
Coverage is generally available only to Participants who have held a Certificate
for at least one year (or who obtained the Certificate during the initial
enrollment period).
With Portable Coverage, you will start to make premium payments directly to
Prudential, or you may authorize Prudential to receive payments by electronic
funds transfer. We will start to send premium reminders directly to you. You may
choose to receive these reminders quarterly, semi-annually, or annually.
We will let you know about this change in the way premiums are paid within 61
days after you are no longer an Eligible Group Member or the spouse of an
Eligible Group Member. We might impose certain rules and limits on the continued
insurance. The rules and limits are shown in your Certificate.
The notice that we send you will also tell you what the charges and expenses are
for Portable Certificates. See also the Charges and Expenses section on page XX.
Charges and expenses will be the same as for the Eligible Group Member (or
spouses of Eligible Group Members) until at least December 31, 2001, except that
Prudential will charge a $3 fee per periodic premium reminder. Prudential will
track the experience of Participants that continue on a Portable basis. After
December 31, 2001, we may change the charges and expenses for Portable Coverage.
Options on Termination of Coverage
Your insurance coverage under the Group Contract will end when the Group
Contract itself ends. Insurance coverage will also end on the last day of the
month in which a Participant stops being an Eligible Group Member (or the spouse
of an Eligible Group Member) and does not elect to continue on a Portable basis.
See the Termination of the Group Contract section on page XX, and the
Participants Who Are No Longer Eligible Group Members section on page XX.
If the Group Contract were to end, the effect on Participants would depend on
whether or not Morgan Guaranty replaced the Group Contract with another life
insurance contract that allows for the accumulation of cash value. Generally,
here is what will happen:
o If Morgan Guaranty did replace the Group Contract with another life
insurance contract that allows for the accumulation of cash value,
Prudential would terminate your
35
<PAGE>
Certificate. We would also transfer the Cash Surrender Value of your
Certificate directly to that new contract, unless you elect to receive the
Cash Surrender Value. The new contract might not cover persons holding
Portable Certificates, in which case those persons would have the options
listed below.
o If Morgan Guaranty did not replace the Group Contract with another life
insurance contract that allows for the accumulation of cash value, you
would have the options listed below.
Conversion: You may elect to convert your Certificate to an individual life
insurance policy without giving Prudential evidence that the Covered Person is
in good health. To elect this option, you must apply for it within 31 days (or
longer, depending on the state law that applies) after your Certificate ends.
You may select any form of individual life insurance policy (other than term
insurance) that Prudential normally makes available to persons who are the same
age as you and who are asking for the same amount of life insurance. Your
premiums for the individual life insurance policy will be based on the type and
amount of life insurance you select, your age and your risk class.
If your Certificate ended because you are no longer an Eligible Group Member,
you may not convert more than the Face Amount of your Certificate. If your
Certificate ended because the Group Contract ended, the amount you are able to
convert may, depending on the state law that applies, be limited to the lesser
of
o $10,000 or
o the Face Amount of your Certificate minus the amount of any group insurance
that you become eligible for within 45 days after your Certificate ends.
If a Covered Person dies within 31 days (or longer, depending on the state law
that applies) after the Certificate ends and you had the right to convert to an
individual policy, we will pay a Death Benefit under the Certificate. But, the
Death Benefit will be equal to the amount of individual insurance you could have
had if you had actually made the conversion to the individual policy.
Paid-up Coverage. You may elect to use your Certificate's Cash Surrender Value
to buy fixed Paid-up Coverage on the Covered Person. To use this option, you
must have at least $1,000 of Cash Surrender Value on the day your Certificate
ends. The insurance amount will depend on how much the Cash Surrender Value is
and on the age of the Covered Person. But, the amount of Paid-up Coverage cannot
be more than your Certificate's Death Benefit right before you buy the Paid-up
Coverage.
You may elect this option within 61 days of the date your Certificate ended.
Prudential will make the Paid-up Coverage effective as of the end of the
Business Day on which we (or our designee) receive your request on the form we
require you to use for this purpose. If you elect
36
<PAGE>
this option, your insurance may become a Modified Endowment Contract under the
Internal Revenue Code. See the Tax Treatment of Certificate Benefits section on
page XX.
Payment of Cash Surrender Value. You may receive the Cash Surrender Value by
surrendering your Certificate. To do this, you must make a request to Prudential
on the form that we require you to use for this purpose.
If you do not choose one of the options described above within 61 days of the
date the Certificate ends, we will exchange your Certificate Fund for Paid-up
Coverage if your Certificate Fund value is at least $1,000. If it does not have
that much value, we will pay the Cash Surrender Value.
Reinstatement
You may request reinstatement of a lapsed Certificate any time within 3 years
after the end of the grace period. But, you must be less than the maximum age at
which a Certificate may be held. We will not reinstate a lapsed Certificate if
the Group Contract under which the Certificate was issued ended and you did not
have the right to continue your insurance on a Portable basis.
To reinstate your Certificate, you must send the following items to Prudential:
o A written request for reinstatement.
o Evidence of the good health of the Covered Person. The evidence must be
satisfactory to Prudential.
o A premium payment (less any charges that apply) that is at least enough to
pay the monthly charges for the grace period and for two more months. See
the Charges and Expenses section on page XX.
We will make your Certificate effective again on the first Semi-Monthly
Deduction Day (or Monthly Deduction Day, if you do not make routine premium
payments by automatic payroll deduction) that occurs after we approve your
request. The terms of your original Certificate will still apply. We will apply
a new 2-year period of incontestability, and the period during which the suicide
exclusion applies will start over again. See the Incontestability section on
page XX and the Suicide Exclusion section on page XX. When the original
Certificate lapsed, we would have required you to pay off any outstanding
Certificate Debt. We will not allow you to continue the loan under the
reinstated Certificate.
Currently, we do not charge for a reinstatement. But, we reserve the right to
charge for reinstatements in the future.
37
<PAGE>
Tax Treatment of Certificate Benefits
Introduction
This summary provides general information on the federal income tax treatment of
a Certificate under the Group Contract. It is not a complete statement of what
the federal income taxes will be in all circumstances. It is based on current
law and interpretations, which may change. It does not cover state taxes or
other taxes. It is not intended as tax advice. You should consult your own tax
advisor for complete information and advice.
Treatment as Life Insurance and Investor Control
The Certificate must meet certain requirements to qualify as life insurance for
tax purposes. These requirements include certain definitional tests and rules
for diversification of investments. For further information on the
diversification requirements, see Dividends, Distributions and Taxes in the
applicable Fund prospectuses.
We believe we have taken adequate steps to insure that the Certificate qualifies
as life insurance for tax purposes. Generally speaking, this means that:
o you will not be taxed on the growth of the funds in the Certificate Fund,
unless you receive a distribution,
o the Certificate's Death Benefit will be tax free to your beneficiary.
Although we believe that the Certificate should qualify as life insurance for
tax purposes, there are some uncertainties, particularly because the Secretary
of Treasury has not yet issued permanent regulations that bear on this question.
Moreover, regulations issued to date do not provide guidance concerning the
extent to which Participants may direct their investments to the particular
available subaccounts of a separate account without causing the Participants
(instead of Prudential) to be considered the owners of the underlying assets.
The ownership rights under the Certificate are similar to, but different in
certain respects from, those addressed by the Internal Revenue Service in
rulings holding that the insurance company was the owner of the assets. For
example, Participants have the choice of more funds and the ability to
reallocate amounts among available Subaccounts more frequently than in the
rulings. While we believe that Prudential will be treated as the owner of the
Separate Account assets, it is possible that the Participants may be considered
to own the assets.
Because of these uncertainties, we reserve the right to make changes - which
will be applied uniformly to all Participants after advance written notice -
that we deem necessary to insure that the Certificates under the Group Contract
will qualify as life insurance and that Prudential will be treated as the owner
of the underlying assets.
38
<PAGE>
Distributions
The tax treatment of any distribution you receive before the Covered Person's
death depends on whether your Certificate is classified as a Modified Endowment
Contract.
Certificates Not Classified as Modified Endowment Contracts
o If you surrender your Certificate or allow it to lapse, you will be taxed
on the amount you receive in excess of the premiums you paid less the
untaxed portion of any prior withdrawals. For this purpose, you will be
treated as receiving any portion of the Cash Surrender Value used to repay
Certificate Debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the Certificate less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Certificate Years, all or a portion of a
withdrawal may be taxed if the Certificate Fund exceeds the total premiums
paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Certificate for the purposes of
determining whether a withdrawal is taxable.
o Loans you take against the Certificate are ordinarily treated as debt and
are not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Certificate is classified as a Modified Endowment
Contract. The Certificate could be classified as a Modified Endowment
Contract if premiums substantially in excess of scheduled premiums are paid
or a decrease in the Face Amount of insurance is made (or a rider removed).
The addition of a rider or an increase in the Face Amount of insurance may
also cause the Certificate to be classified as a Modified Endowment
Contract. You should first consult a tax advisor if you are contemplating
any of these steps.
o If the Certificate is classified as a Modified Endowment Contract, then
amounts you receive under the Certificate before the Covered Person's
death, including loans and withdrawals, are included in income to the
extent that the Certificate Fund before surrender charges exceeds the
premiums paid for the Certificate increased by the amount of any loans
previously included in income and reduced by any untaxed amounts previously
received other than the amount of any loans excludible from income. An
assignment of a Modified Endowment Contract is taxable in the same way.
These rules
39
<PAGE>
also apply to loans, withdrawals, and full surrenders made during the
two-year period before the time that the Certificate became a Modified
Endowment Contract.
o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty tax of 10 percent unless the amount is received on
or after age 59 1/2 , on account of your becoming disabled or as a life
annuity.
o All Modified Endowment Contracts issued by us to you during the same
calendar year are treated as a single Certificate for purposes of applying
these rules.
Treatment as Group Term Life Insurance
In most cases, employee-pay-all coverage under the Group Contract will not
qualify as group term life insurance under the Internal Revenue Code, or be
deemed to be part of a group term life insurance plan. The Certificate will
therefore be treated the same as any individually purchased life insurance
policy for tax purposes. However, under certain circumstances, a portion of the
coverage under the Group Contract may qualify as group term life insurance and,
in addition, Participants may be taxed on certain increases in cash values under
an IRS-prescribed formula.
Withholding
You must affirmatively elect that no taxes be withheld from a pre-death
distribution. Otherwise, the taxable portion of any amounts you receive will be
subject to withholding. You are not permitted to elect out of withholding if you
do not provide a social security number or other taxpayer identification number.
You may be subject to penalties under the estimated tax payment rules if your
withholding and estimated tax payments are insufficient to cover the tax due.
Other Tax Considerations
If you transfer or assign the Certificate to someone else, there may be gift,
estate and/or income tax consequences. If you transfer the Certificate to a
person two or more generations younger than you (or designate such a younger
person as a beneficiary), there may be Generation Skipping Transfer tax
consequences. Deductions for interest paid or accrued on Certificate Debt or on
other loans that are incurred or continued to purchase or carry the Certificate
may be denied. Your individual situation or that of your beneficiary will
determine the federal estate taxes and the state and local estate, inheritance
and other taxes due if you or the Covered Person dies.
The earnings of the Separate Account are taxed as part of Prudential's
operations. The Separate Account does not intend to qualify as a regulated
investment company under the Internal Revenue Code.
40
<PAGE>
ERISA Considerations
If the Group Contract is treated as or acquired by an "employee benefit plan,"
as defined under the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), certain legal requirements may apply.
Definition of An Employee Benefit Plan
An "employee benefit plan" includes two broad categories of arrangements that
are established by certain entities (employers or unions) to cover employees -
"pension" plans or "welfare" plans.
A "pension plan" includes any program that provides retirement income to
employees, or results in a deferral of income by employees for periods extending
to the termination of covered employment or beyond. For these purposes, the term
"pension plan" includes, but is not limited to, retirement plans that meet tax
qualification requirements (for example, a "401(k) plan"), as well as other
arrangements which, by their operation, are intended to provide retirement
income or deferrals beyond termination of employment.
A "welfare plan" includes a program established or maintained for the purposes
of providing to employees, among other things, medical, accident, disability,
death, vacation, and unemployment benefits.
Group Contracts as Employee Benefit Plans
Regulations issued by the United States Department of Labor ("Labor") clarify
when specific plans, programs or other arrangements will not be either pension
or welfare plans (and thus not considered "employee benefit plans" for purposes
of ERISA). Among other exceptions, "group" or "group-type insurance programs"
offered by an insurer to employees of an employer will not be a "plan" where:
o no contributions are made by the employer for the coverage;
o participation in the program is completely voluntary for employees;
o the "sole" function of the employer with respect to the program is, without
endorsing the arrangement, to permit the insurer to publicize the program,
to collect premiums through payroll deductions and to remit them to the
insurer; and
o the employer does not receive any consideration in connection with the
program, other than reasonable compensation (excluding any profit) for
administrative services actually provided in connection with payroll
deductions.
Whether or not a particular group insurance arrangement satisfies these
conditions is a question of fact depending on the particular circumstances. You
should consult counsel and
41
<PAGE>
other advisors to determine whether, under the facts of the particular case, a
particular Group Contract might be treated as an "employee benefit plan" (either
a pension or a welfare plan) subject to the requirements of ERISA.
Investment of Plan Assets in a Group Contract
The decision to invest employee benefit plan assets in a Group Contract is
subject to rules under ERISA and/or tax law. Any plan fiduciary, which proposes
to cause a plan to acquire a Group Contract, should consult with its counsel
with respect to the potential legal consequences of the plan's acquisition and
ownership of such Contract.
Fiduciary/Prohibited Transaction Requirements under ERISA
If applicable, ERISA and tax law impose certain restrictions on employee benefit
plans and on persons who are (1) "parties in interest" (as defined under ERISA)
or "disqualified persons" (as defined under tax law) and (2) "fiduciaries" with
respect to such plans. These restrictions may, in particular, prohibit certain
transactions in connection with a Group Contract, absent a statutory or
administrative exemption. You should consult counsel and other advisors to
determine the application of ERISA under these circumstances.
For example, administrative exemptions issued by Labor under ERISA permit
transactions (including the sale of insurance contracts like the Group Contract)
between insurance agents and employee benefit plans. To be able to rely upon
such exemptions, certain information must be disclosed to the plan fiduciary
approving such purchase on behalf of the plan. The information that must be
disclosed includes:
o the relationship between the agent and the insurer;
o a description of any charges, fees, discounts, penalties or adjustments
that may be imposed in connection with the purchase, holding, exchange or
termination of the Group Contract; and
o the commissions received by the agent.
Information about any applicable charges, fees, discounts, penalties or
adjustments may be found in the Charges and Expenses section on page XX.
Information about sales representatives and commissions may be found in the Sale
of the Contract and Sales Commissions section on page XX.
Execution of a Group Contract by a Group Contractholder and an enrollment form
by a Participant will be deemed an acknowledgment of receipt of this information
and approval of transactions under the Group Contract.
42
<PAGE>
When Proceeds Are Paid
Prudential will generally pay any Death Benefit, Cash Surrender Value, partial
withdrawal or loan proceeds within 7 days after we receive the request for
payment at the office specified in our request form. We will determine the
amount of the Death Benefit as of the date of the Covered Person's death. For
other types of redemptions, we will determine the amount of the proceeds as of
the end of the Business Day on which we received the request in good order.
There are certain circumstances when we delay payment of proceeds:
o We may delay payment of proceeds that come from the Funds and the variable
part of the Death Benefit if any of the following events occurs: the New
York Stock Exchange is closed (other than for a regular holiday or a
weekend), trading is restricted by the SEC, or the SEC declares that an
emergency exists.
o We expect to pay proceeds that come from the Fixed Account or from Paid-up
Coverage promptly upon request. But, we do have the right to delay these
payments (other than the Death Benefit) for up to six months (or a shorter
period, if required by state law). We will pay interest at the Fixed
Account rate if we delay payment for more than 30 days (or a shorter
period, if required by state law).
Beneficiary
You have the right to name the beneficiary who will receive the Death Benefit
from your Certificate. You must use the form that Prudential requires you to
use. You may change the beneficiary at any time. You do not need the consent of
the present beneficiary. If you have more than one beneficiary at the time the
Covered Person dies, we will pay the Death Benefit in equal parts to each
beneficiary, unless you have given us other instructions.
Incontestability
After your Certificate has been in force for two years or more during the
Covered Person's lifetime, Prudential will not contest liability under the
Certificate. We will also not contest liability for any change in your
Certificate that required our approval after the change has been in force for
two years or more during the Covered Person's lifetime.
Misstatement of Age
If the Covered Person's age is stated incorrectly in the Certificate, we will
adjust the amount of the Death Benefit to reflect the correct age, as permitted
by law.
43
<PAGE>
Suicide Exclusion
Generally, if a Covered Person dies by suicide within two years from the
Certificate Date, Prudential will not pay the Death Benefit described in other
sections of this prospectus. Instead, we will pay your beneficiary an amount
equal to your premium payments minus any Certificate Debt, outstanding charges,
and any partial withdrawals. This limit will apply whether the suicide occurred
while the Covered Person was sane or insane.
If the Covered Person dies by suicide within two years after the effective date
of an increase in the Face Amount of your Certificate that required our
approval, we will not pay the increased amount of insurance. Instead of the
amount of the increase, we will pay your beneficiary the monthly charges that
were attributable to the increased amount. Again, this limit will apply whether
the suicide occurred while the Covered Person was sane or insane.
Assignment
You may assign your Certificate, including all rights, benefits and privileges
that you have. Prudential will honor the assignment only if: (1) you make the
assignment in writing; (2) you sign it; and (3) Prudential receives a copy of
the assignment at the Prudential office shown in your Certificate. We are not
responsible for determining whether the assignment is legal or valid.
Throughout this prospectus, we describe various rights that you have. You may
assign those rights to someone else. If you do, you should consider the
references to "you" in this prospectus as applying to the person to whom you
validly assigned your Certificate.
If you assign a Certificate that is a Modified Endowment Contract, it might
affect the way you are taxed. It might also affect the way the person to whom
you assign the Certificate is taxed. See the Tax Treatment of Certificate
Benefits section on page XX.
Voting Rights
The assets that are held in the Separate Account are invested in the Funds.
Prudential is the legal owner of those shares. Because we are the owner, we have
the right to vote on any matter that shareholders of the Funds vote on. The
voting happens at regular and special shareholder meetings. We will (as required
by law) vote in accordance with voting instructions we receive from
Participants. A Fund may not hold annual shareholder meetings when not required
to do so under the laws of the state of its incorporation or under the federal
securities laws.
If we do not receive timely voting instructions for Fund shares from
Participants, we will vote those shares in the same proportion as shares in the
Funds for which we do receive instructions. We will do the same thing for shares
held as general account investments of
44
<PAGE>
Prudential. If federal securities laws change so that Prudential is allowed to
vote on Fund shares in our own right, we may decide to do so.
Generally, you may give us voting instructions on matters that would be changes
in fundamental policies of the Funds. You may also give us voting instructions
on any matter that requires a vote of the Fund's shareholders. But, if a Fund
that you participate in has a vote on approval of the investment advisory
agreement or any change in a Fund's fundamental investment policy, you will vote
separately by Fund. This practice is dictated by the federal securities laws.
Here's how we will determine the number of Fund shares and votes for which you
may give instructions:
o To determine the number of Fund shares, we will divide the part of your
Certificate Fund that is derived from participation in a Subaccount by the
value of one share in the corresponding portfolio of the applicable Fund.
o The number of votes will be determined as of the record date chosen by the
Board of Directors of the applicable Fund.
We will give you the proper forms and proxies to give these instructions. We
reserve the right to change the way in which we calculate the weight we give to
voting instructions. We would make such a change to comply with federal
regulations.
If we are required by state insurance regulations, we may disregard voting
instructions in certain instances. We may disregard instructions if: (1) the
instructions would require shares to be voted in a way that would cause a change
in the sub-classification or investment objectives of one or more of the Funds'
portfolios, or (2) the instruction would approve or disapprove an investment
advisory contract for a Fund. Also, Prudential itself may disregard voting
instructions that would require changes in the investment policy or investment
advisor of one or more of the Funds' portfolios, provided that Prudential
reasonably disapproves such changes in accordance with applicable federal
regulations. If Prudential does disregard voting instructions, we will tell you
that we did and our reasons for it in the next annual or semi-annual report to
Participants.
Substitution of Fund Shares
If Prudential's management thinks that an available portfolio of the Funds
becomes unsuitable for investment by Participants, we may substitute the shares
of another portfolio or of an entirely different mutual fund. Our management
might find a portfolio to be unsuitable because of investment policy changes,
tax law changes or considerations, the unavailability of shares for investment
or other reasons, including our discretion. Before Prudential can substitute
shares, the SEC, and possibly one or more state insurance departments, must
45
<PAGE>
approve the substitution. We would notify Morgan Guaranty and Participants if we
were to make such a substitution.
Accelerated Death Benefit. Under an accelerated death benefit, you can elect to
receive an early payment of part of the Certificate's Death Benefit when the
Covered Person is diagnosed as being terminally ill. "Terminally ill" means the
Covered Person has a life expectancy of 12 months or less. You must give
Prudential satisfactory evidence that the Covered Person is terminally ill. You
may receive the accelerated payment in a lump sum. The maximum part of the Death
Benefit that may be accelerated is the lesser of 50% of the full Death Benefit
or $50,000. Prudential may charge an accelerated payment fee of up to $350 if
you decide to use this benefit.
We will not pay an accelerated death benefit if you are required to elect it to
meet the claims of creditors or to obtain a government benefit. Unless required
by law, you can no longer request an increase in the Face Amount of your
Certificate once you have elected to receive an accelerated death benefit. The
amount of future premium payments you can make will also be limited.
If you actually receive proceeds from the Accelerated Death Benefit, it could
have tax consequences and may affect your eligibility for certain government
benefits or entitlements. In general, the accelerated death benefit is excluded
from income if the Covered Person is terminally ill or chronically ill as
defined in the tax law (although the exclusion in the latter case may be
limited). You should consult a tax advisor before you elect to receive this
benefit.
Reports
Four times each Certificate Year, Prudential will send you a statement that
gives you certain information about your insurance. These statements will give
you details about the value of your Certificate Fund, about transactions that
you made, and specific insurance data about your coverage.
If you make a request, we will also send you a current statement about your
insurance. It will give you the same kind of information as the quarterly
statement does. We may limit the number of current statements you may request or
may charge you for additional statements. Any such charge will not exceed $20
for an additional report.
We will also send to you and to Morgan Guaranty annual and semi-annual reports
that list the securities held in each available portfolio of the Funds. These
reports are required by the federal securities laws. Prudential keeps records
about the Separate Account according to the federal securities laws.
If you invest in the Series Fund through more than one variable insurance
contract, you will receive only one copy of each annual and semi-annual report
issued by the Series Fund. But,
46
<PAGE>
if you want another copy of a report, you may ask us for one by calling the
telephone number listed on the inside cover page of this prospectus.
Sale of the Contract and Sales Commissions
Prudential Investment Management Services LLC (referred to as "PIMS") acts as
the principal underwriter of the Group Contracts and Certificates. PIMS is a
direct, wholly-owned subsidiary of Prudential.
PIMS, organized in 1996 under Delaware law, is registered as a broker-dealer
under the federal securities laws. PIMS is also a member of the National
Association of Securities Dealers, Inc. PIMS's principal business address is 751
Broad Street, Newark, New Jersey 07102. PIMS also acts as principal underwriter
with respect to the securities of other Prudential investment companies.
The Group Contracts and Certificates are sold by persons who are registered
representatives of PIMS and who are also authorized by state insurance
departments. The Group Contracts and Certificates may also be sold through other
broker-dealers authorized by PIMS and applicable law to do so. Registered
representatives of such other broker-dealers may be paid on a different basis
than the basis described below.
The maximum commission that Prudential will pay to the representative upon the
purchase of the Contract is 15% of the premium payment received. The amount
Prudential will pay to the broker-dealer to cover both the individual
representative's commission and other distribution expenses will not exceed 15%
of the premium payment. Prudential may require the representative to return all
of the first year commission if the Group Contract is not continued through the
first year. Sales representatives who meet certain productivity, profitability,
and persistency standards with regard to the sale of the Group Contract will be
eligible for additional bonus compensation from Prudential. Generally,
Prudential will pay PIMS a commission of no more than 15% of the premium
payment. The commission and distribution percentages will depend on factors such
as the size of the group involved and the amount of sales and administrative
effort required in connection with the particular Group Contract. In total, they
will not exceed 15% of the premium payment.
The distribution agreement between PIMS and Prudential will terminate
automatically upon its assignment (as that term is defined in the federal
securities laws). But, PIMS may transfer the agreement, without the prior
written consent of Prudential, under the circumstances set forth in the federal
securities laws. Either party may terminate the agreement at any time if the
party gives 60 days' written notice to the other party.
47
<PAGE>
Ratings and Advertisements
Independent financial rating services - including Moody's, Standard & Poors,
Duff & Phelps and A.M. Best Company - rate Prudential. These ratings reflect our
financial strength and claims-paying ability. They are not intended to rate the
investment experience or financial strength of the Separate Account. We may
advertise these ratings from time to time. Furthermore, we may include in
advertisements comparisons of currently taxable and tax-deferred investment
programs, based on selected tax brackets, or discussions of alternative
investment vehicles and general economic conditions.
Services Performed by Third Parties
Throughout this prospectus, we describe how Prudential will perform transactions
with you and how you will perform transactions with them. Prudential has the
right to ask another party (referred to as a "third party") to perform or
receive transactions in its place. That means that, for a particular Group
Contract, you may conduct transactions via a third party rather than directly
with Prudential.
In some cases, the third party might be another part of Prudential. (For
example, when you make certain premium payments to Prudential, they will be
received by Prudential Mutual Fund Services, Inc., a wholly-owned subsidiary of
Prudential.)
State Regulation
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Group Contract is subject to the insurance laws and regulations of the State of
Delaware. We reserve the right to change the Group Contract and Certificate to
comply with applicable state insurance laws and interpretations thereof.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, we are required to file
with New Jersey and other jurisdictions a separate statement with respect to the
operations of all our variable contract accounts, in a form promulgated by the
National Association of Insurance Commissioners.
48
<PAGE>
Experts
The financial statements in this registration statement for the years ended
December 31, 1998, December 31, 1997 and December 31, 1996 have been audited by
________________________, independent accountants, as stated in their reports
appearing in this prospectus. Prudential is relying on
__________________________'s reports, which are given on their authority as
accounting and auditing experts. _________________________'s principal business
address is
_____________________________________________________________________.
[Actuarial expert sentence to be added by post-effective amendment.]
Litigation
On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales practices. (In re Prudential Insurance Company
of America Sales Practices Litigation, D.N.J., MDL No. 1061, Master Docket No.
95-4704 (AMW)). On March 7, 1997, the United States District Court for the
District of New Jersey approved the Stipulation of Settlement as fair,
reasonable and adequate, and later issued a Final Order and Judgement in the
consolidated class actions before the court, 962 F. Supp. 450 (March 17, 1997,
as amended April 14, 1997). The Court's Final Order and Judgement approving the
class Settlement was appealed to the United States Court of Appeals for the
Third Circuit, which upheld the district court's approval of the Stipulation of
Settlement on July 23, 1998. As of now no further appeal has been taken.
Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance contracts. As of December 31, 1997, based on a reasonable estimate of
losses associated with ADR claims, management estimated the cost, before taxes,
of remedying policyholder claims in the ADR process to be approximately $2.05
billion. While management believed these to be reasonable estimates based on
information then available, further estimates are currently being developed in
connection with the availability of more recent data. The ultimate amount of the
total cost of remedied policyholder claims is dependent on complex and varying
factors, including actual claims by eligible policyholders, the relief options
chosen and the dollar value of those options. There are also additional elements
of the ADR process which cannot be fully evaluated at this time (e.g., claims
which may be successfully appealed) which could increase this estimate.
In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.
49
<PAGE>
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class Settlement.
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted. It is also not possible to
predict the likely results of any regulatory inquiries or their effect on
litigation which might be initiated in response to widespread media coverage of
these matters.
Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods, could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not have a material adverse effect on Prudential's
financial position, after consideration of applicable reserves.
Year 2000 Compliance
The services provided to the Group Contractholders by Prudential depend on the
smooth functioning of its computer systems. The year 2000, however, holds the
potential for significant disruption in the operation of these systems. Many
computer systems are programmed to recognize only the last two digits in a date.
As a result, any computer system that has date-sensitive programming may
recognize a date using "00" as the year 1900 rather than the year 2000. This
problem can affect non-information technology systems that include embedded
technology, such as microprocessors included in "infrastructure" equipment used
for telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly, which could in turn affect the
accuracy and compromise the integrity of business records. Business operations
could be interrupted when companies are unable to process transactions, send
invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a
50
<PAGE>
certification process to monitor and evaluate enterprise-wide progress of each
component of Prudential's program for conversion and upgrading of systems for
Year 2000 compliance.
Business Applications
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000 compliant
systems, and the remaining 17% are being retired from production. At December
31, 1998, the percentage of business applications (based on application count)
in the implementation phase for Year 2000 compliance for renovation, replacement
and retirement are 99%, 96% and 99%, respectively. The interim target date for
completing renovations and retirements is March 1999, with an overall completion
date for Business Applications of June 1999.
Infrastructure
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The interim target date for
completion of certain Infrastructure components is March 1999 with an overall
completion date for Infrastructure of June 1999.
Business Partners
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of our business
partners have been identified as highly critical and the remaining 70% as less
critical. Project phases include inventory, risk assessment, and contingency
planning activities. All project phases for highly critical business partner
51
<PAGE>
readiness were achieved in December 1998; we have an overall completion date for
less critical business partner readiness of June 1999.
The Cost of Year 2000 Readiness
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including those businesses not engaged in
providing services to Group Contractholders. Accordingly, while the expense is
substantial in the aggregate, it is not expected to have a material impact on
Prudential's ability to meet its contractual commitments to Group
Contractholders.
Year 2000 Risks and Contingency Planning
The major portion of Prudential's transactions are of such volume that they can
only be effectively processed through the use of automated systems. Therefore,
substantially all of Prudential's contingency plans include the ultimate
resolution of any causative technology failures that may be encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
significant impact on the timing of the project as a whole. During the course of
the Year 2000 program, some discretionary technology projects have been delayed
in favor of the completion of Year 2000 projects. However, this impact has been
minimized by Prudential's strategic decision to outsource most of the Year 2000
renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, Prudential is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the results of operations, liquidity or financial condition. In the worst case,
it is possible that any technology failure, including an internal or external
Year 2000 failure, could have a material impact on Prudential's results of
operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
52
<PAGE>
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature.
53
<PAGE>
DEFINITIONS OF SPECIAL TERMS
USED IN THIS PROSPECTUS
Annual Base Salary -- An Eligible Group Member's basic annual rate of pay
including before-tax contributions for Flex Comp benefits and 401K
contributions. An Eligible Group Member's Annual Base Salary does not include
overtime, profit sharing awards, bonuses, long term disability benefits, or any
other form of extra compensation.
Attained Age -- Your age as of the first day of the month following your
birthday.
Basic Employee Group Term Life Insurance -- Term life insurance automatically
purchased by Morgan Guaranty Trust of NY for each eligible employee. The
benefits available under the Group Variable Universal Life Insurance Contract
described in this prospectus are in addition to any benefits available under
Basic Employee Group Term Life Insurance coverage.
Business Day -- A day on which the New York Stock Exchange is open for trading.
Cash Surrender Value -- The amount you receive upon surrender of the
Certificate. The Cash Surrender Value is equal to your Certificate Fund on the
date of surrender, less any Certificate Debt, outstanding charges, and any
applicable transaction charge.
Certificate -- A document issued to you, as a Participant under the Group
Contract, setting forth or summarizing your rights and benefits.
Certificate Anniversary -- The same date each year as the Certificate Date.
Certificate Date -- The effective date of coverage under a Certificate.
Certificate Debt -- The principal amount of any outstanding loans you borrowed
under your Certificate plus any accrued interest.
Certificate Fund -- The total amount credited to you under your Certificate. On
any date it is equal to the sum of the amounts under that Certificate allocated
to: (1) the Subaccounts, (2) the Fixed Account, and (3) the Loan Account.
Certificate Year -- The year from the Certificate Date to the first Certificate
Anniversary or from one Certificate Anniversary to the next.
Contract Anniversary -- January 1 of each year.
Contract Date -- January 1, 1999, the date as of which the Group Contract was
issued.
Covered Person -- The person whose life is insured under the Group Contract. The
Covered Person is generally the Participant.
Death Benefit -- The amount payable upon the death of the Covered Person (before
the deduction of any Certificate Debt or any outstanding charges).
Eligible Group Members -- All full-time or regular part-time employees of Morgan
Guaranty Trust of NY, its subsidiaries, and its affiliated companies (on U.S.
payroll) scheduled to work 20 or more hours weekly. Subsidiaries and affiliated
companies include all companies that Morgan Guaranty Trust of NY has requested
be included in the Group Contract, provided that Prudential has granted the
request. An Eligible Group Member and his or her spouse may each
54
<PAGE>
separately apply for insurance coverage under the Group Contract for himself or
herself.
Face Amount -- The amount of life insurance in your Certificate. The Face
Amount, along with your Certificate Fund, is a part of your Death Benefit.
Fixed Account -- An investment option under which Prudential guarantees that
interest will be added to the amount deposited at a rate we declare
periodically.
Funds -- The Prudential Series Fund, J.P. Morgan Series Trust II, and American
Century Variable Portfolios, Inc. portfolios in which the Separate Account
invests. Your investment options include the Funds and the Fixed Account.
Group Contract -- The Group Variable Universal Life insurance contract that
Prudential issued to Morgan Guaranty Trust of NY.
Group Contractholder -- Morgan Guaranty Trust of NY.
Guideline Annual Premium -- A level annual premium that would be payable
throughout the duration of a Certificate to fund the future benefits if the
Certificate were a fixed premium contract, based on certain assumptions set
forth in a rule of the SEC. Upon request, Prudential will advise you of the
guideline annual premium under the Certificate.
Issue Age -- The Covered Person's Attained Age on the date that the insurance on
that Covered Person goes into effect as defined by the Group Contract.
Loan Account -- An account within Prudential's general account to which we
transfer from the Separate Account and/or the Fixed Account an amount equal to
the amount of any loan.
Loan Value -- The amount (before any applicable transaction charge) that you may
borrow at any given time under your Certificate. We calculate the Loan Value by
multiplying the Certificate Fund by 90% (or higher where required by state law)
and then subtracting any existing loan with accrued interest, outstanding
charges, and the amount of the next month's charges.
Modified Endowment Contract -- A type of life insurance contract or Certificate
under the Internal Revenue Code which has been funded in excess of certain IRS
limits. In general, a Certificate may be classified as a Modified Endowment
Contract (or "MEC") if premiums substantially in excess of scheduled premiums
are paid or a decrease in the Face Amount of insurance is made (or an additional
insurance benefit removed). Less favorable tax rules, and in some cases a
penalty tax, apply if you take distributions (such as withdrawals, loans or
assignments) from a MEC. Regardless of classification as a MEC, cash value
accrues on a tax deferred basis and the Death Benefit is generally received free
of income tax. See Tax Treatment of Certificate Benefits for a more complete
description of the MEC rules.
Monthly Deduction Date -- For Participants who do not pay premiums by automatic
payroll deduction, the first Business Day of the month. For these Participants,
Prudential will deduct the full monthly Certificate Fund charges on this Monthly
Deduction Day. Participants who are Eligible Group Members (or their spouses)
and who generally pay premiums by automatic payroll deduction instead have their
monthly Certificate Fund charges deducted on the two Semi-Monthly Deduction
Days.
Net Premium -- Your premium payment minus any charges for taxes attributable to
premiums, any processing fee, and any sales charge. Net Premiums are the amounts
that
55
<PAGE>
we allocate to the Separate Account and/or the Fixed Account.
Paid-up Coverage -- This type of life insurance coverage pays a Death Benefit of
a specific amount that does not change. You make one initial premium payment to
begin the coverage and never make any additional payments.
Participant -- An Eligible Group Member or spouse who obtains insurance under
the Group Contract and is eligible to exercise the rights described in the
Certificate. The Participant is generally the same as the Covered Person. We
refer to Participants as "you" in this prospectus. If you validly assign your
rights as a Participant to someone else, then that person may exercise those
rights.
Portable -- You may continue your insurance coverage even if you are no longer
an Eligible Group Member. This type of insurance coverage is called Portable.
Cost of insurance rates and charges may increase
under a Portable Certificate.
Semi-Monthly Deduction Day -- For Participants who are Eligible Group Members
(or their spouses) and who generally pay premiums by automatic payroll
deduction, the two days each month that Prudential deducts monthly charges from
the Participant's Certificate Fund. The Semi-Monthly Deduction Days will
coincide with the two days that Prudential credits automatic payroll deduction
premium payments it receives from Morgan Guaranty Trust of NY, which Prudential
anticipates will occur around the middle and end of each month. Participants
will have half of the monthly charges deducted on the first Semi-Monthly
Deduction Day and the remaining half deducted on the second Semi-Monthly
Deduction Day. Participants who do not generally pay premiums by automatic
payroll deduction have a single Monthly Deduction Day when Prudential will
deduct the full monthly Certificate Fund charges.
Separate Account -- Prudential Variable Contract Account GI-2, a separate
investment account registered as a unit investment trust under the federal
securities laws and established by Prudential to receive some or all of the Net
Premiums and to invest them in the Funds.
Series Fund -- The Prudential Series Fund, Inc., a mutual fund with separate
portfolios, some of which are available as investment options for the Group
Contract.
Subaccount -- A division of the Separate Account. Each Subaccount invests its
assets in the shares of a corresponding Fund.
We -- The Prudential Insurance Company of America.
You -- A Participant.
56
<PAGE>
DIRECTORS AND OFFICERS OF PRUDENTIAL
DIRECTORS OF PRUDENTIAL
Franklin E. Agnew - Director since 1994 (current term expires April, 2000).
Member, Committee on Dividends; Member, Finance Committee; Member Corporate
Governance Committee. Business consultant since 1987. Senior Vice President,
H.J. Heinz from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb,
Inc. John Wiley & Sons, Inc. and Erie Plastics Corporation. Age 63. Address: 600
Grant Street, Suite 660, Pittsburgh, PA 15219.
Frederick K. Becker - Director since 1994 (current term expires April, 1999).
Member, Auditing Committee, Member, Committee on Business Ethics; Member,
Corporate Governance Committee. President, Wilentz Goldman and Spitzer, P.A.
(law firm) since 1989, with firm since 1960. Age 62. Address: 90 Woodbridge
Center Drive, Woodbridge, NJ 07095.
James G. Cullen - Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, since 1997.
Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President, Bell
Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of Bell
Atlantic Corporation and Johnson & Johnson. Age 55. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
Carolyne K. Davis - Director since 1989 (current term expires April, 2001).
Member, Finance Committee; Member Committee on Business Ethics; Member,
Compensation Committee. Independent Health Care Advisor. National and
International Health Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr.
Davis is also a director of Beckman Instruments, Inc., Merck & Co., Inc.,
Science Applications International Corporation, Minimed Incorporated, and
Beverley Enterprises. Age 65. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102.
Roger A. Enrico - Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996.
Originally with PepsiCo, Inc. since 1971. Mr. Enrico is also a director of A.M.
Belo Corporation and Dayton Hudson Corporation. Age 53. Address: 700 Anderson
Hill Road, Purchase, NY 10577.
Allan D. Gilmour - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1995.
Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour originally
joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool Corporation,
USWest, Inc., The Dow Chemical Company and DTE Energy Company. Age 63. Address:
751 Broad Street, 23rd Floor, Newark, NJ 07102.
William H. Gray, III - Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Finance Committee; Chairman, Committees on
Nominations & Corporate Governance. President and Chief Executive Officer, The
College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979 to 1991. Mr.
Gray is also a director of
57
<PAGE>
Chase Manhattan Corporation, The Chase Manhattan Bank, Lotus Development
Corporation, Municipal Bond Investors Assurance Corporation, Rockwell
International Corporation, Union-Pacific Corporation, Warner-Lambert Company,
Westinghouse Electric Corporation, and Electronic Data Systems. Age 56. Address:
8260 Willow Oaks Corp. Drive, Fairfax, VA 22031-4511.
Jon F. Hanson - Director since 1991 (current term expires April, 2003). Member,
Finance Committee; Member, Committee on Dividends. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of United Water
Resources, Orange & Rockland Utilities, Inc., and Consolidated Delivery and
Logistics. Age 61. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
Glen H. Hiner, Jr. - Director since 1997. (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr Hiner is also a director of Dana
Corporation. Age 64. Address: One Owens Corning Parkway, Toledo, OH 43659.
Constance J. Horner - Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Corporation, and
Pfizer, Inc. Age 55. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
Gaynor N. Kelley - Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Former Chairman and Chief
Executive Officer, The Perkins Elmer Corporation from 1990 to 1996. Mr. Kelley
is also a director of Hercules Incorporated, Arrow Electronics, Inc., and
Alliant Techsystems. Age 66. Address: 751 Broad Street, 23rd Floor, Newark, NJ
07102-3777.
Burton G. Malkiel - Director since 1978 (current term expires April, 2002).
Chairman, Finance Committee; Member, Executive Committee; Member, Committee on
Dividends. Professor of Economics, Princeton University, since 1988. Dr. Malkiel
is also a director of Banco Bilbao Vizcaya, Baker Fentress & Company, The
Jeffrey Company. The Southern New England Telecommunications Company, and
Vanguard Group, Inc. Age 65. Address: Princeton University, 110 Fisher Hall,
Prospect Avenue, Princeton, NJ 08544-1021.
Arthur F. Ryan - Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 55. Address: 751 Broad
Street, Newark, NJ 07102.
Ida F.S. Schmertz - Director since 1997 (current term expires April, 2004).
Member, Finance Committee. Principal, Investment Strategies International since
1994. Age 63. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
Charles R. Sitter - Director since 1995 (current term expires April, 1999).
Member, Finance Committee; Member, Committee on Dividends. Retired since 1996.
President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his career with
Exxon in 1957. Age 67. Address: 5959 Las Colinas Boulevard, Irving, TX
75039-2298.
58
<PAGE>
Donald L. Staheli - Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1997.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company and Bankers Trust
New York Corporation. Age 66. Address: 39 Locust Street, Suite 204, New Canaan,
CT 06840.
Richard M. Thomson - Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee; Member,
Committee on Nominations & Corporate Governance. Chairman of the Board, The
Toronto-Dominion Bank since 1997. Chairman and Chief Executive Officer from 1978
to 1997. Mr. Thomson is also a director of CGC, Inc., INCO, Limited, S.C.
Johnson & Son, Inc., The Thomson Corporation, and Canadian Occidental Petroleum,
Ltd. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A2, Canada.
James A. Unruh - Director since 1996 (current term expires April, 2000). Member,
Compensation Committee. Retired since 1997. Chairman and Chief Executive
Officer, Unisys Corporation, from 1990 to 1997. Mr. Unruh is also a director of
Ameritech Corporation. Age 55. Address: Two Bala Plaza, Suite 300, Bala Cynwyd,
PA 19004.
P. Roy Vagelos, M.D. - Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman and Chief Executive Officer, Merck & Co., Inc. from 1986 to 1994.
Dr. Vagelos is also a director of The Estee Lauder Companies, Inc. and PepsiCo.,
Inc. Age 68. Address: One Crossroads Drive, Building A, 3rd Floor, Bedminster,
NJ 07921.
Stanley C. Van Ness - Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Counselor at Law, Picco Herbert Kennedy (law firm) from
1990. Mr. Van Ness is also a director of Jersey Central Power & Light Company.
Age 63. Address: 22 Chambers Street, Princeton, NJ 08542.
Paul A. Volcker - Director since 1988 (current term expires April, 2000).
Chairman, Committee on Dividends; Member, Executive Committee; Member, Committee
on Nominations & Corporate Governance. Consultant since 1996. Chairman, James D.
Wolfensohn, Inc. from 1988 to 1996. Chief Executive Officer, James D.
Wolfensohn, Inc. from 1995 to 1996. Mr. Volcker is also a public member of the
Board of Governors of the American Stock Exchange, a member of the Board of
Overseers of TIAA-CREF, and a director of Nestle, S.A., UAL Corporation, and
Bankers Trust New York Corporation. Age 70, Address: 610 Fifth Avenue, Suite
420, New York, NY 10020.
Joseph H. Williams - Director since 1994 (current term expires April, 2002).
Member, Committee on Dividends; Member, Auditing Committee. Director, The
Williams Companies since 1971. Chairman & Chief Executive Officer, The Williams
Companies from 1979 to 1993. Mr. Williams is also a director of Flint
Industries, The Orvis Company, and MTC Investors, LLC. Age 64. Address: One
Williams Center, Tulsa, OK 74172.
59
<PAGE>
PRINCIPAL OFFICERS OF PRUDENTIAL
Arthur F. Ryan - Chairman, President and Chief Executive Officer since 1994;
prior to 1994, President and Chief Operating Officer, Chase Manhattan
Corporation, New York, NY. Age 55.
E. Michael Caulfield - Chief Executive Officer, Prudential Investments since
1996; Chief Executive Officer, Money Management Group from 1995 to 1996; prior
to 1995, President, Prudential Preferred Financial Services. Age 51.
Michele S. Darling - Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 44.
Robert C. Golden - Executive Vice President Corporate Operations and Systems
since 1997; prior to 1997, Executive Vice President, Prudential Securities, New
York, NY. Age 51.
Mark B. Grier - Executive Vice President, Financial Management since 1997; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 44.
Rodger A. Lawson - Executive Vice President, Marketing and Planning since 1996;
President and CEO, Van Eck Global, New York, NY, from 1994 to 1996; prior to
1994, President and CEO, Global Private Banking, Bankers Trust Company, New
York, NY. Age 50.
John V. Scicutella - Chief Executive Officer, Individual Insurance Group since
1997; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 48.
John R. Strangfeld - Executive Vice President, Private Asset Management Group
(PAMG) since 1998; President, PAMG, from 1996 to 1998; prior to 1996, Senior
Managing Director. Age 44.
R. Brock Armstrong - Senior Vice President, Individual Insurance Development
since 1997; prior to 1997, Executive Vice President, London Life Insurance
Company, London, Canada. Age 50.
James J. Avery, Jr. - Senior Vice President & Chief Actuary since 1997;
President Prudential Select from 1995 to 1997; prior to 1995, Chief Financial
Officer, Prudential Select. Age 46.
Martin A. Berkowitz - Senior Vice President and Comptroller since 1995; prior to
1995, Senior Vice President and CFO, Prudential Investment Corporation. Age 48.
William M. Bethke - Chief Investment Officer since 1997; prior to 1997, Senior
Vice President. Age 50.
Richard J. Carbone - Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 50.
Mark R. Fetting - President, Prudential Retirement Services since 1996; prior to
1996, President, Prudential Defined Contribution Services. Age 43.
60
<PAGE>
William D. Friel - Senior Vice President and Chief Information Officer since
1993. Age 59.
Jean D. Hamilton - President, Diversified Group since 1995; prior to 1995,
President, Prudential Capital Group. Age 51.
Ronald P. Joelson - Senior Vice President, Guaranteed Products since 1997;
President, Prudential Investments Guaranteed Products from 1996 to 1998; prior
to 1996, Managing Director, Enterprise Planning Unit. Age 40.
Ira J. Kleinman - Executive Vice President, International Insurance Group, since
1997; prior to 1997, Senior Vice President. Age 51.
Neil A. McGuinness - Senior Vice President, Marketing, Prudential Investments,
since 1996; prior to 1996, Managing Director, Putnam Investments, Boston, MA.
Age 51.
Priscilla A. Myers - Senior Vice President, Audit, Compliance and Investigation
since 1995. Vice President and Auditor from 1989 to 1995. Age 48.
I. Edward Price - Senior Vice President and Actuary since 1995; prior to 1995,
Chief Executive Officer, Prudential International Insurance. Age 55.
Kiyofumi Sakaguchi - President, International Insurance Group since 1995; prior
to 1995, Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age
55.
Brian M. Storms - President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
43.
Robert J. Sullivan - Senior Vice President, Sales, Prudential Investments since
1997; prior to 1997, Managing Director, Fidelity Investments, Boston. Age 59.
Susan J. Blount - Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 40.
C. Edward Chaplin - Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
Prudential officers are elected annually.
61
<PAGE>
FINANCIAL STATEMENTS
[Financial statements to be added by post-effective amendment.]
62
<PAGE>
Supplement dated May 1, 1999
to Prospectus dated May 1, 1999
for Group Variable Universal Life Insurance
Special Features of the Group Contract for
DaimlerChrysler Corporation
This document is a supplement to the prospectus dated May 1, 1998 (the
"prospectus") for the Group Variable Universal Life Insurance contract and
Certificates that Prudential offers to you. This supplement is not a complete
prospectus, and must be accompanied by the prospectus. The prospectus describes
the insurance features and certain other aspects of the DaimlerChrysler
Corporation Group Contract and Certificates. In this supplement, we list the 16
Funds that are available to you under the DaimlerChrysler Corporation Group
Contract and Certificates.
Special terms that we use are defined in the prospectus. See the Definitions of
Special Terms section of the prospectus. You must read the prospectus and this
supplement together to fully understand how Group Variable Universal Life
Insurance works.
Eligibility and Enrollment
Who is Eligible for Coverage?
Eligible Group Members for the Group Variable Universal Life Insurance are:
o Salaried employees of DaimlerChrysler Corporation and certain subsidiaries
who work full-time on a regular basis.
o Part-time employees of DaimlerChrysler Corporation and certain subsidiaries
who are officially classified by DaimlerChrysler as "reduced hour" or "job
share" employees.
o Spouses of eligible employees who are younger than 65 when they enroll,
provided they are not confined for medical treatment at home or elsewhere.
Spouses who are also employees of DaimlerChrysler may not be covered both
as an employee and a spouse. If, after the death of a spouse, we become
aware that a spouse enrolled as both an employee and a spouse, we will pay
a death benefit as though the spouse were an employee. We will return the
premiums that were paid as a spouse, and we will retain any investment gain
or loss.
See the Applicant Owner Provision section of the prospectus to learn about
how a spouse may apply for coverage on the life of the employee.
1
<PAGE>
We refer to each person who buys coverage as a "Participant." When we use the
terms "you" or "your", we mean a Participant.
In addition, children of eligible employees are eligible for dependent term life
coverage from age 14 days to 19 years (or, if an unmarried student, to age 25).
Eligible children include legally adopted children, stepchildren and foster
children who live with the employee and depend on the employee wholly for
support.
Before a child can become covered, the employee or the spouse must be
covered for the Group Variable Universal Life Insurance. The child will not
be eligible if he or she is confined for medical care or treatment at home
or elsewhere.
When a child reaches age 19 (or, if an unmarried student, age 25), he or
she may continue coverage if he or she is not physically or mentally
capable of self- support. The employee must give Prudential evidence of the
incapacity within 31 days after coverage would end.
Children who are also employees of DaimlerChrysler may not be covered both
as an employee and a dependent. And, if both parents are employees of
DaimlerChrysler, a child may be covered by only one parent.
Is There A Limited Enrollment Period?
No, an eligible employee or spouse may enroll at any time during the year. But,
if the person applies for coverage more than 31 days after first becoming
eligible, Prudential will ask for evidence of the Covered Person's good health
before that person can become covered.
Coverage Information
How Much Coverage May A Participant Buy?
A Participant who is an employee may choose from one of eight Face Amounts. The
choices range from a minimum Face Amount of $10,000 to a Face Amount equal to
five times annual base salary up to a maximum of $3,000,000. (When a Face Amount
is based on salary, we round the Face Amount to the next higher multiple of
$1,000 if it's not already an even multiple of $1,000).
2
<PAGE>
A Participant who is a spouse may choose from one of these four Face Amounts:
$100,000, $75,000, $50,000 and $25,000. The Face Amount may not be more than
three times the employee's annual base salary.
How Much Term Life Coverage May A Participant Buy For A Dependent Child?
A Participant may choose from one of these five amounts of term life insurance
for each eligible child: $20,000, $15,000, $10,000, $5,000 and $1,000.
When Must I Give Evidence Of Good Health?
For a current Participant who is an Employee: You must give evidence of good
health if you increase your Face Amount.
For a newly hired Eligible Group Member: You must give evidence of good health
if you enroll for a Face Amount that is more than $1,500,000. If you enroll more
than 31 days after you first become eligible, you must give evidence of good
health to enroll for any Face Amount.
For a new dependent spouse or child: A spouse must give evidence of good health
to enroll for a Face Amount that is more than $1,500,000. If the spouse enrolls
more than 31 days after he or she is first eligible, he or she must give
evidence of good health to enroll for any Face Amount. A spouse is first
eligible on the date of marriage to the employee.
You may enroll a dependent child without giving evidence of good health if you
enroll the child within 45 days after the child first becomes eligible. A child
first becomes eligible at 14 days old. In addition, a child is eligible on
adoption or on the date a court decree makes the child your dependent providing
the child is at least 14 days old.
You will need to give evidence of good health if you decline coverage for a
spouse or child and later decide to enroll, or if you want to increase the
coverage amount.
Can I Increase My Coverage Amount?
Yes. You may increase your Face Amount of Insurance at any time but you must
give evidence of good health.
3
<PAGE>
Will My Coverage Amount Ever Decrease?
Yes. At age 70, your Face Amount will reduce to 60% of your Face Amount before
age 70. At age 75, it will reduce to 40% of your Face Amount before age 70. And,
at age 80, it will reduce to 25% of your Face Amount before age 70. It will
never be less than $10,000.
See the Changes in Face Amount and Tax Treatment of Certificate Benefits
sections of the prospectus.
Does My Certificate Include An Accelerated Death Benefit Provision?
Yes. A Participant can elect to receive an early payment of part of the Death
Benefit when diagnosed as being terminally ill. A Participant who is an employee
may elect up to 50% of the Death Benefit, subject to a maximum of $250,000. A
Participant who is a spouse may elect up to 50%, subject to a maximum of
$50,000. "Terminally ill" means the Participant has a life expectancy of 6
months or less.
Am I Entitled To Additional Benefits?
Yes. You are eligible for the Accelerated Death Benefit and Dependent Life
Benefits, as stated earlier.
Does The Coverage Have Exclusions?
Yes. As stated in the prospectus, Group Variable Universal Life Insurance has a
suicide exclusion. See the Suicide Exclusion section of the prospectus.
What Are The Terms Of A Policy Loan?
Amount available for borrowing: You may borrow up to the Loan Value of your
Certificate Fund. The Loan Value is 90% of your Certificate Fund minus any
existing loan (and its accrued interest), outstanding charges, and the amount of
the next month's charges. We will take an amount equal to the loan out of each
of your investment options on a pro-rata basis unless you tell us to take it
only from selected investment options.
The minimum loan amount is $200.
Interest rate: The net cost of the loan is equal to an annual rate of 2%.
4
<PAGE>
See the Loans section of the prospectus for more details.
Premiums
How Do I Pay Premiums?
For active employees and their dependents, DaimlerChrysler will send routine
premium payments to Prudential by payroll deduction. DaimlerChrysler will send
the premiums monthly. Retirees, employees on an approved leave of absence, and
employees who elect portability will be billed directly by Prudential and will
submit their premium payments directly to Prudential.
How Much Money Can I Contribute To My Investment Options?
You can contribute, subject to annual and lifetime limits set by the Internal
Revenue Service, any dollar amount. The minimum investment option contribution
is $10. See the Tax Treatment of Certificate Benefits section of the prospectus.
May I Make Additional Premium Payments?
Yes. You may make lump sum payments at any time. The minimum lump sum payment is
$100. The maximum is subject to annual and lifetime limits set by the Internal
Revenue Service. See the Tax Treatment of Certificate Benefits section of the
prospectus.
Investment Options
What Investment Options are Available?
Prudential Series Diversified Bond Portfolio
Prudential Series Equity Portfolio
Prudential Series Equity Income Portfolio
Prudential Series Flexible Managed Portfolio
Prudential Series Global Portfolio
Prudential Series Jennison Portfolio
Prudential Series Money Market Portfolio
Prudential Series Stock Index Portfolio
5
<PAGE>
Alliance Capital Premier Growth Portfolio
Dreyfus Disciplined Stock Portfolio
Investors Fund - Kemper Series High Yield Portfolio
MFS Emerging Growth Series
MFS Research Series
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price New America Growth Portfolio
Templeton International Fund Class 2
The investment objectives, fees and expenses of these investment options are
described in The Funds section of the prospectus. Your enrollment kit gives more
information about the past performance of each investment option.
You may also allocate money to the Fixed Account, which earns interest at a rate
determined annually and guaranteed not to be less than 4%.
Changes in Personal Status
Is There A Disability Provision Under My Certificate?
No. But you may continue your GVUL Coverage while on Disability Leave of Absence
that is approved by DaimlerChrysler. Prudential will bill you directly for
premium payments, and will charge a fee of $3 per bill.
Can I Continue Coverage When I Retire?
Yes. Prudential will bill you directly for premium payments, and will charge a
fee of $3 per bill.
Can I Continue Coverage If I Leave The Company For Reasons Other Than
Retirement?
You may continue coverage on a Portable basis if you leave DaimlerChrysler for
any reason. A spouse may also continue coverage on a Portable basis. Rates for
Portable coverage are higher than rates for coverage as an active employee.
Prudential will bill you directly for premium payments and will charge a fee of
$3 per bill.
6
<PAGE>
Does My Coverage End At A Certain Age?
Yes. Your coverage will end at age 100. See the How Prudential Issues
Certificates section of the prospectus to see what options you have when your
coverage ends.
What Happens If The Group Contract Is Terminated?
Either DaimlerChrysler or Prudential may end the Group Contract. Prudential can
end the Group Contract only under the conditions described on page XX of the
prospectus.
If the Group Contract ends, the effect on Participants depends on whether or not
DaimlerChrysler replaces the Group Contract with another life insurance contract
that allows for the accumulation of cash value. Generally, here is what will
happen:
o If DaimlerChrysler does replace the Group Contract with another life
insurance contract that allows for the accumulation of cash value,
Prudential will terminate your Certificate. We will also transfer the Cash
Surrender Value of your Certificate directly to that new contract, unless
you elect to receive the Cash Surrender Value of your Certificate.
o If DaimlerChrysler does not replace the Group Contract with another life
insurance contract that allows for the accumulation of cash value, you will
have these options: convert to an individual life insurance policy; use
your Certificate Fund to buy paid-up life insurance; or elect to receive
the Cash Surrender Value of your Certificate.
See the Options on Termination of Coverage section of the prospectus.
Charges and Expenses
What Are the Charges?
The current charges under the DaimlerChrysler Group Contract are as follows:
1. Charges for taxes on premium payments. Prudential deducts a charge of 1.92%
from each premium payment. This charge is to compensate Prudential for
incurring state and local premium taxes (currently 1.57%) and for the
impact of the federal deferred acquisition cost tax (currently 0.35%).
7
<PAGE>
2. Daily charges for mortality and expense risks. Prudential deducts this
charge from the assets of the Subaccount(s) that correspond to the Fund(s)
you select. This charge is to compensate Prudential for assuming mortality
and expense risks.
For DaimlerChrysler, the current daily charge for mortality and expense
risks is equivalent to an effective annual rate of 0.45%.
3. Daily charges for investment management fees and expenses. Each of the
underlying mutual funds deducts investment management fees and expenses.
These fees are described in The Funds section of the prospectus.
4. Monthly charges. Prudential deducts a monthly charge for the cost of
insurance and a monthly charge of $1 for administrative expenses from your
Certificate Fund.
5. Possible additional charges. Prudential will not charge for the first 12
transfers you make between investment options in a Certificate Year. But,
if you make more than 12 transfers in a Certificate Year, Prudential will
charge $20 per transfer. Prudential does not currently charge for other
transactions, but reserves the right to do so in the future, as explained
in the prospectus.
See the Charges and Expenses section of the prospectus for more details.
When May Charges Change?
The prospectus lists the maximum charges that we may charge under the
DaimlerChrysler Group Contract on page XX. Under no circumstances will we exceed
these charges. Within these maximums, we may vary the amount or level of
charges. In general, we will not change these amounts more often than once a
year. We will give you a new prospectus each year that shows any new charges. If
we change the charges during a year, we will send you a notice of the change.
Illustration Of Death Benefits And Cash Surrender Values
The prospectus has two hypothetical illustrations of how Group Variable
Universal Life Insurance contracts work. Those illustrations use general
assumptions. See page XX of the prospectus.
The illustrations on the next page use assumptions that are specific to the
DaimlerChrysler Group Contract - instead of using general assumptions about the
available investment options and charges, they use the investment options
actually
8
<PAGE>
available to DaimlerChrysler Participants and the charges that have actually
been negotiated for the DaimlerChrysler Group Contract.
We used the same assumptions as are listed on page XX of the prospectus, except:
o The first illustration uses the DaimlerChrysler current charges.
o The second illustration uses the maximum charges permitted under the
DaimlerChrysler Group Contract.
o Both illustrations assume that the Certificate Fund has been invested in
equal amounts in each of the 16 Funds available under the DaimlerChrysler
Group Contract. Accordingly, the illustrations assume that the Funds'
expenses were _____% per year, which was their average in 1998.
o Both illustrations assume that a premium of $100 is paid at issue and
monthly thereafter.
If you ask, Prudential will give you a similar illustration for a Certificate
that shows your age, risk class, proposed Face Amount of insurance, and proposed
premium payments. We refer to this as a "personalized illustration."
When Are Charges Deducted?
We calculate and deduct the charges monthly from your Certificate Fund,
depending upon whether you make routine premium payments by automatic payroll
deduction or directly to Prudential. We take the charges from each investment
option in the same proportions that your Certificate Fund is invested.
If you make routine premium payments by automatic payroll deduction, we
generally will deduct the monthly Certificate Fund charges once per month, on
the Monthly Deduction Date. The Monthly Deduction Date will coincide with the
date DaimlerChrysler forwards the payroll deductions to us. We expect the
Monthly Deduction Date to be near the first of the month.
DaimlerChrysler intends to forward automatic payroll deduction premium payments
by the beginning of each month. But, even if DaimlerChrysler has not transferred
the payroll deductions to us by the 45th day after the first day of any month,
we will nevertheless deduct the month's Certificate Fund charges on the next
Business Day following that 45th day.
9
<PAGE>
If you make routine premium payments directly to Prudential, we will deduct the
full monthly Certificate Fund charges on the first Business Day of each month.
What Are the Other Primary Features of the Plan?
The prospectus contains a good deal of information about standard features of
the DaimlerChrysler Group Contract, including:
o the free-look period
o transfers between investment options
o dollar cost averaging
o more details on how loans work
o how you can change future premium allocations among investment options
o how paid-up coverage may be available
o how your insurance could end (known as "lapsing")
o reinstatement of your coverage
o contestability rules
o tax treatment of Certificate benefits
o definitions of special terms
o the Death Benefit
o withdrawals
Please refer to the prospectus for information on these and other features of
the DaimlerChrysler Group Contract. Your Enrollment Kit also explains key
features of your plan.
10
<PAGE>
Whom Do I Contact To Make A Transaction?
You may contact the Prudential Customer Service Center at 1-800-354-6903 to
obtain the proper forms.
What Are My Cancellation Rights?
You may return a Certificate for a refund within 10 days after you receive it.
These 10 days are known as the "free look" period. You can ask for a refund by
mailing the Certificate back to Prudential. During the first 20 days after the
Certificate Date, your premium payments are held in the Fixed Account.
See the A "Free Look" Period section of the prospectus for more details.
Whom Do I Contact to Answer My Other Questions?
You may contact Prudential's Customer Service Center at 1-800-354-6903.
11
<PAGE>
Supplement dated May 1, 1999
to Prospectus dated May 1, 1999
for Group Variable Universal Life Insurance
Special Features of the Group Contract for
KPMG
This document is a supplement to the prospectus dated May 1, 1998 (the
"prospectus") for the Group Variable Universal Life Insurance contract and
Certificates that Prudential offers to you. This supplement is not a complete
prospectus, and must be accompanied by the prospectus. The prospectus describes
the insurance features and certain other aspects of the KPMG Group Contract and
Certificates. In this supplement, we list the 12 Funds that are available to you
under the KPMG Group Contract and Certificates.
Special terms that we use are defined in the prospectus. See the Definitions of
Special Terms section of the prospectus. You must read the prospectus and this
supplement together to fully understand how Group Variable Universal Life
Insurance works.
Eligibility and Enrollment
Who is Eligible for Coverage?
Eligible Group Members for the Group Variable Universal Life Insurance are:
o All regular full-time active partners of KPMG and Subsidiaries or one of
its affiliated companies.
o Former partners who retire on or after April 5, 1999.
o Former partners who terminate employment after April 5, 1999 and elect to
continue coverage through the portability provision.
o Any KPMG partner who retired before April 5, 1999 but actively participated
in the Cash Accumulation Account under the Group Flex Life Program on April
4, 1999 and elected to convert to the GVUL plan effective April 5, 1999.
We refer to each person who buys coverage as a "Participant." When we use the
terms "you" or "your", we mean a Participant.
<PAGE>
Coverage Information
How Much Coverage May An Eligible Partner Buy?
An eligible Partner will be automatically covered for a Face Amount of 6 times
annual earnings (less incentive compensation), rounded to the nearest $100,000,
up to a maximum of $2,500,000. You may elect to limit the maximum amount of
coverage (but no less than $1,500,000), although any such amount must be rounded
to the nearest $100,000.
In addition, an eligible Partner may choose to enroll for a Supplemental amount
of coverage that will increase their Face Amount by one of the following:
o $ 500,000
o $ 1,000,000
o $ 1,500,000
We require evidence of good health for all amounts of Supplemental coverage.
Are Dependents Eligible For Coverage?
No. Dependents are not covered under the KPMG Group Contract.
When Must I Give Evidence Of Good Health?
For current Partners: If you choose to apply for Supplemental coverage, you will
have to furnish evidence of good health. In addition, if you elect to limit your
coverage to an amount less than 6 times your annual earnings (excluding
incentive compensation) and you later wish to increase your coverage for any
amount up to your allowable limit, you will need to furnish satisfactory
evidence of good health for the requested increased amount of coverage.
Are Increases In Coverage Available?
We may increase your coverage amounts (excluding Supplemental coverage) on each
October 1st based on your annual earnings (less incentive compensation). We do
not require evidence of good health for these increases.
2
<PAGE>
Will My Coverage Amount Ever Decrease?
Your coverage amount will decrease only if you voluntarily choose to reduce it.
The minimum that you can reduce it to is $1,500,000. But, if you decrease
coverage and later seek additional coverage, we will require evidence of good
health.
See the Tax Treatment of Certificate Benefits section on page X of the
prospectus. You should also get advice from a tax advisor.
Does My Certificate Include An Accelerated Death Benefit Provision?
Yes. A Participant can elect to receive an early payment of part of the Death
Benefit when diagnosed as being terminally ill. You may elect up to 50% of the
Death Benefit, subject to a maximum of $250,000. "Terminally ill" means the
Participant has a life expectancy of 6 months or less.
Am I Entitled To Additional Benefits?
Yes. You are eligible for the Accelerated Death Benefit and for the Extended
Death Protection During Total Disability described later in this supplement.
Is There A Suicide Exclusion?
No. The KPMG Group Contract does not include a Suicide Exclusion.
What Are The Terms Of A Policy Loan?
Amount available for borrowing: You may borrow up to the Loan Value of your
Certificate Fund (that is, your investment options). The Loan Value is 90% of
your Certificate Fund minus any existing loan (and its accrued interest),
outstanding charges, and the amount of the next month's charges. We will take an
amount equal to the loan out of each of your investment options on a pro-rata
basis unless you tell us to take it only from selected investment options. The
minimum loan amount is $200.
Interest rate: The net cost of the loan is equal to an annual rate of 2%.
See the Loans section of the prospectus for more details.
3
<PAGE>
Premiums
How Do I Pay Premiums?
KPMG will send routine premium payments to Prudential on a monthly basis. KPMG
will also send partner-elected lump sum premium deposits to Prudential in July
and November of each year.
Prudential will bill directly retirees, partners on an approved leave of
absence, and partners who elect portability. They will send premium payments
directly to Prudential.
May I Make Additional Premium Payments?
Yes. You may make lump sum payments at any time. The minimum lump sum payment is
$100. The maximum is subject to annual and lifetime limits set by the Internal
Revenue Service. See the Tax Treatment of Certificate Benefits section of the
prospectus.
Investment Options
What Investment Options are Available?
Prudential Series Global Portfolio
Prudential Series High Yield Bond Portfolio
Prudential Series Jennison Portfolio
Prudential Series Money Market Portfolio
Prudential Series Small Capitalization Stock Portfolio
Prudential Series Stock Index Portfolio
Janus Aspen Series Worldwide Growth Portfolio
MFS Bond Series
Neuberger Berman AMT Partners Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
Warburg Pincus Global Fixed Income Portfolio
We describe the investment objectives of these portfolios in the accompanying
prospectus, which also describes their fees and expenses. Please refer to your
Enrollment Kit for further information on the Funds' past performance.
4
<PAGE>
You may also allocate funds to our Fixed Account, which earns interest at a rate
determined annually but guaranteed not to be less than 4%. As discussed on page
XX of the prospectus, during the first 20 days following the Certificate Date,
we will direct your premium payments to the Fixed Account.
Changes in Personal Status
What Happens If I Become Disabled?
If you become totally disabled prior to age 57 and are unable to pay premiums,
you will continue to have insurance coverage equal to the Face Amount of your
Certificate until you reach age 62, as long as you remain totally disabled.
Can I Continue Coverage When I Retire?
You may continue your GVUL coverage when you retire. Your rates for coverage
will depend upon your age. We will bill you for premium payments plus a direct
bill charge of $3 per bill. Your Supplemental coverage ends at termination of
employment, but may be converted to an individual policy.
Can I Continue Coverage If I Leave The Company For Reasons Other Than
Retirement?
In addition to continuing coverage if you retire, you may continue coverage if
you leave KPMG for any other reason. We refer to this as Portable coverage. Your
rates for Portable coverage will depend upon your age based on the Plan's
experience until the second policy anniversary after you leave the employment of
KPMG. After that, you will be charged rates for coverage based on the experience
of a Prudential portability pool. These rates will be higher than your active
rates. We will bill you for premium payments plus a direct bill charge of $3 per
bill. If the KPMG Group Contract terminates, you may nonetheless continue your
Portable coverage.
Your Supplemental coverage ends at termination of employment. Supplemental
coverage may be converted to an individual policy.
Does My Coverage End At A Certain Age?
Yes. Your coverage will end at age 100. See the How Prudential Issues
Certificates section of the prospectus to see what options you have when your
coverage ends.
5
<PAGE>
What Happens If The Group Contract Is Terminated?
Either KPMG or Prudential may terminate the KPMG Group Contract, although
Prudential will only do so under certain conditions described in the prospectus
on page XX. If the KPMG Group Contract is terminated, KPMG may replace it with
another life insurance contract that, like the KPMG Group Contract, permits you
to accumulate cash value. In that case, you will have the option of (i)
transferring the value of your investment options less any loans, accrued
interest, and outstanding charges to the new contract; or (ii) receiving that
same amount in a lump sum payment.
If KPMG does not replace the KPMG Group Contract with a life insurance contract
that permits you to accumulate cash value, then you will have the option of
converting to a cash value individual life insurance policy, electing a paid-up
life insurance policy in which no future premiums would be paid, or receiving a
lump sum payment as previously described.
See the Options on Termination of Coverage section of the prospectus.
Charges and Expenses
What Are the Charges?
The current charges under the KPMG Group Contract are as follows:
1. Charges for taxes on premium payments. Prudential deducts a charge of 1.92%
from each premium payment. This charge is to compensate Prudential for
incurring state and local premium taxes (currently 1.57%) and for the
impact of the federal deferred acquisition cost tax (currently 0.35%).
2. Daily charges for mortality and expense risks. Prudential deducts this
charge from the assets of the Subaccount(s) that correspond to the Fund(s)
you select. This charge is to compensate Prudential for assuming mortality
and expense risks.
For KPMG, the current daily charge for mortality and expense risks is
equivalent to an effective annual rate of 0.45%.
3. Daily charges for investment management fees and expenses. Each of the
underlying mutual funds deducts investment management fees and expenses.
They are described in The Funds section of the prospectus.
6
<PAGE>
4. Monthly charges. Prudential deducts a monthly charge for the cost of
insurance. We describe the calculation of this charge on page XX of the
prospectus.
5. Possible additional charges. Prudential will not charge for the first 12
transfers you make between investment options in a Certificate Year. But,
if you make more than 12 transfers in a Certificate Year, Prudential will
charge $20 per transfer. Also, while you will receive a statement detailing
activity under your Certificate on a quarterly basis, such reports can be
requested at any time for an additional fee. Prudential does not currently
charge for other transactions, but reserves the right to do so in the
future, as explained in the prospectus.
See the Charges and Expenses section of the prospectus for more details.
When May Charges Change?
The prospectus lists the maximum charges that we may charge under the KPMG Group
Contract on page XX. Under no circumstances will we exceed these charges. Within
these maximums, we may vary the amount or level of charges. In general, we will
not change these amounts more often than once a year. We will give you a new
prospectus each year that shows any new charges. If we change the charges during
a year, we will send you a notice of the change.
Illustration Of Death Benefits And Cash Surrender Values
The prospectus has two hypothetical illustrations of how Group Variable
Universal Life Insurance contracts work. Those illustrations use general
assumptions. See page XX of the prospectus.
The illustrations on the next page use assumptions that are specific to the KPMG
Group Contract instead of using general assumptions about the available
investment options and charges, they use the investment options actually
available to KPMG Participants and the charges that have actually been
negotiated for the KPMG Group Contract.
We used the same assumptions as are listed on page XX of the prospectus, except:
o The first illustration uses the KPMG current charges.
o The second illustration uses the maximum charges permitted under the KPMG
Group Contract.
7
<PAGE>
o Both illustrations assume that the Certificate Fund has been invested in
equal amount in each of the 12 Funds available under the KPMG Group
Contract. Accordingly, the illustrations assume that the Funds' expenses
were _____% per year, which was their average in 1998.
o Both illustrations assume annual premium payments of $5000 plus current
cost of insurance plus current expenses.
If you ask, Prudential will give you a similar illustration for a Certificate
that shows your age, risk class, proposed Face Amount of insurance, proposed
premium payments, and the investment options you are interested in. We refer to
this as a "personalized illustration."
When Are Charges Deducted?
We calculate and deduct the charges monthly from your Certificate Fund,
depending upon whether you make routine premium payments to KPMG or directly to
Prudential. We take the charges from each investment option in the same
proportions that your Certificate Fund is invested.
If you make routine premium payments through KPMG, we generally will deduct the
monthly Certificate Fund charges once per month, on the Monthly Deduction Date.
The Monthly Deduction Date will coincide with the date KPMG forwards premium
payments to us. We expect the Monthly Deduction Date to be near the first of the
month.
KPMG intends to forward premium payments by the beginning of each month. But,
even if KPMG has not transferred premium payments to us by the 45th day after
the first day of any month, we will nevertheless deduct the month's Certificate
Fund charges on the next Business Day following that 45th day.
If you make routine premium payments directly to Prudential, we will deduct the
full monthly Certificate Fund charges on the first Business Day of each Month.
What Are the Other Primary Features of the Plan?
The prospectus contains a good deal of information about standard features of
the KPMG Group Contract, including:
o the free-look period
o transfers between investment options
8
<PAGE>
o dollar cost averaging
o more details on how loans work
o how you can change future premium allocations among investment options
o how paid-up coverage may be available
o how your insurance could end (known as "lapsing")
o reinstatement of your coverage
o contestability rules
o tax treatment of Certificate benefits
o definitions of special terms
o the Death benefit
o withdrawals
Please refer to the prospectus for information on these and other features of
the KPMG Group Contract. Your Enrollment Kit also explains key features of your
plan.
Whom Do I Contact To Make A Transaction?
You may contact the Prudential Customer Service Center at 1-800-562-9874 to
obtain the proper forms.
What Are My Cancellation Rights?
You may return a Certificate for a refund within 10 days after you receive it.
These 10 days are known as the "free look" period. You can ask for a refund by
mailing the Certificate back to Prudential. During the first 20 days after the
Certificate Date, your premium payments are held in the Fixed Account.
See the A "Free Look" Period section of the prospectus for more details.
9
<PAGE>
Whom Do I Contact to Answer My Other Questions?
You may contact Prudential's Customer Service Center at 1-800-562-9874.
10
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION WITH RESPECT TO CHARGES
The Prudential Insurance Company of America ("Prudential") represents that the
fees and charges deducted under the Group Variable Universal Life Insurance
Contracts registered by this registration statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Prudential.
UNDERTAKING WITH RESPECT TO INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation.
New Jersey, being the state of organization of Prudential Insurance Company of
America ("Prudential"), permits entities organized under its jurisdiction to
indemnify directors and officers with certain limitations. The relevant
provisions of New Jersey law permitting indemnification can be found in Section
14A:3-5 of the New Jersey Statutes Annotated. The text of Prudential's By-law
27, which relates to indemnification of officers and directors, is incorporated
by reference to Exhibit (8)(ii) of Post-Effective Amendment No. 12 to Form N-4,
Registration No. 33-25434, filed April 30, 1997, on behalf of the Prudential
Individual Variable Contract Account.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-reference to items required by Form N-8B-2.
Version 1 of the prospectus consisting of 104 pages; version 2 of the prospectus
consisting of 103 pages; version 3 of the prospectus consisting of 74 pages;
version 4 of the prospectus consisting of 66 pages; version 5 of the prospectus
consisting of 11 pages; and version 6 of the prospectus consisting of 10
pages.
The undertaking to file reports.
The representation with respect to charges.
The undertaking with respect to indemnification.
The signatures.
Written consents of the following persons:
1. PriceWaterhouseCoopers LLP, independent accountants.*
2. Thom Jackson, Esq.*
3. Stuart L. Liebeskind, FSA, MAAA.*
- ----------
* To be filed by post-effective amendment on or before May 1, 1999.
The following exhibits:
1. The following exhibits correspond to those required by paragraph
A of the instructions as to exhibits in Form N-8B-2:
A. (1) Resolutions of Board of Directors of The Prudential Insurance
Company of America:
(a) Resolution establishing The Prudential Variable
Contract Account GI-2. (Note 2)
(b) Amendment to the Resolution proposing investment in
unaffiliated mutual funds for the Prudential Variable
Contract Account GI-2. (Note 6)
(2) Not Applicable.
(3) Distribution Contracts:
(a) Distribution Agreement between Prudential Investment
Management Services LLC and The Prudential Insurance
Company of America. (Note 7)
(b) Proposed form of Agreement between Prudential
Investment Management Services LLC and independent
brokers with respect to the Sale of the Group Contracts
and Certificates. (Note 6)
(c) Schedule of Sales Commissions. (Note 6)
(d) Representative Fund Participation Agreements. (Note 8)
(4) Not Applicable.
(5)(a) Group Contract. (Note 7)
(b) Individual Certificate. (Note 7)
II-2
<PAGE>
(6)(a) Charter of The Prudential Insurance Company of America,
as amended November 14, 1995. (Note 3)
(b) By-laws of The Prudential Insurance Company of America,
as amended April 8, 1997. (Note 4)
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10)(a) Application Form for Group Contract. (Note 2)
(b) Enrollment Form for Certificate. (Note 6)
(c) Form of Investment Division Allocation Supplement.
(Note 6)
2. Opinion and Consent of Thom Jackson, Esq. as to the legality of the
securities being registered. (Note 1)
3. None.
4. Not Applicable.
5. Not Applicable.
6. Opinion and Consent of Stuart L. Liebeskind, FSA, MAAA, as to
actuarial matters pertaining to the securities being registered.
(Note 1)
7. Powers of Attorney. (Note 9)
8. Memorandum describing Prudential's issuance, transfer, and
redemption procedures for the Certificates pursuant to Rule
6e3(T)(b)(12)(iii) (Note 5)
(Note 1) To be filed by post-effective amendment.
(Note 2) Incorporated by reference to Registrant's Form S-6, filed February
16, 1996.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 9 to
Form S-1, Registration No. 33-20083, filed April 9, 1997, on behalf
of The Prudential Variable Contract Real Property Account.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 12 to
Form N-4, Registration No. 33-25434, filed April 30, 1997, on behalf
of The Prudential Individual Variable Contract Account.
(Note 5) Incorporated by reference to Pre-Effective Amendment No. 1 to
this Registration Statement, filed August 22, 1996.
(Note 6) Incorporated by reference to Pre-Effective Amendment No. 2 to
this Registration Statement, filed January 27, 1997.
(Note 7) Incorporated by reference to Pre-Effective Amendment No. 3 to
this Registration Statement, filed April 29, 1997.
(Note 8) Incorporated by reference to Post-Effective Amendment No. 1 to
this Registration Statement, filed May 14, 1997.
(Note 9) Incorporated by reference to Post-Effective Amendment No. 10 to
Form S-1, Registration No. 33-20083, filed April 9, 1998 on behalf
of The Prudential Variable Contract Real Property Account, and to
Post-Effective Amendment No. 4 for Form N-4, Registration
No. 333-23271, filed February 23, 1999, on behalf of The Prudential
Discovery Select Group Variable Contract Account.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, The
Prudential Variable Contract Account GI-2, has caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 2nd day of March, 1998.
(Seal) THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2
(Registrant)
By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: /s/ Karen David-Chilowicz By:/s/ Stuart L. Liebeskind
-------------------------- --------------------------
Karen David-Chilowicz Stuart L. Liebeskind, FSA, MAAA
Director, Prudential Vice President and Assistant Actuary
Group Life Insurance
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 2nd day of March, 1999.
SIGNATURE AND TITLE
-------------------
/s/ *
- ------------------------------------------
_Arthur F. Ryan
Chairman of the Board, President and
Chief Executive Officer
/s/ *
- -------------------------------------------
_Anthony S. Piszel
Vice President and Controller
/s/ * *By: /s/ C. Christopher Sprague
- ------------------------------------------- --------------------------
_Richard J. Carbone - C. Christopher Sprague
Chief Financial Officer (Attorney-in-Fact)
/s/ *
- -------------------------------------------
_Franklin E. Agnew
Director
/s/ *
- -------------------------------------------
_Frederick K. Becker
Director
/s/ *
- -------------------------------------------
_Gilbert F. Casellas
Director
/s/ *
- -------------------------------------------
_James G. Cullen
Director
II-4
<PAGE>
/s/ *
- -------------------------------------------
_Carolyne K. Davis
Director
/s/ *
- -------------------------------------------
_Roger A. Enrico
Director
/s/ *
- -------------------------------------------
_Allan D. Gilmour
Director
/s/ *
- -------------------------------------------
_William H. Gray, III
Director
/s/ *
- -------------------------------------------
_Jon F. Hanson
Director
/s/ *
- -------------------------------------------
_Glen H. Hiner, Jr.
Director
/s/ *
- -------------------------------------------
_Constance J. Horner
Director
/s/ * *By: /s/ C. Christopher Sprague
- ------------------------------------------- --------------------------
_Gaynor N. Kelley C. Christopher Sprague
Director (Attorney-in-Fact)
/s/ *
- -------------------------------------------
_Burton G. Malkiel
Director
/s/ *
- -------------------------------------------
_Ida F. S. Schmertz
Director
/s/ *
- -------------------------------------------
_Charles R. Sitter
Director
/s/ *
- -------------------------------------------
_Donald L. Staheli
Director
/s/ *
- -------------------------------------------
_Richard M. Thomson
Director
/s/ *
- -------------------------------------------
_James A. Unruh
Director
/s/ *
- -------------------------------------------
_P. Roy Vagelos, M.D.
Director
/s/ *
- -------------------------------------------
_Stanley C. Van Ness
Director
/s/ *
- -------------------------------------------
_Paul A. Volcker
Director
/s/ *
- -------------------------------------------
_Joseph H. Williams
Director
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant, The
Prudential Variable Contract Account GI-2, has caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal hereunto affixed and attested, all in the city of
Newark and the State of New Jersey, on this 2nd day of March, 1998.
(Seal) THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT GI-2
(Registrant)
By: THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Depositor)
Attest: By:
------------------------- ---------------------------
Karen David-Chilowicz Stuart L. Liebeskind, FSA, MAAA
Director, Prudential Vice President and
Group Life Insurance Assistant Actuary
Pursuant to the requirements of the Securities Act of 1933, this PostEffective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities indicated on this 2nd day of March, 1999.
SIGNATURE AND TITLE
*
- ----------------------------------
Arthur F. Ryan
Chairman of the Board, President
and Chief Executive Officer
*
- ----------------------------------
Anthony S. Piszel
Vice President and Controller
*
- ----------------------------------
Richard J. Carbone
Chief Financial Officer *By: ------------------------
C. Christopher Sprague
(Attorney-in-Fact)
*
- ----------------------------------
Franklin E. Agnew
Director
*
- ---------------------------------
Frederick K. Becker
Director
*
- ---------------------------------
Gilbert F. Casellas
Director
*
- ---------------------------------
James G. Cullen
Director
<PAGE>
*
- ---------------------------------
Carolyne K. Davis
Director
*
- ---------------------------------
Roger A. Enrico
Director
*
- ---------------------------------
Allan D. Gilmour
Director
*
- ---------------------------------
William H. Gray, III
Director
*
- ---------------------------------
Jon F. Hanson
Director
*
- ---------------------------------
Glen H. Hiner, Jr.
Director
*
- ---------------------------------
Constance J. Horner
Director *By: ------------------------
C. Christopher Sprague
(Attorney-in-Fact)
*
- ---------------------------------
Gaynor N. Kelley
Director
*
- ---------------------------------
Burton G. Malkiel
Director
*
- --------------------------------
Ida F. S. Schmertz
Director
*
- --------------------------------
Charles R. Sitter
Director
*
- --------------------------------
Donald L. Staheli
Director
*
- ---------------------------------
Richard M. Thomson
Director
*
- --------------------------------
James A. Unruh
Director
*
- --------------------------------
P. Roy Vagelos, M.D.
Director
*
- --------------------------------
Stanley C. Van Ness
Director
*
- --------------------------------
Paul A. Volcker
Director
*
- --------------------------------
Joseph H. Williams
Director
