<PAGE>
N-4 EL/A
NONE
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON August 19, 1998
File No. 333-23271
File No. 811-08091
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM N-4
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. ___
POST-EFFECTIVE AMENDMENT NO. 2 _X_
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2 _X_
-------------------
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE
CONTRACT ACCOUNT
(Exact Name of Registrant)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Depositor)
3 Gateway Center, 12th Floor
Newark, NJ 07102-5096
Depositor's Telephone Number: (973) 367-1215
--------------------------------------
Peter T. Scott, Esq.
Assistant General Counsel
The Prudential Insurance Company of America
3 Gateway Center, 12th Floor
Newark, NJ 07102-5096
(Name and Address of Agent for Service of Process)
Copy to:
CHRISTOPHER E. PALMER, ESQ.
Shea & Gardner
1800 Massachusetts Ave., N.W.
Washington, D.C. 20036
-------------------------
It is proposed that this filing will become effective
(check appropriate space):
/ / immediately upon filing pursuant to paragraph (b) of
Rule 485
/ / on May 1, 1998 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a) of Rule
485
/X/ on October 6, 1998 pursuant to paragraph (a) of Rule
485
Title of Securities Being Registered: Interests in Group Variable Annuity
Contracts.
<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULES 481(a) AND 495(a)
Showing location in Part A (prospectus) and Part B (statement of additional
information) of registration statement of information required by Form N-4
<TABLE>
<S> <C> <C> <C> <C>
Item of Form N-4
-------------------------------------------------------------------- Prospectus Caption
------------------------------
PART A
1. Cover Page.......................................................... Cover Page
2. Definitions......................................................... Definitions
3. Synopsis............................................................ Fee Table; Brief Description
of the Contracts
4. Condensed Financial Information..................................... Accumulation Unit Values
Appendix
5. General
(a) Depositor................................................ Prudential Insurance Company
of America
(b) Registrant............................................... Prudential Discovery Select
Group Variable Contract
Account
(c) Portfolio Company........................................ The Funds
(d) Fund Prospectus.......................................... The Funds
(e) Voting Rights............................................ Voting Rights
(f) Administrators........................................... Prudential Insurance Company
of America
6. Deductions and Expenses
(a) General.................................................. Charges, Fees and Deductions;
Brief Description of the
Contract
(b) Sales Load............................................... Charges, Fees and Deductions;
Brief Description of the
Contract
(c) Special Purchase Plan.................................... N/A
(d) Commissions.............................................. Sale of the Contract and Sales
Commission
(e) Expenses - Registrant.................................... Charges, Fees and Deductions;
Brief Description of the
Contract
(f) Fund Expenses............................................ Charges, Fees and Deductions
(g) Organizational Expenses.................................. N/A
7. Contracts
(a) Persons with Rights...................................... Brief Description of the
Contract; Substitution of Fund
Shares; The Contracts;
Voting Rights; Death
Benefit; Modified Procedures
(b) (i) Allocation of Purchase Payments............... Brief Description of the
Contract; Allocation of
Purchase Payments
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
(ii) Transfers..................................... Brief Description of the
Contract; Transfers
(iii) Exchanges..................................... Transfers
(c) Changes.................................................. Substitution of Funds; The
Contracts; Modified
Procedures;
(d) Inquiries................................................ Cover page
8. Annuity Period...................................................... Brief Description of the
Contract; Effecting an Annuity
9. Death Benefit....................................................... Death Benefit
10. Purchases and Contract Value
(a) Purchases................................................ Brief Description of the
Contract; Allocation of
Purchase Payments; The
Accumulation Period;
Transfers
(b) Valuation................................................ Definitions; The Accumulation
Period
(c) Daily Calculation........................................ Definitions; The Accumulation
Period
(d) Underwriter.............................................. Sale of the Contract and Sales
Commission
11. Redemptions
(a) -- By Owners............................................. Brief Description of the
Contract; Transfers;
Withdrawals; Effecting An
Annuity; Federal Tax Status
-- By Annuitant.......................................... Transfers; Withdrawals;
Effecting An Annuity; Federal
Tax Status
(b) Texas ORP................................................ Texas Optional Retirement Plan
(c) Check Delay.............................................. N/A
(d) Lapse.................................................... N/A
(e) Free Look................................................ The Accumulation Period
12. Taxes............................................................... Brief Description of the
Contract; Federal Tax Status
13. Legal Proceedings................................................... Legal Proceedings
14. Table of Contents for the Statement of
Additional Information.............................................. Statement of Additional
Information
</TABLE>
<TABLE>
<S> <C> <C> <C>
PART B
Item of Form N-4
--------------------------------------------------------- Part B Caption
------------------------------------
15. Cover Page............................................... Cover Page
16. Table of Contents........................................ Table of Contents
17. General Information and History.......................... N/A
18. Services
(a) Fees and Expenses of Registrant............... Charges, Fees and Deductions
(prospectus)
(b) Management Contracts.......................... N/A
(c) Custodian..................................... N/A
Independent Public Accountant................. Expert
(d) Assets of Registrant.......................... Prudential Discovery Select Group
Variable Contract Account
(prospectus)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
(e) Affiliated Persons............................ Prudential Insurance Company of
America (prospectus)
(f) Principal Underwriter......................... Sale of the Contract and Sales
Commission (prospectus)
19. Purchase of Securities Being Offered..................... Sale of the Contract and Sales
Commission (prospectus)
Offering Sales Load...................................... N/A
20. Underwriters............................................. Sale of the Contract and Sales
Commission (prospectus)
21. Calculation of Performance Data.......................... Performance Information; Performance
Information (prospectus)
22. Annuity Payments......................................... Effecting An Annuity (prospectus)
23. Financial Statements..................................... Financial Statements
</TABLE>
<TABLE>
<S> <C> <C> <C>
PART C -- OTHER INFORMATION
Item of Form N-4
--------------------------------------------------------- Part C Caption
------------------------------------
24. Financial Statements and Exhibits........................ Financial Statements and Exhibits
(a) Financial Statements
(b) Exhibits
25. Directors and Officers of the Depositor.................. Directors and Officers of Prudential
Insurance Company of America
26. Persons Controlled By or Under Common
Control with the Depositor or Registrant................. Persons Controlled By or Under
Common Control with the Depositor
or Registrant
27. Number of Contractowners................................. Number of Contractholders
28. Indemnification.......................................... Indemnification
29. Principal Underwriters................................... Principal Underwriter
30. Location of Accounts and Records......................... Location of Books and Records
31. Management Services...................................... Management Services
32. Undertakings............................................. Undertakings and Representations
Signature Page........................................... Signatures
</TABLE>
<PAGE>
<TABLE>
<C> <S>
PART A
- - - ---------------------------------------------
</TABLE>
<PAGE>
PROSPECTUS OCTOBER 6, 1998
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT
GROUP VARIABLE ANNUITY CONTRACTS
DISCOVERY SELECT
------------------
GROUP RETIREMENT ANNUITY
This prospectus describes the DISCOVERY SELECT-SM- Group Variable Annuity
Contracts* (the "Contracts"), group variable annuity contracts offered by The
Prudential Insurance Company of America ("Prudential"), a mutual life insurance
company, in connection with retirement arrangements that qualify for federal tax
benefits under sections 401, 403(b), 408 or 457 of the Internal Revenue Code of
1986 as amended (the "Code") and with non-qualified defined contribution annuity
arrangements. One of the Contracts (the "Small Plan Contract") is sold
exclusively to retirement plans qualified under Sections 401(k) or 401(a) of the
Code that generally have 100 or fewer participants. Prudential may delegate most
of the administrative services in connection with those Contracts to a third
party recordkeeper (the "Small Plan Contract Recordkeeper").
Contributions made on behalf of Participants may be allocated as the Participant
directs in one or more of the following ways.
- - - - They may be allocated to one or more of twenty-two Subaccounts, each of which
invests in one of the following portfolios of The Prudential Series Fund,
Inc. (the "Prudential Series Fund") or other listed portfolios (collectively,
the "Funds"):
THE PRUDENTIAL SERIES FUND, INC.
Money Market Portfolio
Diversified Bond Portfolio
Government Income Portfolio
Conservative Balanced Portfolio
Flexible Managed Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
Equity Income Portfolio
Equity Portfolio
Prudential Jennison Portfolio
Global Portfolio
- - - --------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund AIM V.I. Value Fund
JANUS ASPEN SERIES
Growth Portfolio International Growth Portfolio
OCC ACCUMULATION TRUST
Managed Portfolio Small Cap Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock Portfolio
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series Research Series
T. ROWE PRICE EQUITY SERIES, INC.
Equity Income Portfolio
WARBURG PINCUS TRUST
Post-Venture Capital Portfolio
- - - - They may be allocated to the Guaranteed Interest Account which guarantees a
stipulated rate of interest if held for a specified period of time. This
prospectus does not describe that account, and will mention the Guaranteed
Interest Account only where necessary to explain how the Prudential Discovery
Select Group Variable Contract Account works.
----------------------------------------------
This prospectus provides information a prospective investor should know before
investing. Additional information about the Contracts has been filed with the
Securities and Exchange Commission in a Statement of Additional Information,
dated October 6, 1998, which information is incorporated herein by reference,
and is available, without charge upon written or oral request directed to the
address or telephone number shown on the cover page.
The accompanying prospectuses for the Funds and the related statements of
additional information describe the investment objectives and risks of investing
in the Funds. Additional Funds and Subaccounts may be offered in the future.
The contents of the Statement of Additional Information with respect to the
Contracts appear on page 34 of this prospectus.
----------------------------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ACCOMPANIED
BY A CURRENT PROSPECTUS FOR EACH OF THE FUNDS. EACH OF THESE PROSPECTUSES SHOULD
BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
3 Gateway Center, 12th Floor
Newark, NJ 07102-5096
Telephone 1-800-458-6333
* DISCOVERY SELECT is a service mark of Prudential.
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS............................................... 1
BRIEF DESCRIPTION OF THE CONTRACTS................................................................. 2
FEE TABLES......................................................................................... 4
GENERAL INFORMATION ABOUT PRUDENTIAL, PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT
AND THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS......................................... 12
PRUDENTIAL INSURANCE COMPANY OF AMERICA.......................................................... 12
PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT...................................... 12
THE FUNDS........................................................................................ 12
GUARANTEED INTEREST ACCOUNT...................................................................... 15
THE CONTRACTS...................................................................................... 16
THE ACCUMULATION PERIOD.......................................................................... 16
ALLOCATION OF PURCHASE PAYMENTS.................................................................. 17
ASSET ALLOCATION PROGRAM......................................................................... 17
TRANSFERS........................................................................................ 17
DOLLAR COST AVERAGING............................................................................ 19
AUTO-REBALANCING................................................................................. 19
WITHDRAWALS...................................................................................... 19
SYSTEMATIC WITHDRAWAL PLAN....................................................................... 20
TEXAS OPTIONAL RETIREMENT PLAN................................................................... 21
DEATH BENEFIT.................................................................................... 21
DISCONTINUANCE OF CONTRIBUTIONS.................................................................. 22
LOAN PROVISION................................................................................... 23
MODIFIED PROCEDURES.............................................................................. 24
CHARGES, FEES AND DEDUCTIONS....................................................................... 24
ADMINISTRATIVE FEE AND ANNUAL ACCOUNT CHARGE..................................................... 24
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS.................................................. 24
EXPENSES INCURRED BY THE FUNDS................................................................... 25
WITHDRAWAL CHARGE................................................................................ 25
LIMITATIONS ON WITHDRAWAL CHARGE................................................................. 26
PREMIUM TAXES.................................................................................... 26
FEDERAL TAX STATUS................................................................................. 26
TAXES ON PRUDENTIAL.............................................................................. 27
QUALIFIED RETIREMENT ARRANGEMENTS USING THE CONTRACTS............................................ 27
NON-QUALIFIED ARRANGEMENTS USING THE CONTRACTS................................................... 28
WITHHOLDING...................................................................................... 29
EFFECTING AN ANNUITY............................................................................... 29
LIFE ANNUITY WITH PAYMENTS CERTAIN............................................................... 30
ANNUITY CERTAIN.................................................................................. 30
JOINT AND SURVIVOR ANNUITY WITH PAYMENTS CERTAIN................................................. 30
PURCHASING THE ANNUITY........................................................................... 30
OTHER INFORMATION.................................................................................. 30
MISSTATEMENT OF AGE OR SEX....................................................................... 30
SALE OF THE CONTRACT AND SALES COMMISSIONS....................................................... 31
VOTING RIGHTS.................................................................................... 31
SUBSTITUTION OF FUND SHARES...................................................................... 31
PERFORMANCE INFORMATION.......................................................................... 32
REPORTS TO PARTICIPANTS.......................................................................... 32
STATE REGULATION................................................................................. 32
LEGAL PROCEEDINGS................................................................................ 33
YEAR 2000 COMPLIANCE............................................................................. 33
STATEMENT OF ADDITIONAL INFORMATION.............................................................. 34
ADDITIONAL INFORMATION........................................................................... 34
</TABLE>
i
<PAGE>
DEFINITIONS OF SPECIAL TERMS USED IN THIS
PROSPECTUS
ACCOUNT--See the Prudential Discovery Select Group Variable Contract Account
(the "Discovery Account") below.
ACCUMULATION PERIOD--The period, prior to the effecting of an annuity, during
which the amount credited to a Participant Account may vary with the investment
performance of any Subaccount of the Discovery Account, or the interest rate
credited under the Guaranteed Interest Account, as selected.
ANNUITANT--The person or persons designated by the Participant upon whose life
or lives monthly annuity payments are based after an annuity is effected.
BENEFICIARY--A person designated by a Participant to receive benefits from funds
held under the Contract.
BUSINESS DAY--A day on which both the New York Stock Exchange and Prudential are
open for business.
CODE--The Internal Revenue Code of 1986, as amended.
CONTRACTHOLDER--The employer, association or trust to which Prudential has
issued a Contract. "You" or "Your" means the Contractholder.
CONTRACTS--The Group Variable Annuity Contracts described in this Prospectus and
offered for use in connection with retirement arrangements that qualify for
federal tax benefits under Sections 401, 403(b), 408 or 457 of the Code and with
non-qualified annuity arrangements. One of such Contracts is the Small Plan
Contract.
CONTRACT VALUE--The dollar amount held under a Contract.
EMPLOYER--The sponsor of the retirement plan or non-qualified annuity
arrangement.
FUNDS--The Portfolios of the Prudential Series Fund, Inc., AIM Variable
Insurance Funds, Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc., Janus Aspen Series, MFS Variable Insurance Trust,
Warburg Pincus Trust, and OCC Accumulation Trust available under the Contracts.
GENERAL ACCOUNT--The assets of Prudential other than those allocated to the
Discovery Account or any other variable separate account of Prudential.
GUARANTEED INTEREST ACCOUNT--An allocation option under the Contract funded by
Prudential's General Account, or under certain Contracts, a separate account. It
is not part of nor dependent upon the investment performance of the Discovery
Account. This Prospectus does not describe in detail the Guaranteed Interest
Account or any separate account funding a guaranteed interest rate option.
PARTICIPANT--A person who makes contributions, or for whom contributions have
been made, and to whom they remain credited under the Contract.
PARTICIPANT ACCOUNT--An account established for each Participant to record the
amount credited to the Participant under the Contract.
PARTICIPANT ACCOUNT VALUE--The dollar amount held in a Participant Account.
PRUDENTIAL--The Prudential Insurance Company of America. "We," "us," or "our"
means Prudential.
PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT--A separate account
of Prudential registered under the Investment Company Act of 1940 as a unit
investment trust, invested through its Subaccounts in shares of the
corresponding Fund Portfolios.
SUBACCOUNT--A division of the Discovery Account, the assets of which are
invested in shares of the corresponding portfolio of the Funds.
UNIT AND UNIT VALUE--A Participant is credited with Units in each Subaccount in
which he invests. The value of these Units may change each Business Day to
reflect the investment results of, and deductions of charges from, the
Subaccounts, and the expenses of the Funds in which the assets of the
Subaccounts are invested. The number of Units credited to a Participant in any
Subaccount of the Discovery Account is determined by dividing the amount of the
contribution or transfer made on his behalf to that Subaccount by the applicable
Unit Value for the Business Day on which the contribution or transfer is
received at the address shown on the cover of this Prospectus or such other
address that Prudential has specified. The number of Units credited to a
Participant under any Subaccount will be reduced by the number of Units canceled
as a result of any transfer or withdrawal by a Participant from that Subaccount.
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a Subaccount to the next. Such determinations are made when
the net asset values of the Funds are calculated, which is generally as of 4:15
p.m. Eastern time on each day during which the New York Stock Exchange and
Prudential are open.
VARIABLE INVESTMENT OPTIONS--The Subaccounts.
1
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACTS
The Prudential Insurance Company of America ("Prudential") offers the Contracts
for use in connection with retirement arrangements that qualify for federal tax
benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of
1986, as amended (the "Code") and with nonqualified annuity arrangements. The
Contracts are group annuity contracts and generally are issued to employers
(Contractholders) who make contributions under them on behalf of their
employees. A person for whom contributions have been made and to whom they
remain credited under a Contract is a "Participant."
The value of a Participant's investment depends upon the performance of the
selected investment option[s]. Currently, there are twenty-two variable
investment options, each of which is called a Subaccount. The assets of each
Subaccount are invested in a corresponding Fund listed beginning on page 12. A
Participant may direct contributions made on his or her behalf to one or a
combination of variable investment options as well as the Guaranteed Interest
Account. A separate Participant Account is set up for each Participant. Amounts
held under a Participant Account may be withdrawn, in whole or in part, prior to
the annuity date. The Contract also provides for a death benefit.
Contributions to the Contracts may be made on behalf of a Participant through
payroll deduction arrangements or similar agreements with the Contractholder.
Any other contribution to the Contract must be at least $500, except for
contributions to an Individual Retirement Annuity for a non-working spouse under
Section 408 of the Code (or working spouse who elects to be treated as a
non-working spouse), which must be at least $250. All contributions may be
divided among the Discovery Account and Guaranteed Interest Account that
comprise the Contract. See "The Accumulation Period," page 16.
Prudential assesses charges under the Contracts for the costs of selling and
distributing the Contracts, for administering the Contracts, and for assuming
mortality and expense risks under the Contracts. A mortality and expense risk
charge equal to an annual rate of 0.15% is deducted from the assets held in the
variable investment options with respect to all the Contracts. An administrative
charge is also deducted from the assets held in the variable investment options,
which charge is equal to an annual rate of 0.85% for Contracts other than the
Small Plan Contract. For the Small Plan Contract, an administrative charge equal
to an annual rate of 1.05% is deducted from the assets held in the variable
investment options. Further details about the administrative charge are found in
the Fee Tables, pages 4 and 5 and Administrative Fee and Annual Account Charge,
page 24.
With respect to Contracts other than the Small Plan Contract, an additional
administrative charge of up to $32 per Participant, the annual account charge,
is assessed on the last Business Day of each calendar year and at the time of a
full withdrawal. This annual account charge will be prorated for new
Participants on a monthly basis for their first year of participation. With
respect to the Small Plan Contract, an annual administrative charge of up to $32
per Participant is assessed either (i) quarterly, on or about 14 days after the
end of each quarter or (ii) annually, on the last Business Day of the calendar
year. This charge is not prorated for new Participants under the Small Plan
Contract.
Under Contracts other than the Small Plan Contract a withdrawal charge may be
imposed upon withdrawals made in the first five years after the initial
contribution made on behalf of a Participant. The maximum withdrawal charge for
such Contracts is 5% of the contributions made on behalf of the Participant.
Participants in a Small Plan Contract do not pay a withdrawal charge when they
redeem some or all of their Units in the Account or their Participant Account
Value in the Guaranteed Interest Account. Instead, Prudential will assess a
withdrawal charge of up to 5% of the amount of Participant and Employer
contributions that are withdrawn in connection with a full or partial
termination by the Employer of its participation in the Small Plan Contract.
Prudential will impose this withdrawal charge only during the first 5 years
following the effective date of the Small Plan Contract. We will consider an
Employer to have fully or partially terminated its participation in the Small
Plan Contract if it provides Prudential notice of its intent to terminate the
Contract, if the plan terminates or is no longer a qualified plan, or if
Prudential terminates the Contract by reason of the Contractholder failing to
meet its contractual obligations.
2
<PAGE>
A charge against each of the Funds' assets is also made by the investment
adviser for providing investment advisory and management services. Further
detail about charges may be found under Charges, Fees and Deductions, page 24.
Unless restricted by the retirement arrangement under which he is covered, or by
the withdrawal restrictions imposed by federal tax law on tax-deferred annuity
contracts subject to Section 403(b) of the Code and on interests in deferred
compensation plans under Section 457 of the Code, a Participant may withdraw, at
any time, all or part of his Participant Account. See "Withdrawals," page 19.
Withdrawals may be subject to tax under the Code, including, under certain
circumstances, a 10% penalty tax on premature withdrawals. See "Federal Tax
Status," page 26. In addition, all or a part of a Participant's Account may be
transferred among the Subaccounts and the Guaranteed Interest Account without
the imposition of the withdrawal charge or tax liability.
The procedures set out in this paragraph apply to Contracts other than the Small
Plan Contract. All written requests, notices, and transfer requests required by
the Contracts (other than withdrawal requests and death benefit claims), should
be sent to Prudential at the address shown on the cover of this Prospectus. Any
written inquiries also should be sent to Prudential at that address. A
Participant may effect the telephone transactions that are permitted by his
arrangement by calling Prudential at 1-800-458-6333. All written withdrawal
requests or death benefit claims relating to a Participant's interest must be
sent to Prudential by one of the following three means: (1) By U.S. mail to:
Prudential Investments, P.O. Box 5410, Scranton, Pennsylvania 18505-5410; (2)
Delivery service other than the U.S. mail (e.g., Federal Express, etc.) sent to
our office at the following address: Prudential Investments, 30 Scranton Office
Park, Scranton, Pennsylvania 18507-1789; or (3) Fax to Prudential Investments,
Attention: Client Payments at: (717) 340-4328. A withdrawal request or death
benefit claim will be deemed received in good order by Prudential as of the end
of the Valuation Period within which all the properly completed forms and other
information required by Prudential to pay such a request or claim (e.g., due
proof of death) are received as specified above. Receipt of a withdrawal request
or death benefit claim in good order is required by Prudential to process the
transaction in the manner explained on pages 19-22 this Prospectus. Under
certain Contracts, the Contractholder or a third party acting on their behalf
provides record-keeping services that would otherwise be performed by
Prudential. See "Modified Procedures," page 24.
The procedures described in this paragraph apply exclusively to the Small Plan
Contracts. Participants under such Contracts must send all written
communications (including written requests to effect a purchase, withdrawal or
other transaction) and death benefit claims to the Small Plan Contract
Recordkeeper at the address provided by Prudential. Participants may effect
certain transactions under their Small Plan Contract, and otherwise communicate
with respect to their Contract, by calling the Small Plan Contract Recordkeeper
at the telephone number provided by Prudential in Participant enrollment
materials. Transactions (including death benefit claims) conveyed to the Small
Plan Contract Recordkeeper will be deemed effective only when Prudential
receives such transactions in good order from such Recordkeeper. The Small Plan
Contract Recordkeeper will forward promptly to Prudential transaction requests
and other communications that it receives from Participants in a Small Plan
Contract.
This brief description of the Contracts is intended to provide a broad overview
of the more significant features of the Contracts. More detailed information
will be found in subsequent sections of this Prospectus and in the Contracts.
With respect to all Contracts, any transaction request received by Prudential in
good order on a given Business Day before the established transaction cutoff
time (effective September 1, 1998, 4 PM Eastern Time) will be priced based on
that Business Day's net asset value per Unit.
3
<PAGE>
FEE TABLE
FOR CONTRACTS OTHER THAN
THE SMALL PLAN CONTRACT
PARTICIPANT TRANSACTION EXPENSES
Sales Charge Imposed on Contributions ..................................... None
Maximum Withdrawal Charge (as a percentage of contributions withdrawn):
<TABLE>
<CAPTION>
THE WITHDRAWAL CHARGE WILL BE EQUAL
TO THE FOLLOWING PERCENTAGE OF THE
YEARS OF CONTRACT PARTICIPATION CONTRIBUTIONS WITHDRAWN
<S> <C>
First Year 5%
Second Year 4%
Third Year 3%
Fourth Year 2%
Fifth Year 1%
Sixth and Subsequent Years No Charge
</TABLE>
Maximum Annual Account Charge .............................................. $32
DISCOVERY ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE PARTICIPANT ACCOUNT VALUE)
<TABLE>
<CAPTION>
ALL SUBACCOUNTS
- - - --------------------------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge................................... 0.15%
Administrative Fee.................................................. 0.85%
-----
Total Separate Account Annual Expenses.............................. 1.00%
-----
-----
</TABLE>
4
<PAGE>
FEE TABLE
FOR THE SMALL
PLAN CONTRACT
PARTICIPANT TRANSACTION EXPENSES
Sales Charge Imposed on Contributions ..................................... None
Maximum Withdrawal Charge (as a percentage of contributions withdrawn) in
connection with a full or partial Contract termination:
<TABLE>
<CAPTION>
THE WITHDRAWAL CHARGE WILL BE EQUAL
TO THE FOLLOWING PERCENTAGE OF THE
YEARS CONTRACT HAS BEEN IN EFFECT CONTRIBUTIONS WITHDRAWN
<S> <C>
First Year 5%
Second Year 4%
Third Year 3%
Fourth Year 2%
Fifth Year 1%
Sixth and Subsequent Years No Charge
</TABLE>
Maximum Annual Account Charge .............................................. $32
DISCOVERY ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE PARTICIPANT ACCOUNT VALUE)
<TABLE>
<CAPTION>
ALL SUBACCOUNTS
- - - --------------------------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge................................... 0.15%
Administrative Fee.................................................. 1.05%
-----
Total Separate Account Annual Expenses.............................. 1.20%
-----
-----
</TABLE>
5
<PAGE>
ANNUAL EXPENSES OF THE FUNDS
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
INVESTMENT ANNUAL EXPENSES
MANAGEMENT OTHER (AFTER EXPENSE
FEE EXPENSES REIMBURSEMENTS)
<S> <C> <C> <C>
---------------------------------------
THE PRUDENTIAL SERIES FUND, INC.(1)
Money Market Portfolio.......................... 0.40% 0.03% 0.43%
Diversified Bond Portfolio...................... 0.40% 0.03% 0.43%
Government Income Portfolio..................... 0.40% 0.04% 0.44%
Conservative Balanced Portfolio................. 0.55% 0.01% 0.56%
Flexible Managed Portfolio...................... 0.60% 0.02% 0.62%
High Yield Bond Portfolio....................... 0.55% 0.02% 0.57%
Stock Index Portfolio........................... 0.35% 0.02% 0.37%
Equity Income Portfolio......................... 0.40% 0.01% 0.41%
Equity Portfolio................................ 0.45% 0.01% 0.46%
Prudential Jennison Portfolio................... 0.60% 0.04% 0.64%
Global Portfolio................................ 0.75% 0.10% 0.85%
AIM VARIABLE INSURANCE FUNDS, INC.(2)
AIM V.I. Growth and Income Fund................. 0.63% 0.06% 0.69%
AIM V.I. Value Fund............................. 0.62% 0.08% 0.70%
JANUS ASPEN SERIES(3)
Growth Portfolio................................ 0.65% 0.05% 0.70%
International Growth Portfolio.................. 0.67% 0.29% 0.96%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series.......................... 0.75% 0.12% 0.87%
Research Series................................. 0.75% 0.13% 0.88%
OCC ACCUMULATION TRUST(4)
Managed Portfolio............................... 0.80% 0.07% 0.87%
Small Cap Portfolio............................. 0.80% 0.17% 0.97%
T. ROWE PRICE(5)
T. Rowe Price Equity Series, Inc. Equity Income
Portfolio..................................... 0.85% 0.00% 0.85%
T. Rowe Price International Series, Inc.,
International Stock Portfolio................. 1.05% 0.00% 1.05%
WARBURG PINCUS TRUST(6)
Post-Venture Capital Portfolio.................. 1.07% 0.33% 1.40%
</TABLE>
The purpose of the foregoing tables is to assist Participants in understanding
the expenses that they bear, directly or indirectly, relating to the Prudential
Discovery Select Group Variable Contract Account and the Funds. The expenses
relating to the Funds (other than those in the Prudential Series Fund) have been
provided to Prudential by the Funds and have not been independently verified by
Prudential. See the sections on charges in this Prospectus and the accompanying
prospectuses for the Funds.
(1) The Prudential Series Fund, Inc. With respect to The Prudential Series Fund
portfolios, except for the Global Portfolio, 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) AIM Variable Insurance Funds, Inc. AIM may from time to time voluntarily
waive or reduce its respective fees. Effective May 1, 1998, the Funds reimburse
AIM in an amount up to 0.25% 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.
6
<PAGE>
(3) Janus Aspen Series. Management fees for Growth and International 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 is net of fee waivers or reductions from
Janus Capital. Fee reductions for the Growth and International 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
0.74%, 0.04% and 0.78% for Growth Portfolio and 0.79%, 0.29% and 1.08% for
International 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.
(4) OCC Accumulation Trust. Other Expenses are shown gross of expense offsets
afforded the Portfolios which effectively lowered overall custody expenses.
Total Portfolio Expenses for the Small Cap and Managed Portfolios are limited by
OpCap Advisors so that their respective annualized operating expenses (net of
any expense offsets) do not exceed 1.00% of their respective average daily net
assets. Without such limitation and without giving effect to any expense
offsets, the Management Fees, Other Expenses and Total Portfolio Annual Expenses
incurred for the fiscal year ended December 31, 1997 would have been: .80%, .17%
and .97%, respectively, for the Small Cap Portfolio, and .80%, .07% and .87%,
respectively, for the Managed Portfolio. Expense offsets for each Portfolio for
the fiscal year ended December 31, 1997 amounted to less than one basis point
for each Portfolio.
(5) T. Rowe Price Equity Series, Inc. and T. Rowe Price International Series,
Inc. With respect to the T. Rowe Price Funds, the Investment Management Fees
include the ordinary expenses of operating the Funds.
(6) Warburg Pincus Trust. The expense figures shown above are based on actual
expenses for fiscal year 1997 including fee waivers and/or expense
reimbursements by the Portfolio's investment adviser and co-administrator. With
respect to the Warburg Pincus Trust Post-Venture Capital Portfolio, absent the
waivers and/or reimbursements, the Investment Management Fee would equal 1.25%,
Other Expenses would equal 0.33%, and Total Fund Annual Expenses would equal
1.58%. The investment adviser and co-administrator have undertaken to limit the
Portfolio's Total Portfolio Operating Expenses to the limits shown in the table
above through December 31, 1998.
EXAMPLES OF FEES AND EXPENSES
The following examples illustrate the cumulative dollar amount of all the above
expenses that would be incurred on each $1,000 of Participant investment.
- The examples assume a consistent 5% annual return on invested assets.
- The examples assume that the annual account charge is deducted from the
assets of each Subaccount based on a Participant Account Value of $25,000.
THE EXAMPLES SHOULD NOT BE CONSIDERED TO BE A REPRESENTATION OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES INCURRED IN ANY GIVEN YEAR MAY BE MORE OR LESS THAN
THOSE SHOWN IN THE EXAMPLES.
7
<PAGE>
TABLE I: CONTRACTS OTHER THAN SMALL PLAN CONTRACT
If a Participant withdraws his entire Participant Account Value from the
specified Subaccount just prior to the end of the applicable time period, the
Participant would pay the following cumulative expenses on each $1,000 invested.
The cumulative expenses shown below would be incurred with respect to a
Participant withdrawal under a Contract other than the Small Plan Contract.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market Subaccount......................... $66 $79 $ 95 $185
Diversified Bond Subaccount..................... 66 79 95 185
Government Income Subaccount.................... 66 80 95 187
Conservative Balanced Subaccount................ 67 83 102 200
Flexible Managed Subaccount..................... 68 85 105 206
High Yield Bond Subaccount...................... 67 84 102 201
Stock Index Subaccount.......................... 65 77 92 179
Equity Income Subaccount........................ 66 79 94 183
Equity Subaccount............................... 66 80 96 189
Prudential Jennison Subaccount.................. 68 86 106 208
Global Subaccount............................... 70 92 117 230
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount........... 68 87 108 214
AIM V.I. Value Subaccount....................... 69 87 109 215
JANUS ASPEN SERIES
Growth Subaccount............................... 69 87 109 215
International Growth Subaccount................. 71 95 122 242
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount...................... 70 93 118 233
Research Subaccount............................. 70 93 118 234
OCC ACCUMULATION TRUST
Managed Subaccount.............................. 70 93 118 233
Small Cap Subaccount............................ 71 96 123 243
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income
Subaccount.................................... 70 92 117 230
T. Rowe Price International Series, Inc.,
International Stock Subaccount................ 72 98 127 251
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................. 76 109 144 286
</TABLE>
8
<PAGE>
TABLE II: CONTRACTS OTHER THAN SMALL PLAN CONTRACT
For Contracts other than the Small Plan Contract, if a Participant does not
withdraw any portion of his Participant Account Value from the specified
Subaccount, or he uses his Participant Account Value to effect an annuity as of
the end of the applicable time period, the Participant would pay the following
cumulative expenses on each $1,000 invested.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market Subaccount......................... $16 $49 $ 85 $185
Diversified Bond Subaccount..................... 16 49 85 185
Government Income Subaccount.................... 16 50 85 187
Conservative Balanced Subaccount................ 17 53 92 200
Flexible Managed Subaccount..................... 18 55 95 206
High Yield Bond Subaccount...................... 17 54 92 201
Stock Index Subaccount.......................... 15 47 82 179
Equity Income Subaccount........................ 16 49 84 183
Equity Subaccount............................... 16 50 86 189
Prudential Jennison Subaccount.................. 18 56 96 208
Global Subaccount............................... 20 62 107 230
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount........... 18 57 98 214
AIM V.I. Value Subaccount....................... 19 57 99 215
JANUS ASPEN SERIES
Growth Subaccount............................... 19 57 99 215
International Growth Subaccount................. 21 65 112 242
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount...................... 20 63 108 233
Research Subaccount............................. 20 63 108 234
OCC ACCUMULATION TRUST
Managed Subaccount.............................. 20 63 108 233
Small Cap Subaccount............................ 21 66 113 243
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income
Subaccount.................................... 20 62 107 230
T. Rowe Price International Series, Inc.,
International Stock Subaccount................ 22 68 117 251
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................. 26 79 134 286
</TABLE>
9
<PAGE>
TABLE III: SMALL PLAN CONTRACTS
In the event of a full or partial Contract termination, resulting in a
withdrawal from the specified Subaccount just prior to the end of the applicable
time period, each Participant would pay the following cumulative expenses on
each $1,000 invested.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market Subaccount......................... $68 $85
Diversified Bond Subaccount..................... 68 85
Government Income Subaccount.................... 68 86
Conservative Balanced Subaccount................ 69 89
Flexible Managed Subaccount..................... 70 91
High Yield Bond Subaccount...................... 69 90
Stock Index Subaccount.......................... 67 84
Equity Income Subaccount........................ 68 85
Equity Subaccount............................... 68 86
Prudential Jennison Subaccount.................. 70 92
Global Subaccount............................... 72 98
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount........... 70 93
AIM V.I. Value Subaccount....................... 71 94
JANUS ASPEN SERIES
Growth Subaccount............................... 71 94
International Growth Subaccount................. 73 101
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount...................... 72 99
Research Subaccount............................. 72 99
OCC ACCUMULATION TRUST
Managed Subaccount.............................. 72 99
Small Cap Subaccount............................ 73 102
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income
Subaccount.................................... 72 98
T. Rowe Price International Series, Inc.,
International Stock Subaccount................ 74 104
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................. 78 115
</TABLE>
10
<PAGE>
TABLE IV: SMALL PLAN CONTRACTS
If there is no full or partial Contract termination, or the Participant
annuitizes, the Participant would pay the following cumulative expenses on each
$1,000 invested.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market Subaccount......................... $18 $55
Diversified Bond Subaccount..................... 18 55
Government Income Subaccount.................... 18 56
Conservative Balanced Subaccount................ 19 59
Flexible Managed Subaccount..................... 20 61
High Yield Bond Subaccount...................... 19 60
Stock Index Subaccount.......................... 17 54
Equity Income Subaccount........................ 18 55
Equity Subaccount............................... 18 56
Prudential Jennison Subaccount.................. 20 62
Global Subaccount............................... 22 68
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount........... 20 63
AIM V.I. Value Subaccount....................... 21 64
JANUS ASPEN SERIES
Growth Subaccount............................... 21 64
International Growth Subaccount................. 23 71
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount...................... 22 69
Research Subaccount............................. 22 69
OCC ACCUMULATION TRUST
Managed Subaccount.............................. 22 69
Small Cap Subaccount............................ 23 72
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income
Subaccount.................................... 22 68
T. Rowe Price International Series, Inc.,
International Stock Subaccount................ 24 74
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................. 28 85
</TABLE>
Loans taken by a Participant from a Participant Account may be subject to
charges for establishing and maintaining the loan. The examples with respect to
the Contracts do not take into account any deduction for such charges.
The required table of accumulation unit values, which sets out certain
historical information about the value of interests in each Subaccount, appears
in the Appendix to this prospectus on Page 35.
11
<PAGE>
GENERAL INFORMATION ABOUT PRUDENTIAL,
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT AND
THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential is a mutual life insurance company incorporated in 1873 under the
laws of the State of New Jersey. Its corporate office is located at 751 Broad
Street, Newark, New Jersey. It has been investing for pension funds since 1928.
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 or more 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 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 generally is responsible for the administrative and recordkeeping
functions of the Prudential Discovery Select Group Variable Contract Account and
pays the expenses associated with them. These functions include enrolling
Participants, receiving and allocating contributions, maintaining Participant
Accounts, preparing and distributing confirmations, statements, and reports. The
administrative and recordkeeping expenses borne by Prudential include salaries,
rent, postage, telephone, travel, legal, actuarial and accounting fees, office
equipment, stationery and maintenance of computer and other systems. With
respect to the Small Plan Contracts, Prudential has delegated certain of these
administrative and recordkeeping functions to the Small Plan Contract
Recordkeeper.
Prudential is reimbursed for these administrative and recordkeeping expenses by
the annual account charge and the daily charge against the assets of each
Subaccount for administrative expenses.
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT
The Prudential Discovery Select Group Variable Contract Account (the "Discovery
Account") was established on February 11, 1997, under New Jersey law as a
separate investment account. The Discovery Account meets the definition of a
"separate account" under federal securities laws. Prudential is the legal owner
of the assets in the Discovery Account and is obligated to provide all benefits
under the Contracts. Prudential will at all times maintain assets in the
Discovery Account with a total market value at least equal to the reserve and
other liabilities relating to the variable benefits attributable to the
Discovery Account. These assets are segregated from all of Prudential's other
assets and are not chargeable with liabilities arising out of any other business
Prudential conducts. In addition to these assets, the Discovery Account's assets
may include funds contributed by Prudential to commence operation of the
Discovery Account and may include accumulations of the charges Prudential makes
against the Discovery 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 Discovery Account.
The Discovery Account is registered with the U.S. Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") 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 Discovery Account. For state law purposes, the Discovery
Account is treated as a part or division of Prudential. There are currently
twenty-two Subaccounts within the Discovery Account which invest in
corresponding portfolios of the Funds available under the Contracts. Additional
Subaccounts may be established in the future.
THE FUNDS
The following is a list of each Fund, its investment objective and its
investment adviser:
12
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO. The maximum current income that is consistent with
stability of capital and maintenance of liquidity through investment in
high-quality short-term debt obligations. There are no assurances that this
portfolio will maintain a stable net asset value.
DIVERSIFIED BOND PORTFOLIO. A high level of income over the longer term while
providing reasonable safety of capital through investment primarily in readily
marketable intermediate and long-term fixed income securities that provide
attractive yields but do not involve substantial risk of loss of capital through
default.
GOVERNMENT INCOME PORTFOLIO. A high level of income over the longer term
consistent with the preservation of capital through investment primarily in U.S.
Government securities, including intermediate and long-term U.S. Treasury
securities and debt obligations issued by agencies of or instrumentalities
established, sponsored or guaranteed by the U.S. Government. At least 65% of the
total assets of the portfolio will be invested in U.S. Government securities.
CONSERVATIVE BALANCED PORTFOLIO. Achievement of a favorable total investment
return consistent with a portfolio having a conservatively managed mix of money
market instruments, fixed income securities, and common stocks of established
companies, in proportions believed by the investment advisor to be appropriate
for an investor desiring diversification of investment who prefers a relatively
lower risk of loss than that associated with the Flexible Managed Portfolio
while recognizing that this reduces the chances of greater appreciation.
FLEXIBLE MANAGED PORTFOLIO. Achievement of a high total return consistent with
a portfolio having an aggressively managed mix of money market instruments,
fixed income securities, and common stocks, in proportions believed by the
investment advisor to be appropriate for an investor desiring diversification of
investment who is willing to accept a relatively high risk of loss in an effort
to achieve greater appreciation.
HIGH YIELD BOND PORTFOLIO. Achievement of a high total return through
investment in high yield/high risk fixed income securities in the medium to
lower quality ranges.
STOCK INDEX PORTFOLIO. Achievement of investment results that correspond to the
price and yield performance of publicly traded common stocks in the aggregate by
following a policy of attempting to duplicate the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.
EQUITY INCOME PORTFOLIO. Both current income and capital appreciation through
investment primarily in common stocks and convertible securities that provide
favorable prospects for investment income returns above those of the Standard &
Poor's 500 Composite Stock Price Index or the New York Stock Exchange Composite
Index.
EQUITY PORTFOLIO. Capital appreciation through investment primarily in common
stocks of companies, including major established corporations as well as smaller
capitalization companies, that appear to offer attractive prospects of price
appreciation that is superior to broadly-based stock indices. Current income, if
any, is incidental.
PRUDENTIAL JENNISON PORTFOLIO. Long-term growth of capital through investment
primarily in equity securities of established companies with above-average
growth prospects. Current income, if any, is incidental.
GLOBAL PORTFOLIO. Long-term growth of capital through investment primarily in
common stock and common stock equivalents of foreign and domestic issuers.
Current income, if any, is incidental.
Prudential is the investment advisor for the assets of each of the portfolios of
the Prudential Series Fund. 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 Prudential 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.
AIM VARIABLE INSURANCE FUNDS, INC.
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.
13
<PAGE>
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
Advisors, Inc. to be undervalued relative to the current or projected earnings
of the companies issuing the securities, or relative market values of assets
owned by the 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.
AIM Advisors, Inc. serves as the investment adviser to the AIM V.I. Growth and
Income Fund and the AIM V.I. Value Fund.
JANUS ASPEN SERIES
GROWTH PORTFOLIO. A diversified portfolio that seeks long-term growth of
capital by investing primarily in common stocks, with an emphasis on companies
with larger market capitalizations.
INTERNATIONAL GROWTH PORTFOLIO. A diversified portfolio that seeks long-term
growth of capital by investing primarily in common stocks of foreign issuers.
Janus Capital Corporation is the investment adviser to the Growth Portfolio and
the International Growth Portfolio, and is responsible for the day-to-day
management of the portfolios and other business affairs of the portfolios.
MFS VARIABLE INSURANCE TRUST
EMERGING GROWTH SERIES. This Series seeks to provide long-term growth of
capital. Dividend and interest income from portfolio securities, if any, is
incidental to the Series' investment objective of long-term growth of capital.
RESEARCH SERIES. The Research Series' investment objective is to provide
long-term growth of capital and future income.
Massachusetts Financial Services Company, a Delaware corporation, is the
investment adviser to each MFS Series.
OCC ACCUMULATION TRUST (FORMERLY KNOWN AS QUEST FOR VALUE ACCUMULATION TRUST)
MANAGED PORTFOLIO. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds and cash equivalents, the
percentages of which will vary based on management's assessments of relative
investment.
SMALL CAP PORTFOLIO. Capital appreciation through investment in a diversified
portfolio of equity securities of companies with market capitalizations of under
$1 billion.
OpCap Advisors (formerly known as Quest for Value Advisors, the "OCC Manager")
is responsible for management of the OCC Accumulation Trust's business. Pursuant
to the investment advisory agreement with the OCC Accumulation Trust, and
subject to the authority of the Board of Trustees, the OCC Manager supervises
the investment operation of the Managed Portfolio and the Small Cap Portfolio,
furnishes advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities and provides certain
administrative services for the OCC Accumulation Trust.
T. ROWE PRICE
T. ROWE PRICE EQUITY SERIES, INC., EQUITY INCOME PORTFOLIO. The fund's
objective is to provide substantial dividend income as well as long-term capital
appreciation through investment in common stocks of established companies.
T. ROWE PRICE INTERNATIONAL SERIES, INC., INTERNATIONAL STOCK PORTFOLIO. The
fund's objective is long-term growth of capital through investment primarily in
common stocks of established, non-U.S. companies.
14
<PAGE>
T. Rowe Price Associates, Inc. is the Investment Manager for the Equity Income
Portfolio and Rowe Price-Fleming International, Inc. is the Investment Manager
for the International Stock Portfolio.
WARBURG PINCUS TRUST
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.
The Warburg Pincus Trust employs Warburg, Pincus Counselors, Inc. as investment
adviser and Abbott Capital Management, L.P. as its sub-investment adviser with
respect to a portion of the Post-Venture Capital Portfolio allocated to private
limited partnerships or other investment funds.
Further information about the Fund portfolios can be found in the accompanying
prospectuses for each Fund.
The investment advisors with respect to the various Funds charge a daily
investment management fee as compensation for their services, as set forth in
the table beginning on page 6 and as more fully described in the prospectus for
each Fund.
It is conceivable that in the future it may become disadvantageous for both
variable life insurance and variable annuity contract separate accounts to
invest in the same underlying mutual fund. Although neither Prudential, nor the
Funds currently foresees any such disadvantage, the Funds' Boards of Directors
intend to monitor events in order to identify any material conflict between
variable life insurance and variable annuity contractholders and to determine
what action, if any, should be taken in response thereto. This might force a
Fund to sell securities at disadvantageous prices. Material conflicts could
result from such things as: (1) changes in state insurance law; (2) changes in
federal income tax law; (3) changes in the investment management of any
portfolio of the Funds; or (4) differences between voting instructions given by
variable life insurance and variable annuity contractholders.
Prudential will be compensated by an affiliate of each of the Funds (other than
those in the Prudential Series Fund) based upon an annual percentage of the
average assets held in the Fund by Prudential under the Contracts. These
percentages vary by Fund, and reflect administrative and other services provided
by Prudential.
A full description of the Funds, their investment objectives, management,
policies, and restrictions, their expenses, the risks attendant to investment
therein, and all other aspects of their operation is contained in the
accompanying prospectuses for each Fund and in the related statements of
additional information, which should be read in conjunction with this
Prospectus. There is no assurance that the investment objectives will be met.
GUARANTEED INTEREST ACCOUNT
The Guaranteed Interest Account is a credited interest option available to fund
certain group annuity contracts issued by Prudential. Amounts allocated to the
Guaranteed Interest Account become part of the General Account of Prudential,
which consists of all assets owned by Prudential other than those in the
Discovery Account and other variable separate accounts of Prudential. Subject to
applicable law, Prudential has sole discretion over the investment of the assets
of the General Account.
Because of exemptive and exclusionary provisions, interests in the General
Account (which include interests in the Guaranteed Interest Account) are not
registered under the Securities Act of 1933 and the General Account is not
registered as an investment company under the Investment Company Act of 1940.
Accordingly, neither the General Account nor any interests therein are subject
to the provisions of these Acts, and Prudential has been advised that the staff
of the SEC has not reviewed the disclosures in the Prospectus relating to the
General Account. Disclosures regarding the General Account may, however, be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
Under certain Contracts, amounts allocated to the Guaranteed Interest Account
may be held within one or more guaranteed separate accounts. Interests in such
separate account(s) are not registered under the Securities Act of 1933 and the
separate accounts are not registered as investment companies under the
Investment Company Act of 1940.
15
<PAGE>
THE CONTRACTS
Prudential generally issues the Contracts to Employers whose employees may
become Participants. Under an IRA, a Participant's spouse may also become a
Participant. A Contract may be issued to an association that represents
employers of employees who become Participants, to an association or union that
represents members that become Participants and to a trustee of a trust with
participating employers whose employees become Participants. Even though an
Employer, an association or a trustee is the Contractholder, the Contract
normally provides that Participants shall have the rights and interests under
them that are described in this Prospectus. However, when a Contract is used to
fund a deferred compensation plan established under Section 457 of the Code, for
example, all rights under the Contract are owned by the Employer to whom, or on
whose behalf, the Contract is issued. All amounts becoming payable under the
Contract are payable to the Employer and are its exclusive property. For a plan
established under Section 457 of the Code, the employee has no rights or
interests under the Contract, including any right or interest in any Subaccount
of the Discovery Account, except as provided in the Employer's plan. This may
also be true with respect to certain non-qualified annuity arrangements.
Also, a particular plan, even if it is not a deferred compensation plan, may
limit a Participant's exercise of certain rights under a Contract. Participants
should check the provisions of their Employer's plan or any agreements with the
Employer to see if there are any such limitations and, if so, what they are.
THE ACCUMULATION PERIOD
Contributions; Crediting Units; Enrollment Forms; Deduction for Administrative
Expenses.
Contributions to the Contract ordinarily will be made periodically pursuant to a
payroll deduction or similar agreement between the Participant and his Employer.
Any contributions to an IRA must be in an amount of no less than $500, except
for contributions to an IRA for a non-working spouse (or working spouse who
elects to be treated as a non-working spouse).
A Participant designates what portion of the contributions made on his behalf
should be invested in the Subaccounts or the Guaranteed Interest Account. The
Participant may change this designation usually by notifying Prudential at the
address shown on the cover page of this Prospectus or such other address as may
be communicated by Prudential. Under certain Contracts (including the Small Plan
Contract), an entity other than Prudential keeps certain records, and
Participants under those Contracts must contact the record-keeper. See "Modified
Procedures," page 24.
The full amount (100%) of each contribution designated for investment in any
Subaccount is credited to a Participant Account maintained for the Participant.
The number of Units credited to a Participant in a Subaccount is determined by
dividing the amount of the contribution made on his behalf to that Subaccount by
the Subaccount's Unit Value determined as of the end of the Valuation Period
during which the contribution is received by Prudential at the address shown on
the cover page of this Prospectus or such other address as may be communicated
in writing by Prudential.
The initial contribution made for a Participant will be invested in a Subaccount
no later than two Business Days after it is received by Prudential, if it is
preceded or accompanied by satisfactory enrollment information. If the
Contractholder submits an initial contribution on behalf of one or more new
Participants that is not preceded or accompanied by satisfactory enrollment
information, then Prudential will allocate such contribution to the Prudential
Series Fund Money Market Subaccount upon receipt, and also will send a notice to
the Contractholder or its agent that requests allocation information for each
such Participant. If the necessary enrollment information is not received in
response to its initial notice, Prudential will deliver up to three additional
notices to the Contractholder or its agent at monthly intervals that request
such allocation information. After 105 days have passed from the time that Units
of the Money Market Subaccount were purchased on behalf of Participants who
failed to provide the necessary enrollment information, Prudential will redeem
the relevant Units and pay the proceeds (including earnings thereon) to the
Contractholder. Any proceeds paid to the Contractholder under this procedure may
be considered a prohibited and taxable reversion to the Contractholder under
current provisions of the Code. Similarly, returning proceeds may cause the
Contractholder to violate a requirement under the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended, to hold all plan assets in trust.
Both problems may be avoided if the Contractholder arranges to have the proceeds
paid into a qualified trust or annuity contract.
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The number of Units of a particular Subaccount credited to a Participant will
not be affected by any subsequent change in the value of those Units, but the
dollar value of a Unit will vary from Business Day to Business Day depending
upon the investment experience of the Subaccount. The number of Units credited
to a Participant in a Subaccount will be reduced as the result of any annual
account charge.
The value of a Participant Account in a Subaccount on any particular day is
determined by multiplying the total number of Units credited to the Participant
by the Subaccount's Unit Value on that day.
The Unit Value for each Subaccount was set at $10.00 on the date of commencement
of operations of that Subaccount. The Unit Value for any subsequent Business Day
is determined as of the end of that day by multiplying the Unit Change Factor
for that day by the Unit Value for the preceding Business Day.
The Unit Change Factor for a Subaccount for any Business Day is determined by
dividing the current day net asset value for Fund shares by the net asset value
for shares on the previous Business Day. This factor is then reduced by a daily
equivalent of the mortality and expense risk fee and the administrative fee. The
value of the assets of a Subaccount is determined by multiplying the number of
Fund shares held by that Subaccount by the net asset value of each share and
adding the value of dividends declared by the Fund but not yet paid.
ALLOCATION OF PURCHASE PAYMENTS
A Participant determines how the initial contribution will be allocated among
the Subaccounts by specifying the desired allocation on the application or
enrollment form. A Participant may choose to allocate nothing to a particular
Subaccount. Unless a Participant tells us otherwise, subsequent contributions
will be allocated in the same proportions as the most recent contribution made
by that Participant. With respect to Contracts other than the Small Plan
Contract, a Participant may change the way in which subsequent contributions are
allocated by providing Prudential with proper written instruction or by
telephoning Prudential Investments, 30 Scranton Office Park, Scranton,
Pennsylvania 18507-1789 at the toll-free number provided by Prudential, once a
Participant has provided the appropriate identification to effect a telephone
transfer. With respect to the Small Plan Contract, Participants may change the
way in which subsequent contributions are allocated by submitting complete
written instructions to the Small Plan Contract Recordkeeper at the address
provided by Prudential. See Transfers, below.
ASSET ALLOCATION PROGRAM
An Asset Allocation Program may be available to assist Participants in
determining how to allocate purchase payments. If a Participant chooses to
participate in the program, the Participant may do so by utilizing a form
available in the employee enrollment kit. The form will include a series of
illustrations depicting various asset allocation models based on age and risk
tolerance. In the future, a more comprehensive model based on an internet web
site may be available for use by Participants as well. The Asset Allocation
Program will be available at no charge to the Participant. A Participant is
under no obligation to participate in the program or to invest according to the
program recommendations. A Participant may ignore, in whole or in part, the
investment allocations provided by the program.
The Asset Allocation Program is intended as an aid in making purchase payment
allocations. It is not a guarantee of investment return and there can be no
assurance that any Fund portfolio will attain its investment objectives. A
Participant should consider reviewing his or her investor profile questionnaire
annually, and each time his or her investor profile changes.
TRANSFERS
A Participant may transfer out of an investment option into any combination of
other investment options available under the Contract. Generally, the transfer
request may be in dollars, such as a request to transfer $1,000 from one
Subaccount or from the Guaranteed Interest Account, or, in the case of
Subaccounts, may be in terms of a percentage reallocation among Subaccounts. In
the latter case, the percentages must be whole numbers. Certain Contracts may
require that transfer requests pertaining to the Guaranteed Interest Account or
the Subaccounts be effected in terms of whole number percentages only, and not
by dollar amount. A Participant may make transfers by proper written notice to
Prudential Investments (or to the Small Plan Contract Recordkeeper, with respect
to such Contracts), or by telephone, internet or telecopy, depending on the
terms of the plan applicable to the Participant.
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If a Contractholder chooses telephone privileges, each Participant will
automatically be enrolled to use the Telephone Transfer System. A Participant
may decline those privileges on a form supplied by the Contractholder or
Prudential. Prudential has adopted procedures designed to ensure that requests
by telephone are genuine. We will not be held liable for following telephone
instructions we reasonably believe to be genuine. We cannot guarantee that a
Participant will be able to get through to complete a telephone transfer during
peak periods such as periods of drastic economic or market change. The Small
Plan Contract Recordkeeper also has adopted procedures designed to ensure that
requests by telephone are genuine, and similarly disclaims responsibility for
unauthorized telephone transactions and for telephone calls that may not get
through.
Unless restricted by the retirement arrangement under which a Participant is
covered, upon the receipt by Prudential of a duly completed written transfer
request form or properly authorized telephone transfer request, all or a portion
of the Participant Account in any of the Subaccounts will be transferred to
another Subaccount or from the Guaranteed Interest Account to the Subaccounts.
Transfers from the Guaranteed Interest Account may be restricted. There is no
minimum transfer amount. As of the day the transfer request is received, the
Participant's Subaccount(s) from which the transfer is made will be reduced by
the number of Units obtained by dividing the amount to be transferred by the
Unit Value for the applicable Business Day. If the transfer is made to another
Subaccount as of the same day, the number of Units credited to the Participant
in that Subaccount will be increased by means of a similar calculation.
Prudential reserves the right to limit the frequency of these transfers. All
transfers are subject to the terms and conditions set forth in this Prospectus
and in the Contract(s) covering a Participant. The Contracts were not designed
for professional market timing organizations or other organizations or
individuals using programmed, large, or frequent transfers. A pattern of
exchanges that coincides with a "market timing" strategy may be disruptive to
the Discovery Account and the Funds and will be discouraged. If such a pattern
were to be found, we may be required to modify the transfer procedures,
including but not limited to, not accepting transfer requests of an agent acting
under a power of attorney on behalf of more than one owner.
Different procedures may apply for Contracts under which an entity other than
Prudential provides record keeping services. Although there is presently no
charge for transfers, Prudential reserves the right to impose such charges in
the future. Dollar Cost Averaging and Auto-Rebalancing transfers may be subject
to a charge.
Certain Contracts, including the Small Plan Contract, may prohibit transfers
from the Guaranteed Interest Account into non-equity investment options that are
characterized in such Contract as "competing" with Prudential's General Account
options with regard to investment characteristics. If such transfers are
precluded, the Contract will further require that amounts transferred from the
Guaranteed Interest Account into non-competing investment options, such as a
Subaccount investing in a stock Fund, may not for 90 days thereafter be
transferred into a "competing" option or back to the Guaranteed Interest
Account.
A Contract may include a provision that, upon discontinuance of contributions
for all Participants of an Employer covered under a Contract, the Contractholder
may request Prudential to make transfer payments from any of the Subaccounts to
a designated alternate funding agency. If the Contract is used in connection
with certain tax-deferred annuities subject to Section 403(b) of the Code, or
with IRAs, Prudential will promptly notify each affected Participant and each
beneficiary of a deceased Participant that such a request has been received.
Within thirty days of receipt of such notice, each recipient may elect in
writing on a form approved by Prudential to have any of his or her Subaccounts
transferred to the alternate funding agency. If he or she does not so elect, his
or her investment options will continue in force under the Contract. If he or
she does so elect, his or her account will be canceled as of a "transfer date"
which is the Business Day specified in the Contractholder's request or 90 days
after Prudential receives the request, whichever is later. The product of Units
in the Participant's Subaccounts immediately prior to cancellation and the
appropriate Unit Value on the transfer date, less the applicable withdrawal and
annual account charges, will be transferred to the designated alternate funding
agency in cash.
Subject to any conditions or limitations regarding transfers contained in the
tax-deferred annuity arrangement under which a Participant is covered, a
Participant can continue to make transfers of all or part of his interest in his
Participant Account among the available investment options offered, and can
transfer directly all or part of his interest in his Participant Account to a
Section 403(b) tax-deferred annuity contract of another insurance company or to
a mutual fund custodial account under Section 403(b)(7).
Contributions may be discontinued for all Participants under a Contract or for
all Participants of an Employer covered under the Contract used in connection
with a deferred compensation plan subject to Section 457 of the Code due to
certain circumstances, such as a change in any law or regulation, which would
have an adverse effect
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on Prudential in fulfilling the terms of the Contract. If contributions are so
discontinued, Prudential may initiate transfer payments from any Subaccount to
an alternate funding agency. The transfer would be made as described in the
paragraph above.
Under certain types of retirement arrangements, the Retirement Equity Act of
1984 requires that in the case of a married Participant, certain requests for
transfer payments other than those described above must include the consent of
the Participant and spouse and must be notarized or witnessed by an authorized
plan representative.
Transfers among Subaccounts will take effect as of the end of the Valuation
Period in which a proper transfer request is received at Prudential Investments.
DOLLAR COST AVERAGING
Additionally, an administrative feature called Dollar Cost Averaging ("DCA") may
be available to Contractholders. This feature allows Participants to transfer
amounts out of the Guaranteed Interest Account or one of the variable investment
options and into one or more other variable investment options. Transfers may be
in specific dollar amounts or percentages of the amount in the DCA account at
the time of the transfer. A Participant may ask that transfers be made monthly,
quarterly, semi-annually or annually. A Participant can add to the DCA account
at any time.
Each automatic transfer will take effect in monthly, quarterly, semi-annual or
annual intervals as designated by the Participant. If the New York Stock
Exchange and Prudential are not open on a transfer date, the transfer will take
effect as of the end of the Valuation Period which immediately follows that
date. Automatic transfers continue until the amount specified has been
transferred, or until the Participant notifies us and we process a change in
allocation or cancellation of the feature.
AUTO-REBALANCING
The Contracts may offer another investment technique in the future that
Participants may find attractive. The Auto-Rebalancing feature will allow
Participants to automatically rebalance Subaccount assets at specified intervals
based on percentage allocations that they choose. For example, suppose a
Participant's initial investment allocation of variable investment options is
split 40% and 60%, respectively. Then, due to investment results, that split
changes. A Participant may instruct that those assets be rebalanced to his or
her original or different allocation percentages. Auto-Rebalancing can be
performed on a one-time basis or periodically, as a Participant chooses. A
Participant may select that rebalancing occur in monthly, quarterly, semi-annual
or annual intervals. Rebalancing will take effect as of the end of the Valuation
Period for each applicable interval and will continue at those intervals until
the Participant notifies us otherwise. If the New York Stock Exchange and
Prudential are not open on the rebalancing date, the transfer will take effect
as of the end of the Valuation Period which immediately follows that date.
WITHDRAWALS
Under certain circumstances as described in the retirement arrangement under
which he is covered, a Participant may withdraw at any time all or part of his
Participant Account Value that is attributable to Employer contributions or
after-tax Participant contributions, if any.
The Code imposes restrictions on withdrawals from tax-deferred annuities subject
to Section 403(b) of the Code. Pursuant to Section 403(b)(11) of the Code,
amounts attributable to a Participant's salary reduction contributions
(including the earnings thereon) that are made under a tax deferred annuity
after December 31, 1988 can only be withdrawn (redeemed) when the Participant
attains age 59 1/2, separates from service with his employer, dies, or becomes
disabled (within the meaning of Section 72(m)(7) of the Code). However, the Code
permits the withdrawal at any time of amounts attributable to tax-deferred
annuity salary reduction contributions (excluding the earnings thereon) that are
made after December 31, 1988, in the case of a hardship. If the arrangement
under which a Participant is covered contains a financial hardship provision,
withdrawals can be made in the event of the hardship.
Furthermore, subject to any restrictions upon withdrawals contained in the
tax-deferred annuity arrangement under which a Participant is covered, a
Participant can withdraw at any time all or part of his Participant Account
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Value under a predecessor Prudential tax-sheltered annuity contract, as of
December 31, 1988. Amounts earned after December 31, 1988 on the December 31,
1988 balance in a Participant Account attributable to salary reduction
contributions are, however, subject to the Section 403(b)(11) withdrawal
restrictions discussed above.
With respect to retirement arrangements other than tax-deferred annuities
subject to Section 403(b) of the Code, a Participant's right to withdraw at any
time all or part of his Participant Account Value may be restricted by the
retirement arrangement under which he is covered. For example, Code Section 457
plans typically permit withdrawals only upon attainment of age 70 1/2,
separation of service, or for unforeseeable emergencies.
With respect to all Contracts, you may specify from which investment options you
would like the withdrawal processed. The withdrawal amount may be specified as a
dollar amount or as a percentage of the Participant Account Value in the
applicable Subaccount(s). If you do not specify from where you would like the
withdrawal processed, a partial withdrawal will be withdrawn proportionally from
all investment options.
Only amounts withdrawn from contributions (including full withdrawals) may be
subject to a withdrawal charge. For purposes of determining withdrawal charges,
withdrawals are considered as having been made first from contributions. See
Withdrawal Charge, page 25. This differs from the treatment of withdrawals for
federal income taxes as described below, where generally, withdrawals are
considered to have been made first from investment income. The withdrawal will
be effected as of the end of the Valuation Period in which a proper withdrawal
request is received at Prudential Investments.
Prudential will generally pay the amount of any withdrawal within 7 days after
we receive a properly completed withdrawal request. We will pay the amount of
any withdrawal requested, less any applicable tax withholding, withdrawal charge
and/or annual account charge. We may delay payment of any withdrawal allocable
to the Subaccount(s) for a longer period if the disposal or valuation of the
Discovery Account's assets is not reasonably practicable because the New York
Stock Exchange is closed for other than a regular holiday or weekend, trading is
restricted by the SEC or the SEC declares that an emergency exists.
SYSTEMATIC WITHDRAWAL PLAN
If permitted by the Code and the retirement arrangement under which a
Participant is covered, Prudential may offer systematic withdrawals as an
administrative privilege. Under a systematic withdrawal arrangement a
Participant may arrange for systematic withdrawals from the Subaccounts and the
Guaranteed Interest Account in which he invests. A Participant may arrange for
systematic withdrawals only if at the time he elects to have such an
arrangement, the balance in his Participant Account is at least $5,000. A
Participant who has not reached age 59 1/2, however, may not elect a systematic
withdrawal arrangement unless he has first separated from service with his
Employer. In addition, the $5,000 minimum balance does not apply to systematic
withdrawals made for the purpose of satisfying minimum distribution rules.
Federal income tax provisions applicable to the retirement arrangement under
which a Participant is covered may significantly affect the availability of
systematic withdrawals, how they may be made, and the consequences of making
them. Withdrawals by Participants are generally taxable and Participants who
have not reached age 59 1/2 may incur substantial tax penalties. Withdrawals
made after a Participant has attained age 70 1/2 and by beneficiaries must
satisfy certain minimum distribution rules. See "Federal Tax Status," page 26.
Systematic withdrawals may be arranged only pursuant to an election on a form
approved by Prudential. Under certain types of retirement arrangements, an
election to arrange for systematic withdrawals by a married Participant must be
consented to in writing by the Participant's spouse, with signatures notarized
or witnessed by an authorized plan representative. The election must specify
that the systematic withdrawals shall be made on a monthly, quarterly,
semi-annual, or annual basis.
All systematic withdrawals shall be effected as of the day of the month
specified by the Contractholder, or, if such day is not a Business Day, then on
the next succeeding Business Day. Systematic withdrawals shall continue until
the Participant has withdrawn all of the balance in his Participant Account or
has instructed Prudential in writing to terminate his systematic withdrawal
arrangement. The Participant may elect to make systematic withdrawals in equal
dollar amounts (in which case each withdrawal must be at least $250), unless it
is made to satisfy minimum distribution rules, or over a specified period of
time (at least three years). Where the Participant elects to make systematic
withdrawals over a specified period of time, the amount of each
withdrawal--which will vary,
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reflecting investment experience during the withdrawal period--will be equal to
the sum of the balances then in the Participant Account divided by the number of
systematic withdrawals remaining to be made during the withdrawal period.
Systematic withdrawals shall be taken first out of the Participant's investment,
if any, in the Guaranteed Interest Account until that amount is exhausted.
Thereafter, systematic withdrawals will be taken pro rata from the Subaccounts.
Certain Contracts may specify that systematic withdrawals be deducted in a
different manner than that described immediately above.
A Participant may change the frequency, amount or duration of his systematic
withdrawals by submitting a form to Prudential that Prudential will provide to
him upon request. A Participant may make such a change only once during each
calendar year.
A Participant may at any time instruct Prudential to terminate the Participant's
systematic withdrawal arrangement, and no systematic withdrawals will be made
for him after Prudential has received his instruction. A Participant who chooses
to stop making systematic withdrawals may not again make them until the next
calendar year and may be subject to federal tax consequences as a result
thereof.
An arrangement to make systematic withdrawals will not affect any of the
Participant's other rights under the Contracts, including the right to make
withdrawals, and purchase a fixed dollar annuity.
Currently, Prudential does not impose a withdrawal charge upon systematic
withdrawals, however, Prudential may apply a withdrawal charge on systematic
withdrawals where payments are made for less than three years. Prudential
currently permits a Participant who is receiving systematic withdrawals and over
the age of 59 1/2 to make one additional, non-systematic, withdrawal during each
calendar year in an amount that does not exceed 10% of the sum of his balances
in the Account and the Guaranteed Interest Account without the application of
the withdrawal charge.
TEXAS OPTIONAL RETIREMENT PROGRAM
Special rules apply with respect to Contracts covering persons participating in
the Texas Optional Retirement Program ("Texas Program").
Under the terms of the Texas Program, Texas will contribute an amount somewhat
larger than a Participant's contribution. Texas' contributions will be credited
to the Participant Account. Until the Participant begins his second year of
participation in the Texas Program, Prudential will have the right to withdraw
the value of the Units purchased for this account with Texas' contributions. If
the Participant does not commence his second year of Texas Program
participation, the value of those Units representing Texas' contributions will
be withdrawn and returned to the State.
Withdrawal benefits of Contracts issued under the Texas Program are available
only in the event of a Participant's death, retirement or termination of
employment. Participants will not, therefore, be entitled to exercise the right
of withdrawal in order to receive in cash the Participant Account Value credited
to them under the Contract unless one of the foregoing conditions has been
satisfied. The value of a Participant's interest under the Contract may,
however, be transferred to another Prudential contract or contracts of other
carriers approved under the Texas Program during the period of the Participant's
Texas Program participation.
DEATH BENEFIT
Upon receipt by Prudential of due proof of a Participant's death and a claim and
payment election submitted on a form approved by Prudential, a death benefit
made up of the balance in the Participant Account (after deduction of any annual
account charges) will be payable to his designated beneficiary. The appropriate
address to which a death benefit claim generally should be sent is set out on
the cover page of this Prospectus. For certain Contracts, such as the Small Plan
Contract, a death benefit claim should be sent to a designated record keeper
rather than Prudential.
With respect to Contracts other than the Small Plan Contract, the death benefit
will be paid in one sum as if it were a single withdrawal, as systematic
withdrawals, as an annuity, or a combination of the three, as the Participant
may have directed subject to the minimum distribution rules of Code Section
401(a)(9) as described below under
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"Federal Tax Status." With respect to the Small Plan Contract, the death benefit
payment option listed in (d) below may not be available. If the Participant has
not so directed, the beneficiary may, within any time limit prescribed by or for
the retirement arrangement that covered the Participant, elect:
a. to receive a one sum cash payment;
b. to have a fixed dollar annuity purchased under the Contract on a specified
date, using the same annuity purchase rate basis that would have applied if
the Participant Account were being used to purchase an annuity for the
Participant;
c. to receive regular payments in accordance with the systematic withdrawal
plan; or
d. a combination of all or any two of (a), (b), and (c).
Unless restricted by the retirement arrangement under which the Participant is
covered, or unless the Participant has elected otherwise, if within one year
after the Participant's death the beneficiary elects to receive a one-sum cash
payment of the entire Participant Account, including the balance in all
Subaccounts in which the Participant has a balance, the total amount made
available to the beneficiary will be the greatest of: (1) the Participant's
Account Value as of the date Prudential receives a death benefit payment request
in good order; (2) the sum of all contributions made to the Participant Account
less withdrawals, transfers and charges; and (3) the greatest of the
Participant's Account Value calculated on every third anniversary of the first
contribution made on behalf of the Participant (accompanied by complete
documentation) under the Contract, less subsequent withdrawals, transfers and
charges.
Under certain types of retirement arrangements, the Retirement Equity Act of
1984 requires that in the case of a married Participant, a death benefit will be
payable to the Participant's spouse in the form of a "qualified pre-retirement
survivor annuity." A "qualified pre-retirement survivor annuity" is an annuity
for the lifetime of the Participant's spouse in an amount which can be purchased
with no less than 50% of the balance in the Participant Account as of the
Participant's date of death. Under the Retirement Equity Act, the spouse of a
Participant in a retirement arrangement which is subject to these rules may
consent to waive the pre-retirement survivor annuity benefit. Such consent must
acknowledge the effect of waiving the coverage, contain the signatures of the
Participant and spouse and must be notarized or witnessed by an authorized plan
representative. Unless the spouse of a Participant in a Plan which is subject to
these requirements properly consents to the waiver of the benefit, 50% of the
balance in the Participant Account will be paid to such spouse even if the
designated beneficiary is someone other than the spouse. Under these
circumstances, the remaining 50% would be paid to the Participant's designated
beneficiary.
Unless the retirement arrangement that covered the Participant provides
otherwise, a beneficiary who elects to have a fixed-dollar annuity purchased for
himself may choose from among the available forms of annuity. See "Effecting an
Annuity," page 29. The beneficiary may elect to purchase an annuity immediately
or at a future date. If an election includes systematic withdrawals, the
beneficiary will have the right to terminate such withdrawals and receive the
remaining balance in the Participant Account in cash (or effect an annuity with
it), or to change the frequency, size or duration of such withdrawals, subject
to the minimum distribution rules. See "Federal Tax Status" section of this
Prospectus. If the beneficiary fails to make any election within any time limit
prescribed by or for the retirement arrangement that covered the Participant,
within seven days after the expiration of that time limit, a one sum cash
payment will be made to the beneficiary, after deduction of the annual account
charge. A specific Contract may provide that an annuity is payable to the
beneficiary if the beneficiary fails to make an election.
Until a death benefit is paid that results in reducing to zero the balance in
the Participant Account, the Participant Account Value in the Subaccounts and
the Guaranteed Interest Account that make up the Participant Account will be
maintained for the beneficiary in the same manner as they had been for the
Participant, except (i) the beneficiary may make no contributions (ii) no loans
may be taken and (iii) no withdrawal charge will be imposed upon withdrawals.
DISCONTINUANCE OF CONTRIBUTIONS
Contributions on behalf of all Participants under a Contract or for all
Participants of an Employer covered under a Contract may be discontinued upon
notice by the Contractholder to Prudential. Contributions under the Contract
will also be discontinued for all Participants covered by a retirement
arrangement that is terminated.
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On 90 days' advance notice to the Contractholder, Prudential may elect not to
accept any new Participant, or not to accept further contributions for existing
Participants.
The discontinuance of contributions on a Participant's behalf does not otherwise
affect his or her rights under the Contracts. He may make withdrawals from his
Participant Account--for transfer, for the purchase of an annuity or for any
other purpose--just as if contributions were still being made for him or her.
However, if contributions under a Program are not made for a Participant for a
specified period of time (24 months in certain states, 36 months in others) and
the total value of his Participant Accounts is at or below a specified amount
($1,000 in certain states, $2,000 in others), Prudential may, if permitted by
the Code, elect to cancel those Participant Accounts unless prohibited by the
retirement arrangement, and pay the Participant their value (less the annual
account charge) as of the date of cancellation.
LOAN PROVISION
The loans described in this section are generally available to Participants in
401(a) plans and 403(b) programs. The interest rate and other terms and
conditions of the loan may vary from Contract to Contract.
For plans that are subject to ERISA, it is the responsibility of the Contract
trustee or fiduciary to ensure that the interest rate or other terms and
conditions of the loan comply with all Contract qualification requirements
including the ERISA regulations.
The loans described in this section, which involve the variable investment
options, work as follows. The minimum loan amount is as specified in the
Contract, or if not specified, as determined by Prudential. The maximum loan
amount is the lesser of (a) $50,000, reduced by the highest outstanding balance
of loans during the one year period immediately preceding the date of the loan
or (b) 50% of the value of the Participant's vested interest under a Contract.
Generally, in the loan application, the Contractholder (or in certain cases, the
Participant) designates the Subaccount(s) from which the loan amount is
deducted. To repay the loan, the Participant makes periodic payments of interest
plus a portion of the principal. Those payments are invested in the Subaccounts
chosen by the Participant. With respect to Contracts other than the Small Plan
Contract the Participant may specify the Subaccounts from which he may borrow
and into which repayments may be invested. With respect to Contracts other than
the Small Plan Contract if the Participant does not specify the Subaccounts from
which the loan amount is deducted, the loan amount will be deducted pro rata
from the Participant Account Value in the Subaccounts. With respect to the Small
Plan Contract, amounts borrowed are deducted from a Participant's Subaccounts on
a pro rata basis. With respect to such Contracts, amounts repaid on a loan are
applied to a Participant's Subaccounts based on the Participant's current
contribution allocations.
The maximum loan amount referred to above is imposed by federal tax law. That
limit, however, applies to all loans from any qualified plan of the Employer.
Since Prudential cannot monitor a Participant's loan activity relating to other
plans offered to Participants, it is the Participant's responsibility to do so.
Provided that a Participant adheres to these limitations, the loan will not be
treated as a taxable distribution. If, however, the Participant defaults on the
loan by, for example, failing to make required payments, the defaulted loan
amount (as described in loan disclosure information provided to a borrowing
Participant) will be treated as a taxable distribution and Prudential will send
the appropriate tax information to the Participant and the Internal Revenue
Service.
Prudential charges a loan application fee which is deducted from the Participant
Account at the time the loan is initiated. Prudential will not accept a personal
check as payment of the loan application fee. Prudential also imposes an annual
charge as a loan maintenance fee for recordkeeping and other administrative
services provided in connection with the loan. This charge is guaranteed not to
increase during the term of any loan. This annualized loan maintenance charge
will be pro rated based on the number of full months that the loan is
outstanding and is generally deducted quarterly. Under certain Contracts, the
loan maintenance fee will be deducted annually. With respect to Contracts other
than the Small Plan Contract the loan maintenance charge will first be made
against the Participant Account Value under the Guaranteed Interest Account (if
available). If the Participant is not invested in the Guaranteed Interest
Account, or if the Participant does not have enough money in such an option to
pay the charge, the charge will then be made against any one or more of the
Subaccounts in which the Participant is invested. With respect to the Small Plan
Contract, the loan maintenance fee will be deducted pro rata from each of the
Participant's Subaccounts.
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MODIFIED PROCEDURES
Under certain Contracts, such as the Small Plan Contract, the Contractholder or
a third party acting on their behalf provides record keeping services that would
otherwise be performed by Prudential. Such Contracts may require procedures
somewhat different than those set forth in this Prospectus. For example, such
Contracts may require that contribution allocation requests, withdrawal
requests, and/or transfer requests be directed to the Contract's record keeper
rather than Prudential. The record-keeper is the Contractholder's agent, not
Prudential's agent. Accordingly, transactions will be processed and priced as of
the end of the Valuation Period in which Prudential receives appropriate
instructions and/or funds from the record-keeper. Any such different procedures
will be set forth in the Contract.
CHARGES, FEES AND DEDUCTIONS
ADMINISTRATIVE FEE AND ANNUAL ACCOUNT CHARGE
There is an administrative fee to reimburse Prudential for the expenses incurred
in administering the Contracts. This includes such things as issuing the
Contract, establishing and maintaining records, and providing reports to
Contractholders and Participants. This fee is deducted daily from the assets in
each of the Subaccounts at an effective annual rate of 0.85% for Contracts other
than the Small Plan Contract, and at an effective annual rate of 1.05% for the
Small Plan Contracts.
An annual account charge for recordkeeping and other administrative services is
deducted pro rata from each Participant Account or is billed directly to the
Employer. This annual account charge is payable to Prudential and, with respect
to Contracts other than the Small Plan Contract, is made on the last Business
Day of each calendar year as long as the Participant still has money invested in
the Subaccounts and the Guaranteed Interest Account. With respect to the Small
Plan Contract, the annual account charge is assessed either (i) quarterly, on or
about 14 days after the end of each quarter or (ii) annually, on the last
Business Day of the calendar year. With respect to Contracts other than the
Small Plan Contract, the annual account charge will be pro rated for new
Participants for the first year of their participation, based on the number of
full months remaining in the calendar year after the first contribution is
received. With respect to the Small Plan Contract, the annual account charge
will not be prorated for new Participants. With respect to Contracts other than
the Small Plan Contract, if a Participant Account is canceled before the end of
the year, the charge will be made on the date that Participant Account is
canceled (and the charge will not be pro rated if this occurs during the year in
which the first contribution is made to the Participant Account). The annual
account charge will not be made, however, upon the cancellation of a Participant
Account to purchase an annuity under a Contract if the annuity becomes effective
on January 1 of any year. After a cancellation, the Participant may again
participate in the Contract only as a new Participant and will be subject to a
new annual account charge.
For all Contracts, the aggregate annual account charge for each Participant will
not be greater than $32. With respect to Contracts other than the Small Plan
Contract the charge will first be made against the Participant Account Value
under the Guaranteed Interest Account (if available). If the Participant is not
invested in the Guaranteed Interest Account, or if the Participant does not have
enough money in such an option to pay the charge, the charge will then be made
against any one or more of the Subaccounts in which the Participant is invested.
With respect to the Small Plan Contract, the aggregate annual account charge may
be paid directly by the Participant's Employer, or may be deducted from a
Participant's Account Value pro rata from each of the Participant's Subaccounts.
Prudential may waive or eliminate the annual account charge under appropriate
circumstances.
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS
A deduction is made daily from the assets of each of the Subaccounts to
reimburse Prudential for assuming the risk that our estimates of longevity and
of the expenses we expect to incur over the lengthy periods that the Contract
may be in effect will turn out to be incorrect. The charge is made daily at an
annual rate of 0.15% of the assets held in the Subaccounts for all of the
Contracts.
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EXPENSES INCURRED BY THE FUNDS
The charges and expenses of the Funds are indirectly borne by the Participants.
Details about investment management fees and other Fund expenses are provided in
the fee table and in the accompanying prospectuses for the Funds and the related
statements of additional information.
WITHDRAWAL CHARGE
With respect to Contracts other than the Small Plan Contract, a withdrawal
charge may be made upon full or partial withdrawals. The charge compensates
Prudential for paying all of the expenses of selling and distributing the
Contracts, including sales commissions, printing of prospectuses, sales
administration, preparation of sales literature, and other promotional
activities. No withdrawal charge is imposed whenever earnings are withdrawn.
With respect to Contracts other than the Small Plan Contract, the amount of the
withdrawal charge imposed upon any withdrawal depends upon the number of years
of a Participant's participation in the Contract, the year in which the
withdrawal is made, and the kind of retirement arrangement that covers the
Participant. Participation in the Contract begins upon the date when the first
contribution on behalf of the Participant, along with enrollment information in
a form satisfactory to Prudential, is received by Prudential. Such participation
ends on the date when the Participant Account under the Contract is canceled. In
the event of such cancellation, Prudential reserves the right to consider the
Participant to be participating in the Contract for a limited time (currently
about one year) for the purposes of calculating any withdrawal charge on the
withdrawal of any future contributions.
The table below describes the maximum amount of the withdrawal charge deducted
with respect to Contracts other than the Small Plan Contract.
<TABLE>
<CAPTION>
WITHDRAWAL CHARGE,
YEARS OF CONTRACT AS A PERCENTAGE OF
PARTICIPATION CONTRIBUTIONS WITHDRAWN
<S> <C>
First Year 5%
Second Year 4%
Third Year 3%
Fourth Year 2%
Fifth Year 1%
Sixth Year and Subsequent No charge
</TABLE>
The withdrawal charge applicable to the Small Plan Contract is determined in a
different manner from what is described in the preceding paragraphs. Under the
Small Plan Contract, a Participant making a full or partial withdrawal does not
pay the withdrawal charge indicated above. Instead, withdrawal charges under the
Small Plan Contract are triggered only when the Employer to which the Contract
was issued terminates the Contract in whole or in part. Under full termination
of the Contract, the withdrawal charge would be assessed against the Employer
based on the total value of contributions withdrawn under the terminated
Contract. Under a partial termination of the Contract, the withdrawal charge is
assessed only against those assets withdrawn by reason of a specified group,
classification or type of employee leaving the Plan as a result of a corporate
merger, restructuring, or other comparable employer-initiated event. For
example, an Employer may sell a portion of its business that in turn requires
that one-half of its employees commence work for new employer, under a new
qualified retirement plan not covered under the Contract. The withdrawal charge
would be assessed against the Employer based on the total value of contributions
of affected employees withdrawn as a consequence of the partial termination. The
Employer may pass this charge on to affected employees.
Each Participant's Account Value that is withdrawn in connection with such a
full or partial Contract termination may be subject to a withdrawal charge. The
amount of the withdrawal charge varies depending on the number of years that
have elapsed since the Small Plan Contract became effective. Specifically, the
withdrawal charge is equal to 5% of contributions withdrawn during the first
year of the Contract and the charge declines by one percentage each year
thereafter. After five complete years have elapsed from the effective date of
the Small Plan Contract, no such withdrawal charge is deducted.
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<PAGE>
With respect to all Contracts, the proceeds received by a Participant upon any
withdrawal will be reduced by the amount of any withdrawal charge. Also, at our
discretion, we may reduce or waive withdrawal charges for certain classes of
contracts (e.g., contracts exchanged from existing contracts).
LIMITATIONS ON WITHDRAWAL CHARGE
We will not impose a withdrawal charge upon contributions withdrawn to purchase
an annuity, to provide a death benefit, pursuant to a systematic withdrawal plan
generally, to provide a minimum distribution payment, or in cases of financial
hardship or disability retirement as determined pursuant to provisions of the
Employer's retirement arrangement. A withdrawal charge will not be imposed upon
withdrawals attributable to roll-over contributions. Further, for all plans
other than IRAs, no withdrawal charge is imposed upon contributions withdrawn
due to resignation or retirement by the Participant or termination of the
Participant by the Contractholder.
Contributions transferred among the Guaranteed Interest Account and the
Subaccounts are considered to be withdrawals from the Guaranteed Interest
Account or the Subaccount from which the transfer is made, but no withdrawal
charge is imposed upon them. They will, however, be considered as contributions
to the receiving Subaccount or Guaranteed Interest Account for purposes of
calculating any charge imposed upon their subsequent withdrawal from that
investment option.
Loans are considered to be withdrawals from the Subaccounts from which the loan
amount was deducted but are not considered a withdrawal from the Contract.
Therefore, no withdrawal charge is imposed upon them. The principal portion of
any loan repayment, however, will be treated as a contribution to the receiving
Subaccount for purposes of calculating any charge imposed upon any subsequent
withdrawal. If the Participant defaults on the loan by, for example, failing to
make required payments, the outstanding balance of the loan will be treated as a
withdrawal for purposes of the withdrawal charge. The withdrawal charge will be
withdrawn from the same Subaccounts, and in the same proportions, as the loan
amount was withdrawn. If sufficient funds do not remain in those Subaccounts,
the withdrawal charge will be withdrawn from the Participant's other Subaccounts
and the Guaranteed Interest Account as well.
Prudential may impose withdrawal charges lower than those described above with
respect to Participants under certain Contracts. These lower charges will
reflect Prudential's anticipation that lower sales costs will be incurred, or
less sales services will be performed, with respect to such Contracts due to
economies arising from (1) the utilization of mass enrollment procedures or (2)
the performance of sales functions, which Prudential would otherwise be required
to perform, by the Contractholder, an Employer, or by a third party on their
behalf or (3) an accumulated surplus of charges over expenses under a particular
Contract. Generally, the withdrawal charge is lowered or waived depending on the
amount of local service the Contractholder requires. In addition, the charge may
be lowered if required by state law.
PREMIUM TAXES
Certain states and other jurisdictions impose premium taxes or similar
assessments upon Prudential, either at the time contributions are made or when
the Participant's Account Value is surrendered or applied to purchase an
annuity. Prudential reserves the right to deduct an amount from contributions or
the Participant's Account to cover such taxes or assessments, if any, when
applicable. Not all states impose premium taxes on annuities; however, the rates
in those that do currently range from 0.5% to 5%.
FEDERAL TAX STATUS
The following discussion is based on current law and interpretations which may
change. The discussion is general in nature. It is not intended as tax advice,
nor does it consider any applicable state or other tax laws. A qualified tax
adviser should be consulted for complete information and advice. The following
rules do not generally apply to annuity contracts held by or for non-natural
persons (e.g., corporations). Where a Contract is held by a non-natural person,
unless the Contractholder is a nominee or agent for a natural person (or in
other limited circumstances), the contract will generally not be treated as an
annuity for tax purposes.
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<PAGE>
TAXES ON PRUDENTIAL
The Discovery Account is not considered a separate taxpayer for purposes of the
Code. As distinguished from most other registered investment companies--which
are separate taxpayers--the earnings of the Subaccounts invested in the Funds
are taxed as part of the income of Prudential. No charge is being made currently
to those Subaccounts for company federal income taxes. Prudential will review
periodically the question of a charge to the Subaccounts invested in the Funds
for company federal income taxes attributable to the Contracts. Such a charge
may be made in future years for any federal income taxes attributable to the
Contracts.
QUALIFIED RETIREMENT ARRANGEMENTS USING THE CONTRACTS
The Contracts may be used in connection with qualified pension and profit
sharing plans, plans established by self-employed persons ("Keogh plans"),
simplified employee pension plans ("SEPs"), individual retirement plan accounts
("IRA's") and retirement programs for certain persons known as Section 403(b)
annuity plans.
The Contracts may also be used in connection with individual retirement
arrangements known as "Roth IRAs." Generally, contributions to a Roth IRA are
subject to certain limits and are not deductible for Federal income tax
purposes. Distributions are generally not taxable for Federal income tax
purposes if they are made after attainment of age 59- 1/2 or for certain other
reasons and if the individual had a Roth IRA in effect for at least five years.
The provisions of the Code that apply to the retirement arrangements that may be
funded by the Contracts are complex and Participants are advised to consult a
qualified tax adviser. In general, however, assuming that the requirements and
limitations of the provisions of the Code applicable to the particular type of
plan are adhered to by Participants and Employers, contributions made under a
retirement arrangement funded by a Contract are deductible (or not includible in
income) up to certain amounts each year. Further, under the retirement programs
with which the Contracts may be used, Federal income tax currently is not
imposed upon the investment income and realized gains earned by the Accounts and
Subaccounts in which the contributions have been invested until a distribution
or withdrawal is received. When a distribution or withdrawal is received, either
as a lump sum, an annuity, or as regular payments in accordance with a
systematic withdrawal arrangement, all or a portion of the distribution or
withdrawal is normally taxable as ordinary income. In some cases, the tax on
lump sum distributions may be limited by a special income-averaging rule. The
effect of Federal income taxation depends largely upon the type of retirement
plan and a generalized description, beyond that given here, is not particularly
useful. Careful review of the provisions of the Code applicable to the
particular type of plan is necessary.
As noted above, withdrawals or distributions are taxable. Furthermore, premature
distributions or withdrawals may be subject to a penalty tax. Participants
contemplating a withdrawal should consult a qualified tax adviser. In addition,
Federal tax laws impose restrictions on withdrawals from Section 403(b)
annuities. Distributions are subject to certain minimum distribution
requirements.
The Contracts may be used in connection with deferred compensation plans that
meet the requirements of Section 457 of the Code. The tax rules for such plans
involve, among other things, limitations on contributions and minimum
distribution requirements. Tax-exempt organizations or governmental employers
considering the use of the Contracts to fund or otherwise provide deferred
compensation to their employees should consult with a qualified tax adviser
concerning the applicability of Section 457 to their plans as well as the
specific requirements. Reference is also made to the discussion below of Section
72(u) of the Code which may be applicable in certain circumstances.
Subject to the exceptions discussed below with respect to Section 403(b) annuity
plans and certain governmental or church plans, distributions from traditional
IRA's, qualified retirement arrangements, and deferred compensation plans that
meet the requirements of Section 457 of the Code, must begin by April 1 of the
calendar year following the year in which the Participant attains age 70 1/2 or
actual retirement, if later (the "Required Beginning Date"). Distributions from
a Section 403(b) annuity plan attributable to benefits accruing after December
31, 1986 must begin by the Required Beginning Date. The Required Beginning Date
for distributions from a governmental or church plan is the later of April 1 of
the calendar year after the calendar year in which the Participant retires. In
general, distributions that are made after the Required Beginning Date must be
made in the form of an annuity for the life of the Participant or the lives of
the Participant and his designated beneficiary, or over a period that is not
longer than the life expectancy of the Participant or the life expectancies of
the Participant and his designated beneficiary.
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<PAGE>
Distributions to beneficiaries are also subject to minimum distribution rules.
If a Participant dies before his entire interest in his Participant Account has
been distributed, his remaining interest must be distributed at least as rapidly
as under the method of distribution being used as of the date of death. If the
Participant dies before distributions have begun (or are treated as having
begun) the entire interest in his Participant Account must be distributed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death. Alternatively, if there is a designated beneficiary, the
designated beneficiary may elect to receive payments beginning no later than
December 31 of the calendar year immediately following the year in which the
Participant dies and continuing for the beneficiary's life or a period not
exceeding the beneficiary's life expectancy (except that with respect to
distributions from a deferred compensation plan subject to Section 457 of the
Code, such period cannot exceed 15 years). Special rules apply to the spouse of
a deceased Participant.
In addition to the above rules, with respect to a deferred compensation plan
subject to Section 457 of the Code, any distribution that is payable over a
period of more than one year can only be made in substantially non-increasing
amounts no less frequently than annually.
An excise tax applies to Participants or beneficiaries who fail to make the
minimum distribution in any calendar year.
NON-QUALIFIED ARRANGEMENTS USING THE CONTRACTS
The Contracts constitute variable annuity contracts. Accordingly, no tax should
be payable by a Participant as a result of any increase in the value of his
share of the investment income and realized gain earned by the Discovery Account
or his Participant Account in which his accumulated premium payments are held.
Generally, amounts are taxed when received, either as an annuity or as a
withdrawal before the annuity starting date. For these purposes, loans against
the Contracts or the pledging of the Contracts are treated as withdrawals.
Amounts withdrawn before the annuity starting date are treated for tax purposes
first as being withdrawals of investment income, rather than withdrawals of
premium payments, until all investment income earned by a Participant's Account
or Subaccount has been withdrawn. Thus, a Participant will be taxed on the
amount he withdraws before he starts receiving annuity payments to the extent
that the cash value of his Contract, unreduced by the withdrawal charge, exceeds
his premium payments.
In addition to the ordinary income tax, the Code further provides that premature
withdrawals that are includible in income will be subject to a penalty tax. The
amount of the penalty is 10 percent of the amount withdrawn that is includible
in income. Some withdrawals will be exempt from the penalty. These include
withdrawals (1) made on or after the date on which the Participant reaches age
59 1/2, (2) made on or after the death of the Participant, (3) attributable to
the Participant becoming disabled (as defined in Code Section 72(m)), (4) in the
form of level annuity payments under a lifetime annuity, or (5) in the form of
substantially equal periodic payments (made at least annually) for the life
expectancy of the Participant or the joint life expectancies of the Participant
and his designated beneficiary.
Different tax rules apply to the receipt of annuity payments or regular payments
in accordance with a systematic withdrawal arrangement by a Participant after
the annuity starting date. A portion of each payment he receives under a
Contract will be treated as a partial return of his post-tax premium payments,
if any, and will not be taxable. The remaining portion of the payment will be
taxed as ordinary income. Exactly how each payment is divided into taxable and
nontaxable portions depends upon (i) the period over which annuity payments are
expected to be received, which in turn is governed by the form of annuity
selected and, where a lifetime annuity is chosen, by the life expectancy of the
annuitant, payee or, in the case of a joint and survivor life annuity, payees,
or (ii) whether you elect to have regular payments made in accordance with a
systematic withdrawal plan over a fixed period of time or in fixed dollar
amounts. Once a Participant has recovered all his premium payments, the balance
of the annuity payments will be fully taxable.
Certain minimum distribution requirements apply in the case where the
Participant dies before the entire interest in his annuity has been distributed.
Further, certain transfers of an annuity for less than full compensation, e.g.,
certain gifts, will trigger tax on the gain in the Contract.
Special rules under Section 72(u) of the Code apply to the Contracts if held by
a person who is not a natural person and if not covered by one of several
exceptions. Under these rules, if a Contract is held by a corporation,
partnership, trust or similar nonnatural person, the income on the Contract each
year is treated as ordinary
28
<PAGE>
income received or accrued that year by the owner of the Contract. Income on the
Contract is the excess of the sum of the net surrender value of the Contract at
the end of the taxable year plus any amounts distributed for all years over the
aggregate amount of premiums paid under the Contract minus premiums paid and
amounts received under the Contract that have been included in income.
Exceptions to these rules include contracts held by a nonnatural person as an
agent for a natural person, contracts acquired by an estate by reason of the
death of the Participant, contracts held under a qualified pension or profit
sharing plan, a Section 403(b) annuity plan or individual retirement plan (see
discussion above) or contracts which provide for immediate annuities.
WITHHOLDING
Generally, under a nonqualified annuity arrangement, or individual retirement
account or individual retirement annuity, unless a Participant elects to the
contrary, any amounts that are received under his Contract that Prudential
reasonably believes are includible in gross income tax for tax purposes will be
subject to withholding to meet Federal income tax obligations. In the absence of
an election by a Participant that Prudential should not do so, it will withhold
from every withdrawal or annuity payment the appropriate percentage of the
amount of the payment that Prudential reasonably believes is subject to
withholding. In addition, certain distributions from qualified plans under
Section 401 or Section 403(b) of the Code, which are not directly rolled over or
transferred to another eligible qualified plan, are subject to a mandatory 20%
withholding for Federal income tax. The 20% withholding requirement does not
apply to: (a) distributions for the life or life expectancy of the Participant,
or joint and last survivor expectancy of the Participant and a designated
beneficiary; or (b) distributions for a specified period of ten years or more;
or (c) distributions which are required as minimum distributions. Accordingly, a
Participant would be well advised to check the Contractholder's retirement
arrangement and consult with appropriate tax advisers regarding the current
state of the law before making a withdrawal. Prudential will provide forms and
instructions concerning withholding. However, amounts that are received under a
Contract used in connection with a plan that is subject to Section 457 of the
Code are treated as wages for Federal income tax purposes and are, thus, subject
to general withholding requirements.
EFFECTING AN ANNUITY
Subject to the restrictions on withdrawals from tax-deferred annuities subject
to Section 403(b) of the Code, and subject to the provisions of the retirement
arrangement that covers him or her, a Participant may elect at any time to have
all or a part of his or her interest in the Participant Account used to purchase
a fixed dollar annuity under the Contracts. The Contracts do not provide for
annuities that vary with the investment results of any Subaccount. Withdrawals
from the Participant Account that are used to purchase a fixed dollar annuity
under the Contracts become part of Prudential's General Account, which supports
insurance and annuity obligations.
In electing to have an annuity purchased, the Participant may select from the
forms of annuity described below, unless the retirement arrangement covering the
Participant provides otherwise. The annuity is purchased on the first day of the
month following receipt by Prudential of proper written notice on a form
approved by Prudential that the Participant has elected to have an annuity
purchased, or on the first day of any subsequent month that the Participant
designates. The first monthly annuity payment generally will be made within one
month of the date on which the annuity is purchased.
Under certain types of retirement arrangements, the Retirement Equity Act of
1984 requires that in the case of a married Participant, certain elections of
payouts which are not qualified joint and survivor annuities must include the
consent and signatures of the Participant and his spouse and must be notarized
or witnessed by an authorized plan representative. A "qualified joint and
survivor annuity" is an annuity for the Participant's lifetime with at least 50%
of the amount payable to the Participant continued after the Participant's death
to his or her spouse, if then living.
Once annuity payments begin, the annuitant cannot surrender his or her annuity
benefit and receive a one sum payment in lieu thereof.
The following forms of annuity are available to Participants.
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<PAGE>
LIFE ANNUITY WITH PAYMENTS CERTAIN
This is an immediate annuity payable monthly during the lifetime of the
annuitant with the guarantee that if, at the death of the annuitant, payments
have been made for less than the period certain (which may be 60, 120, 180, or
240 months, as selected by the annuitant), they will be continued during the
remainder of the selected period to his or her beneficiary.
ANNUITY CERTAIN
This is an immediate annuity payable monthly for a period certain which may be
60, 120, 180, or 240 months, as selected by the annuitant. If the annuitant dies
during the period certain, payments in the same amount the annuitant was
receiving will be continued to his or her beneficiary, but no further payments
are payable after the end of the period certain.
JOINT AND SURVIVOR ANNUITY WITH PAYMENTS CERTAIN
This is an immediate annuity payable monthly during the lifetime of the
annuitant with payments continued after his or her death to the contingent
annuitant, if surviving, for the latter's lifetime. Until the selected number of
payments certain have been paid, payments made to the contingent annuitant after
the annuitant's death are the same as those the annuitant was receiving.
Thereafter, the payments continued to the contingent annuitant will be a
percentage of the monthly amount paid to the annuitant such as 33%, 50%, 66%, or
100% as selected by the annuitant (the amounts of each payment made to the
annuitant will be lower as the percentage he or she selects to be paid to the
contingent annuitant is higher). If both the annuitant and the contingent
annuitant die during the period certain (which may be 60, 120, 180, or 240
months, as selected by the annuitant), payments will be continued during the
remainder of the period certain to the properly designated beneficiary.
Other forms of annuity may be available under the Contracts. The retirement
arrangement under which the Participant is covered may restrict the forms of
annuity that a Participant may elect.
If the dollar amount of the first monthly annuity payment is less than the
minimum amount specified in the Contract, or if the beneficiary is other than a
natural person receiving payments in his or her own right, Prudential may elect
to pay the commuted value of the unpaid payments certain in one sum.
PURCHASING THE ANNUITY
No withdrawal charge is deducted from contributions withdrawn to purchase an
annuity. If, as a result of a withdrawal to purchase an annuity, the Participant
Account has been reduced to zero, the full annual account charge is deducted,
unless the annuity becomes effective on January 1 of any year. The resulting
amount, less any applicable taxes on annuity considerations, is applied to the
appropriate annuity purchase rate determined in accordance with the schedule in
the Contract at the time the annuity is purchased. However, Prudential may
determine monthly payments from schedules of annuity purchase rates providing
for larger payments than the rates shown in the Contract.
The schedule of annuity purchase rates in a Contract is guaranteed by Prudential
for ten years from the date the Contract is issued. If at any time after a
Contract has been in effect for ten years, the schedule of annuity purchase
rates is modified, the modification is also guaranteed for ten years. A change
in the schedule of annuity purchase rates used for annuity certain with 180
payments or less, as described above will apply only to amounts added to a
Participant Account after the date of change. A change in any other schedule
will apply to all amounts in a Participant Account.
OTHER INFORMATION
MISSTATEMENT OF AGE OR SEX
If an annuitant's stated age or sex (except where unisex rates apply) or both
are incorrect in the Certificate, we will change each benefit and the amount of
each annuity payment to that which the total contributions would have bought for
the correct age and sex. Also, we will adjust for the amount of any overpayments
we have already made.
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SALE OF THE CONTRACT AND SALES COMMISSIONS
Prudential Investment Management Services LLC ("PIMS"), a wholly-owned direct
subsidiary of Prudential, acts as the principal underwriter of the Contract.
PIMS was organized in 1996 under Delaware law, is registered as a broker and
dealer under the Securities Exchange Act of 1934, and is a member of the
National Association of Securities Dealers, Inc. PIMS' principal business
address is 751 Broad Street, Newark, NJ 07102. The Contract is sold by
registered representatives of PIMS who are also authorized by state insurance
departments to do so. The maximum commission that will be paid to the
broker-dealer to cover both the individual representative's commission and other
distribution expenses will not exceed 3.0% of the purchase payment. In addition,
trail commissions based on the size of the Contracts may be paid.
VOTING RIGHTS
As stated above, all of the assets held in the Subaccounts of the Discovery
Account are invested in shares of the corresponding Funds. Prudential is the
legal owner of those shares and as such has the right to vote on any matter
voted on at any shareholders meetings of the Funds. However, as required by law,
Prudential votes the shares of the Funds at any regular and special shareholders
meetings the Funds are required to hold in accordance with voting instructions
received from Participants. The Funds may not hold annual shareholders meetings
when not required to do so under the laws of the state of their incorporation or
the Investment Company Act of 1940. Fund shares for which no timely instructions
from Participants are received, and any shares owned directly or indirectly by
Prudential, are voted in the same proportion as shares in the respective
portfolios for which instructions are received. Should the applicable federal
securities laws or regulations, or their current interpretation, change so as to
permit Prudential to vote shares of the Funds in its own right, it may elect to
do so.
Generally, Participants may give voting instructions on matters that would be
changes in fundamental policies and any matter requiring a vote of the
shareholders of the Funds. With respect to approval of the investment advisory
agreement or any change in a portfolio's fundamental investment policy,
Participants participating in such portfolios will vote separately on the
matter, pursuant to the requirements of Rule 18f-2 under the Investment Company
Act of 1940.
The number of Fund shares for which a Participant may give instructions is
determined by dividing the portion of the value of the Participant Account
derived from participation in a Subaccount, by the value of one share in the
corresponding portfolio of the applicable Fund. The number of votes for which
you may give Prudential instructions is determined as of the record date chosen
by the Board of the applicable Fund. We furnish you with proper forms and
proxies to enable you to give these instructions. We reserve the right to modify
the manner in which the weight to be given voting instructions is calculated
where such a change is necessary to comply with current federal regulations or
interpretations of those regulations.
Prudential may, if required by state insurance regulations, disregard voting
instructions if such instructions would require shares to be voted so as to
cause a change in the sub-classification or investment objectives of one or more
of the Funds' portfolios, or to approve or disapprove an investment advisory
contract for a Fund. In addition, Prudential itself may disregard voting
instructions that would require changes in the investment policy or investment
adviser of one or more of the Funds' portfolios, provided that we reasonably
disapprove such changes in accordance with applicable federal regulations. If we
do disregard voting instructions, we will advise you of that action and our
reasons for such action in the next annual or semi-annual report.
SUBSTITUTION OF FUND SHARES
Although Prudential believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the portfolios of the Funds may
become unsuitable for investment by Contractholders and Participants. This may
occur because of investment policy changes, tax law changes, the unavailability
of shares for investment or at the discretion of Prudential. In that event,
Prudential may seek to substitute the shares of another portfolio or of an
entirely different mutual fund. Before this can be done, the approval of the
SEC, and possibly one or more state insurance departments, will be required.
Contractholders and Participants will be notified of such substitution.
31
<PAGE>
PERFORMANCE INFORMATION
Performance information for the Subaccounts may appear in advertising and
reports to current and prospective Contractholders and Participants. Performance
information is based on historical investment experience of the Funds, adjusted
to take charges under the Contract into account, and does not indicate or
represent future performance.
Total returns are based on the overall dollar or percentage change in value of a
hypothetical investment over a stipulated period, and assume a surrender of the
Contract at the end of the period. Total return quotations reflect changes in
unit values and the deduction of applicable charges including any applicable
withdrawal charges.
A cumulative total return reflects performance over a stated period of time. An
average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the performance had
been constant over the entire period.
The Money Market Subaccount may advertise its current and effective yield.
Current yield reflects the income generated by an investment in the Subaccount
over a specified seven-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
Reports or advertising may include comparative performance information,
including, but not limited to: comparisons to market indices; comparisons to
other investments; performance rankings; personalized illustrations of
historical performance; and data presented by analysts or included in
publications.
See PERFORMANCE INFORMATION in the Statement of Additional Information for
recent performance information.
REPORTS TO PARTICIPANTS
Participants will be sent, at least annually, reports showing as of a specified
date the number of units credited to them in the Subaccounts of the Discovery
Account. Each Participant will also be sent annual and semi-annual reports for
the applicable Funds.
STATE REGULATION
Prudential is subject to regulation by the Department of Banking and Insurance
of the State of New Jersey as well as by the insurance departments of all the
other states and jurisdictions in which it does business. Prudential must file
an annual statement in a form promulgated by the National Association of
Insurance Commissioners. This annual statement is reviewed and analyzed by the
New Jersey Department, which makes an independent computation of Prudential's
legal reserve liabilities and statutory apportionments under its outstanding
contracts. New Jersey law requires a quinquennial examination of Prudential to
be made. Examination involves an extensive audit including, but not limited to,
an inventory check of assets, sampling techniques to check the performance by
Prudential of its contracts and an examination of the manner in which divisible
surplus has been apportioned and distributed to policyholders and
Contractholders. This regulation does not involve any supervision or control
over the investment policies of the Subaccounts or over the selection of
investments for them, except for verification of the compliance of Prudential's
investment portfolio with New Jersey law.
The laws of New Jersey also contain special provisions which relate to the
issuance and regulation of contracts on a variable basis. These laws set forth a
number of mandatory provisions which must be included in contracts on a variable
basis and prohibit such contracts from containing other specified provisions. No
variable contract may be issued for delivery in New Jersey prior to the written
acknowledgment by the Department of Insurance of its filing. The Department may
initially disapprove or subsequently withdraw approval of any contract if it
contains provisions which are "unjust, unfair, inequitable, ambiguous,
misleading, likely to result in misrepresentation or contrary to law." Approval
can also be withheld or withdrawn if sales are solicited by communications which
involve misleading or inadequate descriptions of the provisions of the contract.
In addition to the annual statement referred to above, Prudential is required to
file with New Jersey and other states a separate statement with respect to the
operations of all its variable contracts accounts, in a form promulgated by the
National Association of Insurance Commissioners.
32
<PAGE>
LEGAL PROCEEDINGS
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 Judgment 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 Judgment 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 the date of this prospectus, no further
appeal has been taken.
Pursuant to the Settlement, Prudential has agreed to 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
policies. Management now has information which allows for computation of a
reasonable estimate of losses associated with ADR claims. Based on this
information, management estimated the cost of remedying policyholder claims in
the ADR process before taxes to be approximately $2.05 billion. While management
believes these to be reasonable estimates based on information currently
available, 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
policyowners who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyowners.
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 result 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 benefits and services provided to the Contractholders by Prudential and PIMS
depend on the smooth functioning of their respective computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer programs cannot distinguish the year 2000 from
the year 1900 because of the way in which dates are encoded. Left uncorrected,
the year "00" could cause systems to perform date comparisons and calculations
incorrectly that in turn could compromise the integrity of business records and
lead to serious interruption of business processes.
Prudential, PIMS's ultimate corporate parent, identified this issue as a
critical priority in 1995 and has established quality assurance procedures
including a certification process to monitor and evaluate enterprise-wide
conversion and upgrading of systems for "Year 2000" compliance. Prudential has
also initiated an analysis of potential exposure that could result from the
failure of major service providers such as suppliers, custodians and brokers, to
achieve Year 2000 compliance. Prudential expects to complete its adaptation,
testing and certification
33
<PAGE>
of software for Year 2000 compliance by December 31, 1998. During 1999,
Prudential plans to conduct additional internal testing, to participate in
securities industry-wide test efforts and to complete major service provider
reviews, analysis and contingency planning.
The expenses of Prudential's Year 2000 compliance are allocated across its
various businesses, including those businesses not engaged in providing services
to Contractholders. Accordingly, while the expense is substantial in the
aggregate, it is not expected to have a material impact on Prudential's
abilities to meet its contractual commitments to Contractholders.
Prudential believes that it is well positioned to achieve the necessary
modifications and mitigate Year 2000 risks. However, if such efforts are not
completed on a timely basis, the Year 2000 issue could have a material adverse
impact on Prudential's operations, those of its subsidiary and affiliate
companies and/or the Discovery Account. Moreover, there can be no assurance that
the measures taken by Prudential's external service providers will be sufficient
to avoid any material adverse impact on Prudential's operations and those of its
subsidiary and affiliate companies.
STATEMENT OF ADDITIONAL INFORMATION
The contents of the Statement of Additional Information include:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................... 2
Other Contract Provisions................................................. 2
Administration............................................................ 2
Performance Information................................................... 3
Directors of Prudential................................................... 9
Officers of Prudential.................................................... 12
Sale of Contracts......................................................... 14
Legal Matters............................................................. 14
Experts................................................................... 14
Financial Statements of the Discovery Accounts............................ A-1
Consolidated financial statements of The Prudential Insurance Company of
America and subsidiaries................................................ B-1
</TABLE>
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this Prospectus. This Prospectus
does not include all of the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information, including the Statement of Additional Information prepared
by Prudential, may also be obtained from Prudential without charge. The
addresses and telephone numbers are set forth on the cover page of this
Prospectus.
34
<PAGE>
[ACCUMULATION UNIT VALUES AS OF 6/30/98 TO BE FURNISHED IN A SUBSEQUENT
POST-EFFECTIVE AMENDMENT]
APPENDIX
ACCUMULATION UNIT VALUES
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION)
<TABLE>
<CAPTION>
SUBACCOUNTS
---------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL PRUDENTIAL
SERIES PRUDENTIAL SERIES PRUDENTIAL PRUDENTIAL SERIES SERIES SERIES
FUND SERIES FUND FUND SERIES FUND SERIES FUND FUND FUND FUND
MONEY DIVERSIFIED GOVERNMENT CONSERVATIVE FLEXIBLE HIGH YIELD STOCK EQUITY
MARKET BOND INCOME BALANCED MANAGED BOND INDEX INCOME
---------------------------------------------------------------------------------------------------
7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97*
TO TO TO TO TO TO TO TO
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Beginning of period
(rounded)................. $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
2. End of period (rounded).... $10.08 $10.07 $10.27 $10.03 $ 9.99 $10.37 $10.29 $10.48
3. Accumulation Units
Outstanding at end of
period.................... 815 542 60 563 4,286 1,952 1,890 1,171
---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS
-----------------------------------------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL JANUS
SERIES SERIES SERIES AIM V.I. JANUS ASPEN MFS
FUND FUND FUND GROWTH AND AIM V.I. ASPEN INTERNATIONAL EMERGING
EQUITY JENNISON GLOBAL INCOME VALUE GROWTH GROWTH GROWTH
-----------------------------------------------------------------------------------------------------
7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97*
TO TO TO TO TO TO TO TO
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Beginning of period
(rounded)................. $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
2. End of period (rounded).... $10.12 $ 9.87 $ 8.95 $ 9.79 $ 9.89 $ 9.92 $ 9.44 $ 9.95
3. Accumulation Units
Outstanding at end of
period.................... 2,907 3,111 1,576 1,122 1,738 462 942 470
-----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SUBACCOUNTS
--------------------------------------------------------------------------------------
OCC WARBURG
OCC ACCUMULATION T. ROWE PRICE PINCUS
MFS ACCUMULATION TRUST SMALL T. ROWE PRICE INERNATIONAL POST-VENTURE
RESEARCH TRUST MANAGED CAP EQUITY INCOME STOCK CAPITAL
--------------------------------------------------------------------------------------
7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97* 7/31/97*
TO TO TO TO TO TO
12/31/97 12/31/97 12/31/97 12/31/97 12/31/97 12/31/97
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period
(rounded)................. $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
2. End of period (rounded).... $ 9.67 $10.13 $10.20 $10.54 $ 8.92 $10.08
3. Accumulation Units
Outstanding at end of
period.................... 779 2,135 2,781 1,704 216 5
--------------------------------------------------------------------------------------
* Commencement of Operations
</TABLE>
<PAGE>
Discovery Select Group Retirement Annuity is a variable annuity
issued by The Prudential Insurance Company of America, Newark, NJ.
It is offered through these affiliated Prudential subsidiaries: Prudential
Securities Incorporated;
Pruco Securities Corporation; Prudential Investment Management Services LLC.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
3 Gateway Center, 12th Floor
Newark, NJ 07102-5096
PRUDENTIAL INVESTMENTS
3 Gateway Center, 12th Floor
Newark, NJ 07102-5096
[LOGO]
DISCOVERY SELECT-SM- is a service mark of Prudential.
RS802B
Cat 62M093P B
DS.PR.001.0697
<PAGE>
<TABLE>
<C> <S>
PART B
- - - ---------------------------------------------
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 6, 1998
DISCOVERY SELECT
---------------
GROUP RETIREMENT ANNUITY
DISCOVERY SELECT
GROUP VARIABLE ANNUITY CONTRACTS
ISSUED THROUGH
THE PRUDENTIAL DISCOVERY SELECT GROUP
VARIABLE CONTRACT ACCOUNT
The Prudential Insurance Company of America ("Prudential") offers the DISCOVERY
SELECT-SM- Group Variable Annuity Contracts for use in connection with
retirement arrangements that qualify for federal tax benefits under Sections
401, 403(b), 408 or 457 of the Internal Revenue Code of 1986 (the "Code") and
with non-qualified annuity arrangements on a continuous basis. Contributions to
the Contract made on behalf of a Participant may be invested in one or more of
the twenty-two Subaccounts of The Prudential Discovery Select Group Variable
Contract Account as well as the Guaranteed Interest Account. Each Subaccount is
invested in a corresponding Portfolio of The Prudential Series Fund, Inc., AIM
Variable Insurance Funds, Inc., Janus Aspen Series, MFS Variable Insurance
Trust, OCC Accumulation Trust, T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and Warburg Pincus Trust.
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus, dated October 6, 1998. Certain portions of
that October 6, 1998 prospectus are incorporated by reference into this
Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
DEFINITIONS.......................................................................... 2
OTHER CONTRACT PROVISIONS............................................................ 2
ASSIGNMENT......................................................................... 2
PARTICIPATION IN DIVISIBLE SURPLUS................................................. 2
ADMINISTRATION....................................................................... 2
PERFORMANCE INFORMATION.............................................................. 3
AVERAGE ANNUAL TOTAL RETURN........................................................ 3
NON-STANDARD TOTAL RETURN.......................................................... 4
PERFORMANCE INFORMATION............................................................ 4
TOTAL RETURN....................................................................... 4
DIRECTORS OF PRUDENTIAL.............................................................. 9
OFFICERS OF PRUDENTIAL............................................................... 12
SALE OF CONTRACTS.................................................................... 14
LEGAL MATTERS........................................................................ 14
EXPERTS.............................................................................. 14
FINANCIAL STATEMENTS OF THE DISCOVERY ACCOUNTS....................................... A-1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND
SUBSIDIARIES....................................................................... B-1
</TABLE>
The Prudential Insurance Company of America
3 Gateway Center, 12th Floor
Newark, NJ 07102-5096
Telephone 1-800-458-6333
<PAGE>
DEFINITIONS
CONTRACTS--The group variable annuity contracts described in the Prospectus and
offered for use in connection with retirement arrangements that qualify for
federal tax benefits under Sections 401, 403(b), 408 or 457 of the Internal
Revenue Code and with non-qualified annuity arrangements. One of such contracts
is the Small Plan Contract described in the Prospectus.
FUNDS--The Portfolios of the Prudential Series Fund, Inc., AIM Variable
Insurance Funds, Inc., Janus Aspen Series, MFS Variable Insurance Trust, OCC
Accumulation Trust, T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc., and Warburg Pincus Trust.
PARTICIPANT--A person who makes contributions, or for whom contributions have
been made, and to whom they remain credited under the Contract.
PARTICIPANT ACCOUNT--An account established for each Participant to record the
amount credited to the Participant under the Contract.
PARTICIPANT ACCOUNT VALUE--The dollar amount held in a Participant Account.
PRUDENTIAL--The Prudential Insurance Company of America. "We," "us," or "our"
means Prudential.
PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT--A separate account
of Prudential registered under the Investment Company Act of 1940 as a unit
investment trust (the "Discovery Account"), invested through its Subaccounts in
shares of the corresponding Funds.
SUBACCOUNT--A division of the Discovery Account, the assets of which are
invested in shares of the corresponding Funds.
OTHER CONTRACT PROVISIONS
ASSIGNMENT
Unless contrary to applicable law, the right to any payment under the Contract
is neither assignable nor subject to the claim of any creditor.
PARTICIPATION IN DIVISIBLE SURPLUS
A mutual life insurance company differs from a stock life insurance company in
that it has no stockholders who are the owners of the enterprise. Accordingly, a
Contractholder of Prudential participates in the divisible surplus of
Prudential, according to the annual determination of Prudential's Board of
Directors as to the portion, if any, of the divisible surplus which has accrued
on the Contracts. In the case of the Contracts described in the prospectus, any
surplus determined to be payable as a dividend is credited to Participants. No
assurance can be given as to the amount of divisible surplus, if any, that will
be available for distribution under these Contracts in the future. As discussed
in the Prospectus, Prudential is considering reorganizing itself into a stock
company.
ADMINISTRATION
The assets of each Subaccount of the Discovery Account are invested in a
corresponding Fund. The prospectus and the statement of additional information
of each Fund describe the investment management and administration of that Fund.
Subject to Prudential's supervision, the investment advisory services provided
to the Prudential Series Fund, Inc. by Prudential are furnished by its
wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"), pursuant
to the service agreement between Prudential and PIC (the "Service Agreement")
which provides that Prudential will reimburse PIC for its costs and expenses
and, pursuant to a Subadvisory Agreement, by
2
<PAGE>
another wholly-owned subsidiary, Jennison Associates Capital Corp. ("Jennison"),
with respect to the management of the Prudential Jennison Portfolio. Both PIC
and Jennison are registered as investment advisers under the Investment Advisers
Act of 1940.
Prudential generally is responsible for the administrative and recordkeeping
functions of the Discovery Account and pays the expenses associated with them.
These functions include enrolling Participants, receiving and allocating
contributions, maintaining Participant Accounts, preparing and distributing
confirmations, statements, and reports. The administrative and recordkeeping
expenses borne by Prudential include salaries, rent, postage, telephone, travel,
legal, actuarial and accounting fees, office equipment, stationery and
maintenance of computer and other systems.
With respect to the Small Plan Contracts, Prudential has delegated certain of
these administrative and recordkeeping functions to the Small Plan Contract
Recordkeeper.
Prudential is reimbursed for these administrative and recordkeeping expenses by
the annual account charge and the daily charge against the assets of each
Subaccount for administrative expenses.
A daily charge is made which is equal to an effective annual rate of 0.85% of
the net assets in each Subaccount (this charge is equal to 1.05% for Small Plan
Contracts). All of this charge is for administrative expenses not covered by the
annual account charge. During 1997 Prudential received $316 for administrative
expenses and for providing management services. There is also an annual account
charge for administrative expenses of not greater than $32 assessed against a
Participant Account. During 1997 Prudential collected $173 in annual account
charges.
A withdrawal charge is also imposed on certain withdrawals from the Subaccounts
and the Guaranteed Interest Account. There were no withdrawal charges imposed in
1997.
PERFORMANCE INFORMATION
AVERAGE ANNUAL TOTAL RETURN
The Discovery Account may advertise average annual total return information
calculated according to a formula prescribed by the U.S. Securities and Exchange
Commission ("SEC"). Average annual total return shows the average annual
percentage increase, or decrease, in the value of a hypothetical contribution
allocated to a Subaccount from the beginning to the end of each specified period
of time. The SEC standardized version of this performance information is based
on an assumed contribution of $1,000 allocated to a Subaccount at the beginning
of each period and full withdrawal of the value of that amount at the end of
each specified period, giving effect to any withdrawal charge and all other
charges and fees applicable under the Contract. This method of calculating
performance further assumes that (i) a $1,000 contribution was allocated to a
Subaccount and (ii) no transfers or additional payments were made. Premium taxes
are not included in the term "charges" for purposes of this calculation. Average
annual total return is calculated by finding the average annual compounded rates
of return of a hypothetical contribution that would compare the Unit Value on
the first day of the specified period to the ending redeemable value at the end
of the period according to the following formula:
P(1 + T)(n) = ERV
Where T equals average annual total return, where ERV (the ending redeemable
value) is the value at the end of the applicable period of a hypothetical
contribution of $1,000 made at the beginning of the applicable period, where P
equals a hypothetical contribution of $1,000, and where n equals the number of
years.
3
<PAGE>
NON-STANDARD TOTAL RETURN
In addition to the standardized average annual total return information
described above, we may present total return information computed on bases
different from that standardized method. The Discovery Account may present total
return information computed on the same basis as the standardized method except
that charges deducted from the hypothetical contribution will not include any
withdrawal charge. Consistent with the long-term investment and retirement
objectives of the Contract, this total return presentation assumes investment in
the Contract continues beyond the period when the withdrawal charge applies. The
total return percentage under this non-standardized method will be higher than
that resulting from the standardized method.
The Discovery Account may also present actual aggregate total return figures for
various periods, reflecting the cumulative change in value of an investment in
the Discovery Account for the specified period.
PERFORMANCE INFORMATION
The tables below provide performance information for each Subaccount for
specified periods ending June 30, 1998. This performance information is only for
Contracts other than the Small Plan Contract. For the periods prior to the date
the Subaccounts commenced operations, non-standard performance information for
the Contracts will be calculated based on the performance of the Funds and the
assumption that the Subaccounts were in existence for the same periods as those
indicated for the Funds, with the level of Contract charges that were in effect
at the inception of the Subaccounts (this is referred to as "hypothetical
performance data"). This information does not indicate or represent future
performance.
TOTAL RETURN
Total returns quoted in sales literature or advertisements reflect all aspects
of a Subaccount's return. Average annual returns are calculated by determining
the growth or decline in value of a hypothetical historical investment in the
Subaccount over a stated period of time, and then calculating the annually
compounded percentage rate that would have produced the same result if the rate
of growth or decline had been constant over the period. Contractholders and
Participants should recognize that average annual returns represent averaged
returns rather than actual year-to-year performance.
The respective Funds in which the Subaccounts invest had performance history
prior to the Subaccounts' inception. Non-standard performance information
covering those periods reflects a hypothetical performance as if the Funds were
available under the Discovery Account at that time, using the charges applicable
to the Contracts.
4
<PAGE>
[TO BE FURNISHED IN A SUBSEQUENT POST-EFFECTIVE AMENDMENT]
Table 1 below assumes a hypothetical investment of $1,000 at the beginning of
the period via the Subaccount investing in the applicable Fund and withdrawal of
the investment on 6/30/98. The rates of return thus reflect the mortality and
expense risk fee (the administrative fee, the withdrawal charge and a pro rata
portion of the annual account charge). The performance shown below is only for
Contracts other than the Small Plan Contract.
TABLE 1
SUBACCOUNT STANDARDIZED
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
FUND DATE 7/31/97-
PORTFOLIO ESTABLISHED 6/30/98
- - - --------------------------------------------- ------------ ---------
<S> <C> <C>
The Prudential Series Fund, Inc.
Money Market Subaccount.................... 6/24/97 %
Diversified Bond Subaccount................ 6/24/97
Government Income Subaccount............... 6/24/97
Conservative Balanced Subaccount........... 6/24/97
Flexible Managed Subaccount................ 6/24/97
High Yield Bond Subaccount................. 6/24/97
Stock Index Subaccount..................... 6/24/97
Equity Income Subaccount................... 6/24/97
Equity Subaccount.......................... 6/24/97
Prudential Jennison Subaccount............. 6/24/97
Global Subaccount.......................... 6/24/97
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Subaccount...... 6/24/97
AIM V.I. Value Subaccount.................. 6/24/97
Janus Aspen Series
Growth Subaccount.......................... 6/24/97
International Growth Subaccount............ 6/24/97
MFS Variable Insurance Trust
Emerging Growth Subaccount................. 6/24/97
Research Subaccount........................ 6/24/97
OCC Accumulation Trust (Note 2)
Managed Subaccount......................... 6/24/97
Small Cap Subaccount....................... 6/24/97
T. Rowe Price
T. Rowe Price Equity Series, Inc., Equity
Income Subaccount........................ 6/24/97
T. Rowe Price International Series, Inc.,
International Stock Subaccount........... 6/24/97
Warburg Pincus Trust
Post-Venture Capital Subaccount............ 6/24/97
</TABLE>
- - - --------------
Note 1: This table assumes deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust (the "Old Trust"), was effectively divided into two
investment funds--the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust")--at which time the Present
Trust commenced operations.
5
<PAGE>
[TO BE FURNISHED IN A SUBSEQUENT POST-EFFECTIVE AMENDMENT]
Tables 2 and 3 below show annual average total return and cumulative total
return, respectively, on the same assumptions as Table 1 except that the value
in the Subaccount is not withdrawn at the end of the period or is withdrawn to
effect an annuity. The rates of return shown below reflect the mortality and
expense risk fee and the administrative fee, but do not reflect any withdrawal
charges or the impact of a pro rata portion of the annual account charge. The
performance shown in Tables 2 and 3 below is only for Contracts other than the
Small Plan Contract.
TABLE 2
SUBACCOUNT "HYPOTHETICAL"
AVERAGE ANNUAL TOTAL RETURN ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
ONE THREE FIVE TEN FROM DATE
YEAR YEARS YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 6/30/98 6/30/98 6/30/98 6/30/98 6/30/98
- - - ------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Prudential Series Fund, Inc.
Money Market Subaccount.................. 5/13/83 % % % % %
Diversified Bond Subaccount.............. 5/13/83
Government Income Subaccount............. 5/1/89
Conservative Balanced Subaccount......... 5/13/83
Flexible Managed Subaccount.............. 5/13/83
High Yield Bond Subaccount............... 2/23/87
Stock Index Subaccount................... 10/19/87
Equity Income Subaccount................. 2/19/88
Equity Subaccount........................ 5/13/83
Prudential Jennison Subaccount........... 5/1/95
Global Subaccount........................ 9/19/88
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Subaccount.... 5/2/94
AIM V.I. Value Subaccount................ 5/5/93
Janus Aspen Series
Growth Subaccount........................ 9/13/93
International Growth Subaccount.......... 5/2/94
MFS Variable Insurance Trust
Emerging Growth Subaccount............... 7/24/95
Research Subaccount...................... 7/24/95
OCC Accumulation Trust (Note 2)
Managed Subaccount....................... 8/1/88
Small Cap Subaccount..................... 8/1/88
T. Rowe Price
T. Rowe Price Equity Series, Inc., Equity
Income Subaccount...................... 3/31/94
T. Rowe Price International Series, Inc.,
International Stock Subaccount......... 3/31/94
Warburg Pincus Trust
Post-Venture Capital Subaccount.......... 9/30/96
</TABLE>
- - - --------------
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust (the "Old Trust"), was effectively divided into two
investment funds--the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust")--at which time the Present
Trust commenced operations.
6
<PAGE>
[TO BE FURNISHED IN A SUBSEQUENT POST-EFFECTIVE AMENDMENT]
TABLE 3
SUBACCOUNT "HYPOTHETICAL" CUMULATIVE TOTAL RETURN
ASSUMING NO WITHDRAWAL
<TABLE>
<CAPTION>
FROM DATE
ONE THREE FIVE TEN PORTFOLIO
YEAR YEARS YEARS YEARS ESTABLISHED
FUND DATE ENDED ENDED ENDED ENDED THROUGH
PORTFOLIO ESTABLISHED 6/30/98 6/30/98 6/30/98 6/30/98 6/30/98
- - - --------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
The Prudential Series Fund, Inc.
Money Market Subaccount.................... 5/13/83 % % % % %
Diversified Bond Subaccount................ 5/13/83
Government Income Subaccount............... 5/1/89
Conservative Balanced Subaccount........... 5/13/83
Flexible Managed Subaccount................ 5/13/83
High Yield Bond Subaccount................. 2/23/87
Stock Index Subaccount..................... 10/19/87
Equity Income Subaccount................... 2/19/88
Equity Subaccount.......................... 5/13/83
Prudential Jennison Subaccount............. 5/1/95
Global Subaccount.......................... 9/19/88
AIM Variable Insurance Funds, Inc.
AIM V.I. Growth and Income Subaccount...... 5/2/94
AIM V.I. Value Subaccount.................. 5/5/93
Janus Aspen Series
Growth Subaccount.......................... 9/13/93
International Growth Subaccount............ 5/2/94
MFS Variable Insurance Trust
Emerging Growth Subaccount................. 7/24/95
Research Subaccount........................ 7/24/95
OCC Accumulation Trust (Note 2)
Managed Subaccount......................... 8/1/88
Small Cap Subaccount....................... 8/1/88
T. Rowe Price
T. Rowe Price Equity Series, Inc.,
Equity Income Subaccount................. 3/31/94
T. Rowe Price International Series, Inc.,
International Stock Subaccount........... 3/31/94
Warburg Pincus Trust
Post-Venture Capital Subaccount............ 9/30/96
</TABLE>
- - - --------------
Note 1: This table assumes no deferred sales charges.
Note 2: Based on results of the Quest for Value Accumulation Trust and its
predecessor. On September 16, 1994, an investment company which had
commenced operations on August 1, 1988, then called Quest for Value
Accumulation Trust (the "Old Trust"), was effectively divided into two
investment funds--the Old Trust and the present Quest for Value
Accumulation Trust (the "Present Trust")--at which time the Present
Trust commenced operations.
7
<PAGE>
MONEY MARKET SUBACCOUNT YIELD
The "yield" and "effective yield" figures for the Money Market Subaccount shown
below were calculated using historical investment returns of the Money Market
Portfolio of the Prudential Series fund. All fees, expenses and charges
associated with the DISCOVERY SELECT Group Annuity and the Series Fund have been
reflected.
The "yield" and "effective yield" of the Money Market Subaccount for the seven
days ended June 30, 1998 were 4.29% and 4.38%, respectively, with respect to
Contracts other than the Small Plan Contract.
The yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one accumulation unit of the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from contract
owner accounts, and dividing the difference by the value of the subaccount at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7), with the resulting figure carried
to the nearest ten-thousandth of 1%.
The deduction referred to above consists of the 0.15% charge for mortality and
expense risks and the 0.85% charge for administration. It does not reflect the
withdrawal charge.
The effective yield is obtained by taking the base period return, adding 1,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result, according to the following formula: Effective Yield -- ((base period
return +1) 365 DIVIDED BY 7)-1.
The yield on amounts held in the Money Market Subaccount will fluctuate on a
daily basis. Therefore, the stated yields for any given period are not an
indication of future yields.
COMPARATIVE PERFORMANCE INFORMATION
Reports or advertising may include comparative performance information,
including, but not limited to: (1) comparisons to market indices such as the Dow
Jones Industrial Average, the Standard & Poor's 500 Index, the Value Line
Composite Index, the Russell 2000 Index, the Morgan Stanley World Index, the
Lehman Brothers bond indices; (2) comparisons to other investments, such as
certificates of deposit; (3) performance rankings assigned by services such as
Morningstar, Inc. and Variable Research and Data Services (VARDS), and Lipper
Analytical Services, Inc.; (4) data presented by analysts such as Dow Jones,
A.M. Best, The Bank Rate Monitor National Index; and (5) data in publications
such as The Wall Street Journal, Times, Forbes, Barrons, Fortune, Money
Magazine, and Financial World.
8
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DIRECTORS
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.
GILBERT F. CASELLAS -- Director since 1998 (current term expires April 2002).
Partner, McConnell Valdes, LLP since 1998. Chairman, U.S. Equal Employment
Opportunity Commission from 1994 to 1998. General Counsel, Department of Air
Force from 1993 to 1994. Mr. Casellas is also a director of the American
Arbitration Association and the Puerto Rican Legal Defense & Education Fund. Age
46. Address: 1717 Pennsylvania Avenue, NW, Suite 625, Washington, DC 20006.
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 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.
9
<PAGE>
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.
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
10
<PAGE>
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 74102.
11
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
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.
LEO J. CORBETT -- Senior Vice President, Individual Insurance Marketing since
1997; prior to 1997, Managing Director, Lehman Brothers, New York, NY. Age 49.
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.
JONATHAN M. GREENE -- President, Investment Management since 1996; prior to
1996, Vice President, T. Rowe Price, Baltimore, MD. Age 54.
12
<PAGE>
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.
RICHARD O. PAINTER -- President, Prudential Insurance & Financial Services since
1995; prior to 1995, Senior Vice President, New York Life, New York, NY. Age 50.
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.
13
<PAGE>
SALE OF THE CONTRACTS
Prudential offers the Contracts on a continuous basis through Corporate Office,
regional home office and group sales office employees in those states in which
the Contracts may be lawfully sold. It may also offer the Contracts through
licensed insurance brokers and agents, or through appropriately registered
direct or indirect subsidiary(ies) of Prudential, provided clearances to do so
are obtained in any jurisdiction where such clearances may be necessary. During
1998, Prudential received $-0- as deferred sales charges and credited $35,986.95
to other broker-dealers in connection with the sale of the contracts.
LEGAL MATTERS
All matters relating to New Jersey law pertaining to the Contracts, including
the validity of the Contracts and Prudential's authority to issue the Contracts,
have been passed upon by Peter T. Scott, Assistant General Counsel of
Prudential. Shea and Gardner of Washington, D.C. has provided advice on certain
matters relating to the federal securities laws.
EXPERTS
The financial statements in this registration statement for the years ended
December 31, 1997 and December 31, 1996 have been audited by
, independent accountants, as stated in their report
appearing herein, and are included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The financial statements in this report for year ended December 31, 1995 have
been audited by , independent auditors, as stated in their
reports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
[TO BE FURNISHED IN A SUBSEQUENT POST-EFFECTIVE AMENDMENT].
14
<PAGE>
PART C
OTHER INFORMATION
<TABLE>
<S> <C> <C> <C>
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) THE FOLLOWING FINANCIAL STATEMENTS ARE INCLUDED IN PART
B:
[To be furnished in a subsequent Post-Effective
Amendment]
(b) EXHIBITS
1. Resolution adopted by the Board of Directors of
The Prudential Insurance Company of America on
February 11, 1997 establishing the Prudential
Discovery Select Group Variable Contract Account
(the "Discovery Account").
2. Not applicable.
3(a). Principal Underwriting Contract.
3(b). Broker-dealer sales agreement.
4(a). Form of Group Annuity Contract offered by The
Prudential Insurance Company of America.
4(b). Form of Group Annuity Contract offered to small
401(k) plans by The Prudential Insurance Company
of America.
5(a). Not applicable.
5(b). Form of Participant enrollment form (including
acknowledgment of restrictions on redemption
imposed by I.R.C. Section 403(b)).
6. Copy of certificate of incorporation and by-laws
of The Prudential Insurance Company of America.
7. Not applicable.
8(a). Participation Agreement between The Prudential
Insurance Company of America and AIM Variable
Insurance Funds, Inc.
8(b). Participation Agreement between The Prudential
Insurance Company of America and T. Rowe Price
Equity Series, Inc.
8(c). Participation Agreement between The Prudential
Insurance Company of America and Janus Aspen
Series.
8(d). Participation Agreement between The Prudential
Insurance Company of America and MFS Variable
Insurance Trust.
8(e). Participation Agreement between The Prudential
Insurance Company of America and OCC Accumulation
Trust.
8(f). Participation Agreement between The Prudential
Insurance Company of America and Warburg Pincus
Trust.
</TABLE>
C - 1
<PAGE>
<TABLE>
<S> <C> <C> <C>
8(g). Retirement Plan Services Outsourcing Agreement
between The Prudential Insurance Company of
America and BISYS Plan Services, L.P.
9. Consent and opinion of Peter T. Scott, Assistant
General Counsel, The Prudential Insurance Company
of America, as to the legality of the securities
being registered.
10(a). Consent of Independent
Accountant
[To be furnished in a subsequent Post-Effective
Amendment]
10(b). Consent of Shea & Gardner.
10(c). Powers of Attorney for Franklin Agnew, Frederick
Becker, Martin Berkowitz, Richard Carbone, James
Cullen, Carolyne Davis, Roger Enrico, Allan
Gilmour, William Gray, Jon Hanson, Glen Hiner,
Constance Horner, Gaynor Kelley, Burton Malkiel,
Arthur Ryan, Ida Schmertz, Charles Sitter, Donald
Staheli, Richard Thomson, James Unruh, P. Roy
Vagelos, Stanley Van Ness, Paul Volcker, Joseph
Williams.
10(d). Consent of Independent Auditor
[To be furnished in a subsequent Post-Effective
Amendment]
11. Not applicable.
12. Not applicable.
13. Schedule for Computation of Performance
Calculations.
[To be furnished in a subsequent Post-Effective
Amendment]
Item 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Information about the Directors and Executive
Officers of Prudential, Registrant's depositor,
appears under the heading of "Directors and
Officers of Prudential" in the Statement of
Additional information (Part B of this
Registration Statement).
</TABLE>
<TABLE>
<S> <C> <C> <C>
Item 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE
DEPOSITOR OR REGISTRANT
Registrant is a separate account of The Prudential Insurance Company
of America, a mutual life insurance company organized under the laws
of the State of New Jersey. The subsidiaries of Prudential and short
descriptions of each are listed under Item 25 to Post-Effective
Amendment No. 34 to the Form N-1A Registration Statement for The
Prudential Series Fund, Inc., Registration No. 2-80896, filed April
24, 1998, the text of which is hereby incorporated.
In addition to the subsidiaries shown on the Organization Chart,
Prudential holds all of the voting securities of Prudential's
Gibraltar Fund, Inc., a Maryland corporation, in three of its separate
accounts. Prudential also holds directly and in three of its separate
accounts, shares of The Prudential Series Fund, Inc., a Maryland
corporation. The balance of the shares of The Prudential Series Fund,
Inc. are held in separate accounts of Pruco Life Insurance Company and
Pruco Life Insurance Company of New Jersey, wholly-owned subsidiaries
of Prudential. All of the separate accounts referred to above are unit
investment trusts registered under the Investment Company Act of 1940.
Prudential's Gibraltar Fund, Inc. and The Prudential Series Fund, Inc.
are registered as open-end, diversified management
</TABLE>
C - 2
<PAGE>
<TABLE>
<S> <C> <C> <C>
investment companies under the Investment Company Act of 1940. The
shares of these investment companies are voted in accordance with the
instructions of persons having interests in the unit investment
trusts, and Prudential, Pruco Life Insurance Company and Pruco Life
Insurance Company of New Jersey vote the shares they hold directly in
the same manner that they vote the shares that they hold in their
separate accounts.
Registrant may also be deemed to be under common control with The
Prudential Variable Contract Account-2, The Prudential Variable
Contract Account-10, and The Prudential Variable Contract Account-11,
separate accounts of Prudential registered as open-end, diversified
management investment companies under the Investment Company Act of
1940.
Prudential is a mutual insurance company. Its financial statements
have been prepared in conformity with generally accepted accounting
principles, which include statutory accounting practices prescribed or
permitted by state regulatory authorities for insurance companies.
Item 27. NUMBER OF CONTRACTHOLDERS
As of August 7, 1998 there were 195 Contractholders of qualified
Contracts offered by the Registrant, and -0- Contractholders of
non-qualified Contracts offered by the Registrant.
Item 28. 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, against any liability asserted against and incurred by
him or her arising out of his or her position with such trust or
corporation.
New Jersey, being the state of organization of The 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 Variable Contract Account.
Insofar as indemnification for liability arising under the Securities
Act of 1933 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 Securities Act of 1933 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 Securities Act of 1933
and will be governed by the final adjudication of such issue.
Item 29. PRINCIPAL UNDERWRITER
</TABLE>
<TABLE>
<S> <C> <C> <C>
(a)
Prudential Investment Management Services LLC ("PIMS"),
an indirect wholly owned subsidiary of Prudential, acts
as the principal underwriter for the registrant and
also for The Prudential Variable Contract Account-2,
The Prudential Variable Contract Account-10, and The
Prudential Variable Contract Account-11, which are
</TABLE>
C - 3
<PAGE>
<TABLE>
<S> <C> <C> <C>
registered as open-end management investment companies
under the Investment Company Act of 1940. It also acts
as principal underwriter for The Prudential Variable
Contract Account-24 and The Prudential Variable
Contract GI-2, which are registered as unit Investment
trusts under the Investment Company Act of 1940:
(b)(1)
The following table sets forth certain information
regarding the officers and directors of PIMS:
</TABLE>
<TABLE>
<S> <C> <C> <C>
Name and Principal Positions and Offices
Business Address with Underwriter
---------------------------- ----------------------------
Caulfield, Edward M. President
Chaplin, C. Edward Treasurer
Fetting, Mark R. Executive Vice President
Greene, Jonathan M. Executive Vice President
Hamilton, Jean D. Executive Vice President
Joelson, Ronald P. Executive Vice President
McGuire, Carl L. Vice President
Mosse, Mario A. Chief Operating Officer
Storms, Brian M. Executive Vice President
Strangfeld, John R. Executive Vice President
Wallner, Scott S. Chief Legal Officer/
Vice President/Secretary
Margaret M. Deverell Chief Financial Officer/
Comptroller/VP
--------------
The principal business address for the directors and officers, with the exception of
Carl L. McGuire, is 751 Broad Street, Newark, NJ 07102. The principal business address
for Carl L. McGuire is: c/o Prudential Investments, 30 Scranton Office Park, Scranton,
PA 18307
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(c)
Name of Net Underwriting Brokerage
Principal Discounts and Compensation Commissions
Underwriter Commissions on Redemption 1/1/98 - 7/31/98
------------------ ------------------ ------------------ ------------------
Prudential
Investment
Management
Services, LLC $-0- $-0- $35,986.95
</TABLE>
<TABLE>
<S> <C> <C> <C>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
The names and addresses of the persons who maintain physical
possession of the accounts, books and documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and
the rules thereunder are:
The Prudential Insurance Company of America
and The Prudential Investment Corporation
751 Broad Street
Newark, New Jersey 07102-3777
</TABLE>
C - 4
<PAGE>
<TABLE>
<S> <C> <C> <C>
The Prudential Insurance Company of America
and The Prudential Investment Corporation
Gateway Buildings Two, Three and Four
100 Mulberry Street
Newark, New Jersey 07102
The Prudential Insurance Company of America and
The Prudential Investment Corporation
56 North Livingston Avenue
Roseland, New Jersey 07088
The Prudential Insurance Company of America
c/o Prudential Investments
30 Scranton Office Park
Scranton, Pennsylvania 18507-1789
The Prudential Insurance Company of America
c/o The Prudential Asset Management Company, Inc.
71 Hanover Road
Florham Park, New Jersey 07932
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
BISYS Plan Services, L. P.
323 Norristown Road
Ambler, PA 19002
Item 31. MANAGEMENT SERVICES
SUMMARY OF RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
Included as an exhibit to this registration statement is an
agreement (the "Agreement") dated August 6, 1998 between The
Prudential Insurance Company of America ("Prudential") and
BISYS Plan Services, L. P. ("BISYS"). Pursuant to the
Agreement, Prudential has delegated to BISYS certain
recordkeeping and administrative services to be performed on
behalf of certain defined contribution pension plans (the
"Plans") that qualify or intend to qualify under Section
401(k) and/or Section 401(a) of the Internal Revenue Code of
1986, as amended. In addition to the recordkeeping and
administrative services, BISYS is obligated under the
Agreement to arrange for the provision to the Plans of
certain trust and accounting services and certain order
placement, processing and related services. Schedule F of
the Agreement describes the specific services that BISYS
will provide with respect to the Discovery Select Group
Retirement Annuity. These services include, among others:
(a) providing participant-level recordkeeping, (b)
administering certain features of the annuity, and (c)
transmitting participant purchase orders.
The Plans to which BISYS will provide these services are
small defined contribution plans with which Prudential has
entered into an administrative services agreement.
Typically, these Plans will share the following
characteristics, among others: (a) less than $1 million in
anticipated Plan assets, (b) fewer than 100 eligible
employees, and (c) $3,000 minimum average annual cash flow
per participant (for a start-up Plan).
</TABLE>
C - 5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Under the Agreement, BISYS collects from the Plans a variety
of fees and charges (the "Fees") on Prudential's behalf, and
is entitled to keep such Fees as payment in full for BISYS's
satisfactory performance of its services and obligations
under the Agreement. These Fees include, among others: (a)
an annual fee of $2,000 per Plan, (b) an annual fee per Plan
participant of either $14 or $28, and (c) an installation
charge for each startup Plan of $1,500.
The initial term of the Agreement is two years from the
Agreement's "effective date." The Agreement is automatically
extended for successive two year terms unless, at least 180
days prior to the end of such initial or subsequent term,
BISYS gives Prudential notice that such term will not be
extended.
Item 32. UNDERTAKINGS
The Registrant hereby undertakes:
(a)
to file a post-effective amendment to this registration
statement as frequently as is necessary to ensure that
the audited financial statements in this registration
statement are never more than 16 months old for so long
as payments under the variable annuity contracts may be
accepted, unless otherwise permitted.
(b)
to include either (1) as part of any enrollment form to
purchase a contract offered by the prospectus, a space
that an applicant can check to request a Statement of
Additional Information, or (2) a post card or similar
written communication affixed to or included in the
prospectus that the applicant can remove to send for a
Statement of Additional Information.
(c) To deliver any Statement of Additional Information and
any financial statements required to be made available
under this Form promptly upon written or oral request.
(d)
Prudential Insurance Company of America hereby
represents that the fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be
incurred, and the risks assumed by Prudential Insurance
Company of America.
403(b) ANNUITIES
The Registrant intends to rely on the no-action response dated
November 28, 1988, from Ms. Angela C. Goelzer of the Commission staff
to the American Council of Life Insurance concerning the redeemability
of Section 403(b) annuity contracts and the Registrant has complied
with the provisions of paragraphs (1)-(4) thereof.
TEXAS ORP
The Registrant intends to offer Contracts to Participants in the Texas
Optional Retirement Program. In connection with that offering, Rule
6c-7 of the Investment Company Act of 1940 is being relied upon and
paragraphs (a)-(d) of that Rule will be complied with.
</TABLE>
C - 6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant and the Depositor have duly caused this Registration
Statement to be signed on their behalf, in the City of Newark, and the State of
New Jersey on this 19th day of August, 1998.
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE
CONTRACT ACCOUNT
----------------------------------------------
(REGISTRANT)
BY: THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
-------------------------------------------
(DEPOSITOR)
By: /s/ C. CHRISTOPHER SPRAGUE
-----------------------------------------
C. Christopher Sprague
Assistant General Counsel
-----------------------------------------
(Signature and Title)
C - 7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant 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 19th
day of August, 1998.
<TABLE>
<CAPTION>
Signature Title Date
- - - ------------------------- ------------------------- -------------------------
<S> <C> <C>
*/s/ ARTHUR F. RYAN Chairman of the Board,
- - - ------------------------- President and Chief
Arthur F. Ryan Executive Officer
*/s/ MARTIN A. BERKOWITZ Senior Vice President and
- - - ------------------------- Comptroller
Martin A. Berkowitz
*/s/ RICHARD J. CARBONE Senior Vice President and
- - - ------------------------- Principal Financial
Richard J. Carbone Officer
*/s/ FRANKLIN E. AGNEW
- - - ------------------------- Director
Franklin E. Agnew
*/s/ FREDERIC K. BECKER
- - - ------------------------- Director
Frederic K. Becker
*/s/ JAMES G. CULLEN
- - - ------------------------- Director
James G. Cullen
*/s/ CAROLYNE K. DAVIS
- - - ------------------------- Director August 19, 1998
Carolyne K. Davis
*/s/ ROGER A. ENRICO
- - - ------------------------- Director
Roger A. Enrico
*/s/ ALLAN D. GILMOUR
- - - ------------------------- Director
Allan D. Gilmour
*/s/ WILLIAM H. GRAY, III
- - - ------------------------- Director
William H. Gray, III
</TABLE>
*By: __/s/ C. CHRISTOPHER SPRAGUE________________
C. CHRISTOPHER SPRAGUE
(Attorney-in-Fact)
C - 8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- - - ------------------------- ------------------------- -------------------------
<S> <C> <C>
*/s/ JON F. HANSON
- - - ------------------------- Director
Jon F. Hanson
*/s/ GLEN H. HINER
- - - ------------------------- Director
Glen H. Hiner
*/s/ CONSTANCE J. HORNER
- - - ------------------------- Director
Constance J. Horner
*/s/ ALLEN F. JACOBSON
- - - ------------------------- Director
Allen F. Jacobson
*/s/ GAYNOR N. KELLEY
- - - ------------------------- Director
Gaynor N. Kelley
*/s/ BURTON G. MALKIEL
- - - ------------------------- Director
Burton G. Malkiel
*/s/ IDA F. S. SCHMERTZ
- - - ------------------------- Director
Ida F. S. Schmertz
*/s/ CHARLES R. SITTER
- - - ------------------------- Director
Charles R. Sitter
*/s/ DONALD L. STAHELI
- - - ------------------------- Director August 19, 1998
Donald L. Staheli
*/s/ RICHARD M. THOMSON
- - - ------------------------- Director
Richard M. Thomson
*/s/ JAMES A. UNRUH
- - - ------------------------- Director
James A. Unruh
*/s/ P. ROY VAGELOS, M.D.
- - - ------------------------- Director
P. Roy Vagelos, M.D.
*/s/ STANLEY C. VAN NESS
- - - ------------------------- Director
Stanley C. Van Ness
*/s/ PAUL A. VOLCKER
- - - ------------------------- Director
Paul A. Volcker
*/s/ JOSEPH H. WILLIAMS
- - - ------------------------- Director
Joseph H. Williams
</TABLE>
*By: __/s/ C. CHRISTOPHER SPRAGUE________________
C. CHRISTOPHER SPRAGUE
(Attorney-in-Fact)
C - 9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- - - ----------- ------------------------------------------------------------
<S> <C>
4(b). Form of Group Annuity Contract offered to small 401(k) plans
by The Prudential Insurance Company of America.
8(g). Retirement Plan Services Outsourcing Agreement between The
Prudential Insurance Company of America and BISYS Plan
Services, L. P.
9. Consent and opinion of Peter T. Scott, Assistant General
Counsel, The Prudential Insurance Company of America, as to
the legality of the securities being registered.
10(a). Consent of Independent
Accountants. [To be furnished in a subsequent Post-Effective
Amendment]
10(b). Consent of Shea & Gardner.
10(c). 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.
10(d). Consent of Independent Auditors. [To be
furnished in a subsequent Post-Effective Amendment]
13. Schedule for Computation of Performance Calculations. [To be
furnished in a subsequent Post-Effective Amendment]
</TABLE>
<PAGE>
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
agrees to pay the benefits provided under this Contract in accordance with and
subject to its terms.
Contractholder: ABC COMPANY
Plan: ABC Company 401(k) Plan
Effective Date: April 1, 19XX
Jurisdiction: Pennsylvania
Contract Number: GA-XXXX
ABC COMPANY THE PRUDENTIAL INSURANCE COMPANY
ANY TOWN, PENNSYLVANIA OF AMERICA
_____________________________________ _____________________________________
Title: Chairman of the Board and
Chief Executive Officer
Date:________________________________ _____________________________________
Secretary
Attest:______________________________
Date:________________________________
GROUP ANNUITY CONTRACT
THIS CONTRACT CONTAINS A MARKET VALUE ADJUSTMENT FORMULA APPLICABLE TO THE FIXED
INVESTMENT OPTION. THE APPLICATION OF THIS FORMULA MAY RESULT IN A DOWNWARD
ADJUSTMENT IN CASH VALUES. SECTIONS 6.2 AND 6.3 IDENTIFY WHEN CASH VALUES ARE
AVAILABLE WITHOUT THE APPLICATION OF THE MARKET VALUE ADJUSTMENT FORMULA.
CONTRIBUTIONS TO THIS GROUP ANNUITY CONTRACT MAY BE INVESTED IN SEPARATE
INVESTMENT ACCOUNTS. ALL BENEFIT PAYMENTS PROVIDED UNDER THIS CONTRACT THAT ARE
BASED ON THE INVESTMENT RESULTS OF A SEPARATE INVESTMENT ACCOUNT ARE VARIABLE,
SUBJECT TO GAIN OR LOSS, AND ARE NOT GUARANTEED AS TO A FIXED AMOUNT.
<PAGE>
<TABLE>
<CAPTION>
DEFINITIONS PAGE
<S> <C> <C>
1.0 Annual Account Charge . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Business Day. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.4 Competing Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.5 Contractholder. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.6 Contractholder Account. . . . . . . . . . . . . . . . . . . . . . . .1
1.7 Contractholder Fixed Account. . . . . . . . . . . . . . . . . . . . .1
1.8 Contractholder Variable Account . . . . . . . . . . . . . . . . . . .2
1.9 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.10 Effective Annual Rate . . . . . . . . . . . . . . . . . . . . . . . .2
1.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.12 Good Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.13 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.14 Participant Account . . . . . . . . . . . . . . . . . . . . . . . . .2
1.15 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.16 Plan Investment Fund. . . . . . . . . . . . . . . . . . . . . . . . .2
1.17 Prudential. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.18 Rate Segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.19 Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.20 Subaccount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.21 Transfer Payments . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.22 Transfer Request. . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.23 Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.24 Unit Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.25 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.26 Withdrawal Date . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.27 Withdrawal Value. . . . . . . . . . . . . . . . . . . . . . . . . . .4
RELATIONSHIP BETWEEN PLAN AND CONTRACT
2.1 General Understanding . . . . . . . . . . . . . . . . . . . . . . . .4
2.2 Statutory Requirements. . . . . . . . . . . . . . . . . . . . . . . .4
2.3 Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
CONTRIBUTIONS AND CONTRACTHOLDER ACCOUNT
3.1 Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.2 Participant Account Segments. . . . . . . . . . . . . . . . . . . . .5
3.3 Contractholder Fixed Account
Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.4 Contributions from Prior
Prudential Fixed Account Contracts. . . . . . . . . . . . . . . . . .5
3.5 Contractholder Variable Account . . . . . . . . . . . . . . . . . . .6
3.6 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
VARIABLE INVESTMENT OPTIONS
4.1 Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.2 Subaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.3 Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.4 Modification of Separate
Accounts and Subaccounts. . . . . . . . . . . . . . . . . . . . . . .7
TRANSFER PAYMENTS
5.1 Transfer Payments to Plan
Investment Funds. . . . . . . . . . . . . . . . . . . . . . . . . . .7
5.2 Transfer Payment Terms. . . . . . . . . . . . . . . . . . . . . . . .8
<CAPTION>
WITHDRAWALS PAGE
6.1 Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.2 Withdrawals for Benefit
Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
6.3 Withdrawals at Termination
of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Withdrawals Subject to a
Market Value Adjustment . . . . . . . . . . . . . . . . . . . . . . 11
6.5 Market Value Adjustment Formula . . . . . . . . . . . . . . . . . . 11
FORMS OF BENEFITS
7.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Terms of Payment of Annuities . . . . . . . . . . . . . . . . . . . 12
7.3 Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Minimum Death Benefit . . . . . . . . . . . . . . . . . . . . . . . 12
TERMINATION OF CONTRACT
8.1 Sixty Day Termination . . . . . . . . . . . . . . . . . . . . . . . 13
8.2 Termination for Cause . . . . . . . . . . . . . . . . . . . . . . . 13
8.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . 13
8.4 Partial Contract Termination. . . . . . . . . . . . . . . . . . . . 14
CHANGES
9.1 Changes by Agreement. . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 Changes by Prudential . . . . . . . . . . . . . . . . . . . . . . . 14
9.3 Persons Empowered to Act for Us . . . . . . . . . . . . . . . . . . 14
GENERAL TERMS
10.1 Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.2 Place of Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.3 Information - Records . . . . . . . . . . . . . . . . . . . . . . . 15
10.4 Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.5 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.6 Small Annuities and Amounts;
Natural Persons . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.7 Divisible Surplus . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.8 Limit on Assignment . . . . . . . . . . . . . . . . . . . . . . . . 16
10.9 Plan Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.10 Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.12 Interest on Benefit Payments. . . . . . . . . . . . . . . . . . . . 17
10.13 Contractholder. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.14 Exclusive Benefit . . . . . . . . . . . . . . . . . . . . . . . . . 17
DEFERRED SALES CHARGES
11.1 Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . . . 18
APPENDIX A Separate Investment Accounts
SCHEDULES
Schedule A. Forms of Annuity which may be
Purchased
Schedule B. Life - Payment Certain Annuity
Schedule C. Life - Contingent Annuity
Schedule D. Payment Certain Annuity
</TABLE>
<PAGE>
- - - --------------------------------------------------------------------------------
SECTION 1 - DEFINITIONS
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
1.0 ANNUAL ACCOUNT CHARGE
If we or our designee provide services under an administrative services
agreement, we will assess an Annual Account Charge on or about the last
day of each calendar quarter for each Participant for whom an account is
maintained in connection with this Contract. This charge will not
exceed $32 each calendar year per Participant. This charge will be
deducted directly from funds maintained under this Contract, unless paid
directly by the Contractholder.
1.1 BENEFICIARY
A person designated by a Participant to receive benefits from funds held
under this Contract.
1.2 BUSINESS DAY
A day on which the New York Stock Exchange and Prudential are open for
business.
1.3 CODE
The Internal Revenue Code of 1986, as amended, or any of the
corresponding provisions of prior or subsequent United States revenue
laws.
1.4 COMPETING FUND
An investment option available under the Plan that is primarily
comprised of high quality fixed income securities with an average
duration of less than or equal to 4.5 years. For purposes of the
Contract, Competing Funds include but are not limited to money market
and short term bond funds.
1.5 CONTRACTHOLDER
The holder of the Contract as shown on the cover page, its successors
and assigns. "You" or "your" means the Contractholder.
1.6 CONTRACTHOLDER ACCOUNT
An account that is equal to the sum of the Contractholder Fixed Account
and the Contractholder Variable Account.
1.7 CONTRACTHOLDER FIXED ACCOUNT
An unallocated account that is equal to the sum of all Contributions
earning a guaranteed rate of interest under Section 3.3 of this Contract
plus interest credits, less all Withdrawals, Transfer Payments, fees and
charges. There are no required Contributions to the Contractholder
Fixed Account.
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1.8 CONTRACTHOLDER VARIABLE ACCOUNT
An unallocated account that is equal to the dollar amount of all Units
in the separate accounts or Subaccounts in which you invest, less any
fees or charges.
1.9 CONTRIBUTIONS
Payments you make to us as described in Section 3.1. We will grant a
period of 31 days for the payment of any required Contributions under
this Contract.
1.10 EFFECTIVE ANNUAL RATE
A method of crediting interest where the annualized income is expressed
as a compound annual rate of interest. An amount invested for a full
year would increase by a percentage equal to the Effective Annual Rate.
1.11 ERISA
The Employee Retirement Income Security Act of 1974, as amended.
1.12 GOOD ORDER
An instruction received by us, utilizing such forms as we may require,
that is sufficiently complete and clear that we do not need to exercise
any discretion to follow such instruction.
1.13 PARTICIPANT
A natural person on whose behalf funds are contributed or maintained
under the Plan.
1.14 PARTICIPANT ACCOUNT
The dollar value of funds maintained for each person in accordance with
the terms of the Plan. The Participant Account may be invested in the
fixed interest option through the Contractholder Fixed Account, or the
variable separate account options through the Contractholder Variable
Account.
1.15 PLAN
A plan adopted by you that provides Participants with coverage under an
annuity contract intended to meet the requirements of Section 401 of the
Code. The Plan is mentioned for reference purposes only and is shown on
the cover page. "Plan" shall include such other plans of the
Contractholder or plans maintained for other employers as the parties
agree. The terms of this Contract shall apply separately with respect
to each plan maintained thereunder. We are not a party to the Plan.
1.16 PLAN INVESTMENT FUND
An investment fund available under the Plan as of the Effective Date or
of which we are later notified.
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1.17 PRUDENTIAL
The Prudential Insurance Company of America or, with regard to
recordkeeping or administrative matters, our designee as communicated to
the Contractholder. "We," "us," or "our" means Prudential or our
designee.
1.18 RATE SEGMENT
A section of the Contractholder Fixed Account that credits the same rate
of interest for the same time period for Contributions and accumulated
interest thereon.
1.19 SEPARATE ACCOUNT
An Account established by Prudential and maintained primarily for one or
more group annuity contracts. The Separate Account will hold assets
acquired with the proceeds of Contributions.
1.20 SUBACCOUNT
A subdivision of a Separate Account, the assets of which are invested in
a corresponding portfolio of a fund or portfolio of securities.
1.21 TRANSFER PAYMENTS
An amount transferred by or on behalf of Participants among Plan
Investment Funds.
1.22 TRANSFER REQUEST
A request by you or your designee pursuant to elections by Participants,
received by us in Good Order to make a Transfer Payment.
1.23 UNIT
You are credited with units in each Separate Account or Subaccount in
which you invest. The number of Units credited to the account is
determined by dividing each Contribution made to a Separate Account or
Subaccount by the applicable Unit Value for the Business Day on which
the Contribution is received by us in Good Order.
1.24 UNIT VALUE
The dollar value of an interest in a Separate Account or Subaccount.
The Unit Value of each Separate Account or Subaccount will be determined
each Business Day, and will measure changes in the value of the Separate
Account's or Subaccounts assets minus its outstanding liabilities, fees
and expenses. The Unit Value is determined before giving effect to
additions to and withdrawals or transfers from a Separate Account or
Subaccount for that day.
1.25 WITHDRAWAL
A payment from the Contractholder Account that is not a Transfer
Payment.
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1.26 WITHDRAWAL DATE
The Business Day we receive notice from you in Good Order to make a
Withdrawal as described further in Section 6.
1.27 WITHDRAWAL VALUE
The dollar value of any Withdrawal less any charges or fees incurred,
including any applicable market value adjustment.
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SECTION 2 - RELATIONSHIP BETWEEN PLAN AND CONTRACT
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2.1 GENERAL UNDERSTANDING
You will make Contributions as provided in this Contract. However, the
existence of this Contract does not cause us to be a party to or a
fiduciary of the Plan. We make no representation and assume no
liability as to the sufficiency of Contributions or the Contractholder
Account for the benefits to be provided under the Plan. You are solely
responsible for the selection of this Contract as a suitable funding
vehicle for the Plan.
2.2 STATUTORY REQUIREMENTS
This Contract is issued in conjunction with a 401 Plan. We reserve the
right to administer this Contract in accordance with the provisions of
Code Section 401 and its regulations and rules, the eligible rollover
distribution rules of Code Section 401(a)(31), and other applicable
provisions of the Code.
2.3 CONDITIONS
The continuation of this Contract is conditioned upon there being no
change in the Plan or its investment policy that, in our judgment, would
materially disrupt the level of Contributions or increase Withdrawals
compared to prior periods.
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SECTION 3 - CONTRIBUTIONS AND CONTRACTHOLDER ACCOUNT
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3.1 CONTRIBUTIONS
You will remit as Contributions to this Contract all or a portion of
funds contributed to the Plan unless we agree otherwise in writing or
unless such remittance is to end according to the terms of this
Contract. Contributions may include rollovers of amounts held by
Participants under other tax-qualified retirement plans or funds
transferred from Plan Investment Funds. You may direct that
contributions be allocated to the Contractholder Fixed Account and/or
the Contractholder Variable Account.
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3.2 PARTICIPANT ACCOUNT SEGMENTS
We may maintain the fixed interest portion of Participant Accounts in
two or more Rate Segments The dollar value of any Segment is equal to
the sum of all Contributions and interest credited to it, less all
Withdrawals and Transfer Payments withdrawn from it.
3.3 CONTRACTHOLDER FIXED ACCOUNT INTEREST RATES
We will notify you in advance of each interest rate we set under this
Contract. Each interest rate is an Effective Annual Rate. Interest is
credited to Contributions on a daily basis.
(a) CURRENT QUARTERLY INTEREST RATE
All Contributions received during the current calendar quarter will be
allocated to the same Rate Segment and will be credited with interest at
the current quarterly interest rate. This rate is set prior to the
beginning of each calendar quarter, and remains in effect on all
Contributions received during that quarter throughout the remainder of
the current calendar year and all of the following calendar year.
(b) RENEWAL INTEREST RATE
After the expiration of a current quarterly interest rates, we will set
a renewal interest rate for that Rate Segment to apply to Contributions
(and interest thereon) that previously were credited that current
quarterly interest rate. We may set one renewal interest rate to
replace each expiring current quarterly interest rate. The renewal
interest rate will be reset by us annually.
(c) CONTRACTUAL ANNUAL MINIMUM INTEREST RATE
Each interest rate set under Section 3.3 for the years shown below will
not be less than the following:
Calendar Year Rate
------------- ----
1998 and each year thereafter 3.0%
3.4 CONTRIBUTIONS FROM PRIOR PRUDENTIAL FIXED ACCOUNT CONTRACTS
If you contribute amounts to the Contractholder Fixed Account from the
fixed rate investment of a predecessor Prudential group annuity
contract, such amounts will be invested within Rate Segments that
correspond to the investment segments or portions, if any, under the
prior contract.
3.5 CONTRACTHOLDER VARIABLE ACCOUNT
Contributions to the Contractholder Variable Account may be made to any
of the Separate Accounts or Subaccounts listed in Appendix A.
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3.6 REPORTS
We will make a quarterly report to you of the financial activity within
the Contractholder Account.
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SECTION 4 - VARIABLE INVESTMENT OPTIONS
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4.1 SEPARATE ACCOUNTS
The Separate Accounts in which this Contract participates, and their
primary investments, are described in Appendix A. Assets held in each
Separate Account, except assets representing Prudential surplus, if any,
are not chargeable with liabilities arising out of any other business of
Prudential. The total market value of the assets held in each Separate
Account at all times will be at least equal to the total reserve
liability required by law for all payments or values which vary in
dollar amount to reflect the investment results of each Separate
Account.
To the extent that applicable laws and regulations permit, investments
for each Separate Account will be free of all limitations applicable to
other investments by Prudential. Prudential restricts use of its
Separate Accounts to certain plans. These plans include those which
meet the requirements for qualification under Section 401 of the Code.
If, at any time, we are informed that your Plan does not meet applicable
requirements, we will (1) notify you and (2) cancel your Contractholder
Variable Account. The dollar value of your canceled account will,
within seven Business Days thereafter, be transferred to you, your
trustee, or your financial institution that you designate. After that,
no Contributions may be made to the Separate Account under this Contract
until the Plan again satisfies applicable qualification requirements.
4.2 SUBACCOUNTS
A Separate Account may consist of Subaccounts. The income, gains and
losses, realized or unrealized, from the assets allocated to a
Subaccount are credited to or charged against each Subaccount, without
regard to other income, gains or losses of the Prudential.
Those Subaccounts currently available under this Contract are listed in
Appendix A. Each Subaccount invests exclusively in shares of a
corresponding fund or a portfolio of securities. Shares of a fund are
purchased and redeemed for a Subaccount at their net asset value. Any
amounts of income, dividends and gains distributed from the shares of a
fund are reinvested in additional shares of that fund at net asset
value.
The dollar amounts of values and benefits of this Contract provided by a
Separate Account vary as a function of the investment performance of the
Subaccounts. You bear the investment risk for Subaccount value in the
selected Subaccounts.
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4.3 VOTING RIGHTS
Certain Separate Accounts hold securities that have voting rights. We
normally exercise these rights. However we reserve the right to solicit
Contractholders for instruction as to how to vote some or all of the
securities in these Accounts.
4.4 MODIFICATION OF SEPARATE ACCOUNTS AND SUBACCOUNTS
We may from time to time change material features of, or close, certain
Separate Accounts or Subaccounts. Any changes will be made only if
permitted by applicable law and regulations. Also, when required by
law, we will obtain the approval of Contractholders of the changes and
the approval of any appropriate regulatory authority.
For example, we may combine Separate Accounts or Subaccounts, or provide
additional Subaccounts, transfer part or all of the assets of a Separate
Account or Subaccount to another Separate Account of Subaccount, make
any changes necessary to comply with, or obtain and continue any
exemptions from the Investment Company Act of 1940 (the 1940 Act), and
make any other necessary technical changes to this Contract to conform
with any action this provision permits us to take.
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SECTION 5 - TRANSFER PAYMENTS
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5.1 TRANSFER PAYMENTS TO PLAN INVESTMENT FUNDS
You may, pursuant to elections by Participants, subject to any
restrictions in the Plan, direct us to make Transfer Payments from the
Contractholder Fixed Account or Variable Accounts to any Plan Investment
Fund made available under the Plan. Transfers will be made under the
terms of Section 5.1(a) and 5.1(b).
Prudential may, upon notice to the Contract-Holder and Participants,
limit the frequency of Transfer Payments. The action will take effect
on the date of the notice. In the event that a Participant Transfer is
made as a result of a communication by the Contractholder, Employer,
agent or broker to the Participant, which communication in Prudential's
reasonable judgment advised Participants to transfer or withdraw their
funds held under this Contract, the Transfer will be treated as a
Contractholder Withdrawal under Section 6.4. If such communication is
not provided to Prudential upon written request, Prudential reserves the
right to consider the communication as one which advises Participants to
transfer or withdraw their funds held under this Contract.
(a) DIRECT TRANSFERS TO A COMPETING FUND
Transfer Payments directly between the Contractholder Fixed Account
under this Contract and a Competing Fund as defined in Section 1.4
may not be made without Prudential's consent.
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(b) INDIRECT TRANSFERS TO A COMPETING FUND
Indirect transfers between the Contractholder Fixed Account under
this Contract and a Competing Fund may be made, provided the amount
to be transferred is first transferred to a fund which is not a
Competing Fund and such amount is held in a non-Competing Fund for a
period of at least 90 days before being transferred to a Competing
Fund. Amounts transferred from the Contractholder Fixed Account to
a non-Competing Fund may be transferred back into the Contractholder
Fixed Account after being held in the non-competing fund for at
least 90 days.
In the event of unusual volatility in the financial markets,
Prudential may, in its discretion, eliminate or reduce the 90-day
restriction of this Section 5.1(c) for all Contractholders within
this class of contracts. The 90-day provision may be prospectively
reinstated by Prudential upon written notice to the Contractholder.
We reserve the right, upon 30 days notice and in our sole discretion, to
determine whether any investment option under the Plan is or becomes a
Competing Fund.
5.2 TRANSFER PAYMENT TERMS
Transfer Payments will be made from the Contractholder Fixed Account and
the Contractholder Variable Account. Transfer payments from the
Contractholder Fixed Account will be made on a pro rata basis from all
Rate Segments. Each payment will be in full settlement of our liability
for the Transfer Payment. Transfer Payments from the Contractholder
Fixed Account will be effective on the Business Day we receive the
Transfer Request in Good Order. Transfer Payments from the
Contractholder Variable Account will be at the Unit Value of the
applicable Subaccount(s) at the close of the Business Day we receive the
Transfer Request in Good Order. You agree to provide for the
recordkeeping of investment funds available under the Plan on a
Participant-level basis, and to furnish us with such information as we
may reasonably require in connection with Transfer Requests. We reserve
the right to monitor the Participant-level investment activity in order
to enforce these transfer provisions. We will notify you immediately
upon receipt of a Transfer Request that is inconsistent with the
Transfer Payment conditions then in effect.
We may, upon notice to you, limit the frequency of Transfer Payments.
This action will take effect on the date of the notice. Any such limit
will allow transfers as least as frequently as quarterly.
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SECTION 6 - WITHDRAWALS
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6.1 WITHDRAWALS
You may make Withdrawals from the Contract. Withdrawals from the
Contractholder Fixed Account for purposes listed in Sections 6.2 and 6.3
will not be subject to the market value adjustment described in Section
6.5. However, we may apply this adjustment if, at the time you request
the Withdrawal, the terms of your Plan are materially different from the
terms or manner of administration in effect on this Contract's effective
date, and such amendment or change adversely affects our rights or
liabilities under this Contract. Withdrawals from the Contractholder
Fixed Account will be made on a pro-rata basis from all Rate Segments
applicable to a Participant under the Contract.
Payment to the Participant ordinarily will be made within seven days of
our receipt of a properly completed payment request. If any Withdrawal
payment under this section is not made within 10 Business Days, interest
on the delayed payment will be credited (starting as of the first day
following receipt of the Withdrawal request) at the rate applicable to
new contributions under Section 3.3 on the date the Withdrawal request
is received.
If more than one employer participates in the Plan, and Contributions
are discontinued for one employer, Withdrawals of funds attributable to
that employer may be made under any option available within this
Section.
You may make Withdrawals to pay expenses of the Plan. Such Withdrawals
will not be subject to any market value adjustment.
6.2 WITHDRAWALS FOR BENEFIT PAYMENTS
We will make payments to the Contractholder to provide benefits
permitted under the terms of the Plan. Such benefit payments may be
made for reasons of a Participant's retirement, termination of
employment, death, disability, hardship, loans, or in-service withdrawal
after age 59 1/2. Benefits may also include such other payments made
pursuant to the Plan provisions as agreed to by us in accordance with
our existing administrative practices. The amount of a benefit payment
will be the amount certified by you as necessary to fulfill a benefit
payment request of a Participant. You agree to supply us with
documentation to support benefit payments on request. We will also make
distribution payments consistent with the terms of the Plan relating to
the minimum required distribution provisions of Sections 401(a)(9)
and/or 457(d) of the Code, as applicable. Loans made available to a
Participant under this Contract will be made in accordance with the
terms provided in the Plan. Prudential will administer loans in
conformity with the Code and ERISA.
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With respect to amounts invested in the Contractholder Fixed Account, if
permitted by the Plan, we will make payments to you to provide for
Participant requests for payments of after-tax contributions. For each
Participant request for a payment of after-tax contributions, you will
inform us of the amount that comprises one-third of the Participant's
entire interest in after-tax contributions held under this Contract as
of the first day of the year. The lesser of such amount or the amount
of the request will be paid under this Section; any excess of the
request over one-third of the Participant's interest under this Contract
will be paid under Section 6.4. "After-tax" means employee
contributions made to the Plan which were, when made, subject to federal
income taxes.
6.3 WITHDRAWALS AT TERMINATION OF CONTRACT
You may, in conjunction with a termination of the Contract, make a
Withdrawal of the balance from the entire Contractholder Fixed Account
over a four-year period, less applicable Deferred Sales Charges
described in Section 11. During the four-year payout period, interest
will be added to the Contractholder Fixed Account at the end of each day
on the amount of the Contractholder Fixed Account at the end of the
preceding day at an Effective Annual Rate determined on the Withdrawal
Date. This rate is determined by multiplying each Rate Segment by the
interest rate that applies to that segment, adding the products,
dividing the sum by the total dollar amount of all segments and
subtracting 0.50%. In no event will the interest paid under this
provision be less than 3.0%.
We will pay one-fifth of the balance of the Contractholder Fixed Account
within 90 days of the Withdrawal Date. We will pay one-fourth of the
Contractholder Fixed Account as of the first anniversary of the
Withdrawal Date on the first Business Day following the first
anniversary of the Withdrawal Date. If payments are over a period of
greater than two years, subsequent payments will be made on the first
Business Day following the anniversary of the Withdrawal Date, with each
such payment substantially equal in amount to the previous payment. We
will pay the entire balance of the Contractholder Fixed Account on the
first Business Day following the fourth anniversary of the Withdrawal
Date. We will make all payments to you or to any institution or account
you designate. We will make all payments from the Contractholder
Variable Account to you or to an institution or account you designate.
We will usually pay the entire balance of the Contractholder Variable
Account within seven Business Days after receipt of a Good Order request
for a Withdrawal at termination of the Contract. However, we can
postpone such payments if:
1. the New York Stock Exchange is closed, other than customary
weekend and holiday closing, or trading on the exchange is
restricted as determined by the Securities and Exchange
Commission (SEC)
2. the SEC permits, by an order, the postponement for the protection
of Contractholders
3. the SEC determines that an emergency exits that would make the
disposal of securities held in the Contractholder Variable
Account, or the determination of their value, not reasonably
practicable.
You may also elect to make a withdrawal at Contract termination under
Section 6.4.
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6.4 WITHDRAWALS SUBJECT TO A MARKET VALUE ADJUSTMENT
Withdrawals from the Contractholder Fixed Account that are not governed
by the provisions of Sections 6.2 and 6.3 may be made at any time. If
the amount withdrawn under this paragraph in any calendar year exceeds
$5 million, the Withdrawal may be paid in up to five substantially equal
quarterly payments. The first payment will be made within 10 Business
Days of our receipt of your written request in Good Order. A separate
market value will be calculated for each quarterly Withdrawal. During
the quarterly Withdrawal period, the unpaid amounts will be credited
interest at the rate in effect under Section 3.3 of the Contract, less a
daily risk charge of one-half of one percent annually.
The amount withdrawn under this Section shall be equal to the Withdrawal
request decreased by the market value adjustment (MVA), and reduced by
any applicable deferred sales charges as described in Section 11. The
market value adjustment will be applied before the deduction of any
applicable deferred sales charge.
6.5 MARKET VALUE ADJUSTMENT FORMULA
The market value of the amount withdrawn from the Contractholder Fixed
Account in accordance with Section 6.4 will be calculated using the
formula described in this paragraph. A separate market value adjustment
is determined for each Rate Segment. The interest rate applicable to
each such Rate Segment is compared to the interest rate credited for new
Contributions in the current quarter.
The market value adjustment for a Rate Segment is calculated by
subtracting the interest rate for new Contributions from the interest
rate credited to that Rate Segment and multiplying that result by a
factor of 3.0. In no event will the market value adjustment exceed
0.0%.
Each market value adjustment is then applied to the dollars withdrawn
from the corresponding Rate Segment. The market value of the amount
withdrawn from the Contractholder Fixed Account is equal to the sum of
the market values of the amount withdrawn from each Rate Segment. The
market value adjustment factor may be changed in accordance with Section
9.2.
In the event that a Participant Withdrawal is made as a result of a
communication of the Contractholder or Employer received by the
Participant, which communication in Prudential's reasonable judgment
advises Participants to transfer or withdraw their funds held under this
Contract, the Withdrawal will be treated as a Withdrawal at Contract
termination under Section 6.4. If communication to a Participant is not
provided to Prudential upon written request, Prudential reserves the
right to consider the communication as one which advises Participants to
transfer or withdraw their funds held under this Contract.
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SECTION 7 - FORMS OF BENEFITS
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7.1 GENERAL
You may request that we pay amounts that are withdrawn for benefit
payments under Section 6.2 in any of the following forms, to the extent
not contrary to the terms of the Plan:
(a) a lump sum;
(b) any annuity form described in Schedule A;
(c) any other settlement method or combination of methods to which
we consent.
7.2 TERMS OF PAYMENT OF ANNUITIES
If, a Participant, elects an annuity pursuant to Section 7.1(b), the
amount withdrawn will be applied to purchase an annuity in accordance
with Schedule A. The monthly annuity payment is determined from the
schedule of purchase rates for that annuity. Any payments made in
annuity form will be governed by the terms of the annuity certificate.
7.3 CERTIFICATES
A Certificate will be provided for each Annuitant, summarizing the
amount and the terms of such annuity. Certificates are not a part of
this Contract.
7.4 MINIMUM DEATH BENEFIT
Any lump sum death payment from this Contract made to a Beneficiary
within one year of the Participant's death will be equal to the
greatest of : (1) the Participant's Account value as of the date
Prudential receives a death benefit payment request in Good Order; (2)
the sum of all contributions made to the Participant's Account less
withdrawals, transfers and charges; and (3) the greatest of the
Participant's Account value calculated on every third anniversary of the
first contribution made on behalf of the Participant less any
withdrawals, transfers and charges under the Contract.
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SECTION 8 - TERMINATION OF CONTRACT
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8.1 SIXTY DAY TERMINATION
This Contract may be terminated by either party by providing the other
party with 60 days written notice. The Contract termination date will
be established as the first Business Day occurring 60 calendar days
following receipt of the notice of termination. The parties may agree
to a different termination date.
8.2 TERMINATION FOR CAUSE
We may terminate this Contract for cause by giving you 30 days written
notice. Causes for our termination are:
(a) You fail to meet any of your obligations under this Contract
or under any related agreement.
(b) The Plan is no longer a qualified plan under the Code.
(c) The Plan is terminated.
(d) You no longer have any obligations under the Plan.
(e) You, your agent, or your trustee take an action which, in
our reasonable determination, materially and adversely
affects our rights and obligations under this Contract.
(f) You reject a change or an amendment to this Contract
proposed by us under Section 9.1 or 9.2.
(g) You distribute communication material to Plan Participants
that can reasonably be expected to materially decrease the
amounts directed to this Contract or materially increase the
amounts of Withdrawals or Transfer Payments from this
Contract.
8.3 EFFECT OF TERMINATION
You may make no further Contributions or Transfer Payments after a
contract termination date is established, unless we agree otherwise.
Death benefits and previously purchased annuities will continue to be
paid. Benefit Withdrawals, including the purchase of annuities if we
agree, may be made from the Contractholder Fixed Account after the
contract termination date. Benefit withdrawals from the Contractholder
Variable Account will continue to be made after the
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contract termination date. The Contractholder Fixed Account will be
distributed under the terms of Section 6.3 unless you elect to have it
distributed under the terms of Section 6.4.
Withdrawals upon termination are subject to any limitations or
restrictions that appear elsewhere in this Contract.
8.4 PARTIAL CONTRACT TERMINATION
If, through a divestiture or other corporate restructuring, employees of
an employer cease to be eligible to participate in the Plan, you may
partially terminate this Contract and request that we issue a new
contract to a successor plan. Any such contract is subject to any terms
and conditions mutually agreed to. Section 8.3 applies to amounts
payable in connection with a partial termination.
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SECTION 9 - CHANGES
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9.1 CHANGES BY AGREEMENT
This Contract may be changed at any time by agreement between the
parties. A change will be effective after each party receives notice of
such change. Any change made to this Contract will be consistent with
applicable state and federal law.
9.2 CHANGES BY PRUDENTIAL
We may change this Contract if we, in our discretion, deem it
appropriate to conform to the requirements of any law or regulation.
We reserve the right to change the method for determining the market
value adjustment upon 30 days prior written notice to you and to
periodically update the annuity purchase rates.
No modifications or amendments to this Contract may affect the terms of
any annuity purchased prior to the effective date of the modification or
amendment. The annuity purchase rates will not be modified or amended
(i) during the first year that the Contract is in effect, or (ii) more
than once in any 12 month period; and (iii) may not be less favorable to
you than the annuity purchase rates we offer to any Contractholder in
the same class as this Contract.
9.3 PERSONS EMPOWERED TO ACT FOR US
No agent or other person except one of the following Prudential officers
may change this Contract or bind us.
Chairman of the Board and Actuary
Chief Executive Officer Associate Actuary
President Secretary
Vice President Assistant Secretary
Second Vice President
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SECTION 10 - GENERAL TERMS
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10.1 COMMUNICATIONS
All communications under this Contract shall be in writing. They will
be addressed to you at your principal office, or at such other address
as you may communicate to us. Communications to us should be addressed
to Prudential, c/o Prudential Investments, 30 Scranton Office Park,
Scranton, Pennsylvania 18507-1789, or at such other address as we may
communicate.
10.2 PLACE OF PAYMENT
All payments to us under this Contract shall be payable at our office
described above or at an address or to a representative we specify by
notice to you.
10.3 INFORMATION - RECORDS
You agree to furnish all information which we may reasonably require for
the administration of this Contract. You also agree to provide to us
any applicable administrative agreements pertaining to recordkeeping or
servicing of Participant Accounts. We will not be liable for the
fulfillment of any obligations in any way dependent upon information
unless and until we receive the information in a form satisfactory to
us, which includes receiving information in Good Order where
appropriate. Information furnished to us may be corrected for
demonstrated errors unless we have already acted to our prejudice by
relying on the information. Except for the corrections, information
furnished to us will be regarded as conclusive.
10.4 MISSTATEMENTS
If there has been a misstatement as to any annuitant, we will not pay
more than that which should be paid based on the correct information.
Any overpayment will, together with interest, be deducted from future
payments. Any underpayment will, together with interest, be paid
immediately upon receipt of the corrected information. The interest
rate credited or charged under this section will be 3.0%.
10.5 BENEFICIARY
You may, if permitted by law, direct that we pay any benefit under this
Contract directly to the Beneficiary of a Participant or other
designated payee. Payments in annuity form will be governed by the
terms of the annuity certificate.
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10.6 SMALL ANNUITIES AND AMOUNTS; NATURAL PERSONS
To the extent consistent with the terms of the Plan and Code Section
411(a)(11) as applicable, if the total monthly payment from the annuity
that would otherwise be purchased on behalf of any person, or any series
of payments under this Contract, is less than $50, we may, in our
discretion, make a single sum payment in lieu of purchasing such annuity
or making such series of payments. The single sum paid will be equal to
the amount that would otherwise be applied to purchase such annuity.
The single sum paid in lieu of a stream of payments will be equal to the
value of the series of payments discounted at interest from each payment
due date to the date of the single sum payment. The discount interest
rate will be the interest rate in the schedule of annuity purchase rates
used to establish the series of payments.
If the payee is not a natural person and a series of payments is
payable, we may choose to make a payment in one sum.
10.7 DIVISIBLE SURPLUS
The portion, if any, of our divisible surplus accruing under this
Contract will be determined annually by our Board of Directors and
credited to the Contractholder Account as determined by the Board. It
is unlikely that any divisible surplus will accrue upon this Contract.
No annuity under this Contract will be taken into account in the
determination of any divisible surplus to be credited to this Contract.
10.8 LIMIT ON ASSIGNMENT
To the extent applicable law requires, the interests in and payments
from this contract are not transferable nor assignable or subject to the
claims of any creditor. For this purpose, compliance with the terms of
a Qualified Domestic Relations Order as defined in subsection 414(p) of
the Internal Revenue Code will not be considered to be an assignment of
benefits.
10.9 PLAN CHANGES
This Contract applies to the terms of the Plan in effect on the
Effective Date of this Contract. You shall furnish us a copy of the
Plan, any proposed amendment or any change to the Plan, its operation,
or its investment policy, and any communications by you to the
Participants concerning investments available through the Plan. . If we
notify you within 60 days of receipt of a proposed Plan amendment,
change in Plan operation, or change in Plan investment policy that such
change, in our reasonable judgment, will adversely affect the financial
experience of Prudential or other Contractholders in this class of
Contracts, the change will be effective only upon agreement between the
parties.
10.10 ENTIRE CONTRACT
This document constitutes the entire Contract between us.
16
<PAGE>
10.11 GOVERNING LAW
This Contract will be construed according to the laws of the
jurisdiction set forth on the cover page.
10.12 INTEREST ON BENEFIT PAYMENTS
Any benefit payment we make under Section 6.2 that is not made within 10
Business Days of the receipt in Good Order of a request for such payment
will be credited with interest in the same rate and manner as provided
in Section 3.3 or as required by state insurance or Federal securities
law. We reserve the right to credit interest on benefit payments paid
within 10 Business Days for all Contractholders within this class of
contracts.
10.13 CONTRACTHOLDER
We will normally conduct business only with you. We will be entitled to
rely on any acts or omissions by you pursuant to the terms of this
Contract.
Either party may, from time to time, delegate to an agency or trustee
certain administrative powers and responsibilities under this Contract.
No party is bound to recognize any such delegation until it has received
notice of it. The notice must specify those powers and responsibilities
and include evidence of acceptance by the agency. On and after the date
of receipt of the notice, the notified party will deal with the agency
with respect to those powers and responsibilities and will be entitled
to any action taken or omitted by the agency with respect thereto in the
same manner as if dealing with the party to the Contract. Either party
may give notice to the other party of a subsequent delegation to another
agency of specified powers and responsibilities.
10.14 EXCLUSIVE BENEFIT
Under this contract it is impossible, at any time prior to the
satisfaction of all liabilities with respect to Participants and their
beneficiaries under the contract, for any part of the corpus or income
to be used for, or directed to, purposes other than for the exclusive
benefit of the Participants or their beneficiaries.
17
<PAGE>
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SECTION 11 - DEFERRED SALES CHARGES
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
11.1 DEFERRED SALES CHARGES
Withdrawals made under Section 6.3 or 6.4 are subject to a Deferred
Sales Charge. The amount of a Withdrawal subject to a Deferred Sales
Charge shall be the amount requested less the Deferred Sales Charge
determined from the following table. However, if the entire dollar
amount held on behalf of a Participant under the Contractholder Fixed
Account is withdrawn, the amount paid will not be less than the
Contributions made into that option for the Participant reduced by
previous Withdrawals and transfers.
If the Contractholder request a partial withdrawal under Section 6.3 or
6.4, a deferred sales charge is assessed only against those assets
withdrawn by reason of a specified group, classification or type of
employee leaving the Plan as a result of a corporate merger,
restructuring, or other comparable employer-initiated event.
Withdrawals made in the years indicated, counting from the day an amount
was contributed on behalf of a Participant under this or a predecessor
Prudential Contract, will have the following Deferred Sales Charge,
measured as a percentage of Contributions withdrawn:
<TABLE>
<S> <C>
0 - 1 year 5%
1 - 2 years 4%
2 - 3 years 3%
3 - 4 years 2%
4 - 5 years 1%
After 5 years 0%
</TABLE>
Deferred sales charges do not apply to amounts withdrawn in excess of
the Participant's Contributions under this Contract. No charge is
imposed upon rollover contributions, contributions withdrawn due to the
Participant's termination of employment, death, financial hardship or
disability retirement.
Withdrawals from the Contractholder Fixed Account will be made on a
pro-rata basis from all Rate Segments applicable to a Participant under
the Contract.
18
<PAGE>
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- - - --------------------------------------------------------------------------------
APPENDIX A - SEPARATE INVESTMENT ACCOUNTS
Contributions paid to the Contractholder Variable Account may be invested in the
Subaccounts of the Prudential Discovery Select Group Variable Contract Account
("the Discovery Account"). This variable separate account, sponsored by
Prudential Insurance Company of America, is currently divided into 22
Subaccounts. Any income and realized or unrealized gains and losses in a
Subaccount are credited to or charged against that Subaccount without regard to
income, gains, or losses in other Subaccounts.
Eleven Subaccounts invest in portfolios of the Prudential Series Fund. These
portfolios include Money Market, Government Income, Diversified Bond, Equity,
High Yield Bond, Stock Index, Equity Income, Prudential Jennison, Global,
Conservative Balanced and Flexible Managed Portfolios. The Subaccounts of the
Discovery Account also invest in other underlying Fund portfolios. These
include the AIM V.I. Growth and Income Fund, the AIM V.I. Value Fund, the Janus
Aspen Series Growth Portfolio, the Janus Aspen Series International Growth
Portfolio, the MFS Emerging Growth Series, the MFS Research Series, the OCC
Accumulation Managed Portfolio, the OCC Accumulation Small Cap Portfolio, the T.
Rowe Price Equity Income Portfolio, the T. Rowe Price International Stock
Portfolio, and the Warburg Pincus Post-Venture Capital Portfolio.
The investment strategy of each Subaccount is described in the Prospectus. The
choice of Subaccounts may change. Any such change will be described in the
Prospectus.
The administrative charge for each Subaccount in the Discovery Account will not
exceed an effective annual rate of 1.10%. This charge is deducted daily from
the assets in each of the Subaccounts. This charge is for the issuing of the
Contract, establishing and maintaining records, and providing reports to the
Contractholder and the Participants. Prudential may impose a lower
administrative charge for certain classes of contractholders that meet minimum
size requirements (for example, assets exceeding $25 million or plans with 500
or more Participants). In addition, Prudential may impose a lower
administrative charge for any contractholder in Prudential's MEDLEY group
annuity program for whom Prudential is providing administrative services as of
June 1, 1997 that exchanges their MEDLEY contract(s) for a Discovery Select
contract to reflect the reduced set-up, recordkeeping and administrative costs
incurred by Prudential. Any reductions in administrative charges will be
available on a uniform basis to similarly-situated contractholders.
Mortality risk and expense charges are deducted daily at an effective annual
rate of not more than 0.15% of the assets held in the Subaccounts. Participants
selecting from any of the Subaccounts in the Discovery Account must receive a
Prospectus prior to investing.
19
<PAGE>
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- - - --------------------------------------------------------------------------------
SCHEDULE A - FORMS OF ANNUITY WHICH MAY BE PURCHASED
<TABLE>
<CAPTION>
FORM OF PAYMENT PAYABLE APPLICABLE SCHEDULE
----------------------- -------------------
<S> <C>
1. Life - Payment Certain Annuity. Use Schedule B
2. Life - Contingent Annuity. Use Schedule C
3. Payment Certain Annuity. Use Schedule D
</TABLE>
We may provide monthly amounts of annuity larger than those shown in the
following schedules for annuities purchased during any period we specify.
Annuity purchase rates for other forms of annuity to which we consent will be
furnished on request.
The annuity purchase rates under this contract will be no less favorable to a
Participant than used under other Prudential group annuity contracts of this
Class.
The forms of annuities which may be purchased are fixed dollar annuities which
are guaranteed by Prudential. The amount of fixed annuity payments depends only
on the form and duration of the annuity selected, the dollar amount applied to
purchase the form of annuity, the age of the Annuitant and the annuity purchase
rates in Schedules B, C and D. The amount of the fixed annuity payments does
not depend on the performance of the Discovery Account or any Subaccount.
AVAILABLE FORMS OF ANNUITIES
Life annuities and Payment Certain annuities are available under this Contract.
A Life form of annuity is one payable at least during the lifetime of the person
(referred to as the "Annuitant") for whom it was purchased. Depending on the
existence and nature of any payment payable after the death of the Annuitant, a
Life annuity will be either a Life-Payment Certain or a Life-Contingent annuity.
A Payment Certain form of annuity may be payable for a period less than the
lifetime of the Annuitant. The terms of payment for each form of annuity are
described below.
LIFE-PAYMENT CERTAIN ANNUITY:
The first monthly payment of a Life-Payment Certain annuity is payable
as of the date the annuity is purchased. Monthly payments are payable
on the first day of each month thereafter throughout the Annuitant's
remaining lifetime. If the Annuitant dies before the number of annuity
payments made equals the number of Payments Certain applicable to him,
monthly annuity payments will continue to be made to the Annuitant's
Beneficiary until the total number of payments is so equal. The number
of Payments Certain is established when the annuity is purchased and may
be 60, 120, 180, 240, or any other number accepted by Prudential.
20
<PAGE>
LIFE-CONTINGENT ANNUITY:
The first monthly payment of a Life-Contingent annuity is payable on the
date the annuity is purchased. Monthly payments are payable on the
first day of each month thereafter throughout the Annuitant's remaining
lifetime. If the Annuitant dies before the death of his Contingent
Annuitant, monthly payments will continue to the Contingent Annuitant
throughout the Contingent Annuitant's remaining lifetime. The amount of
each monthly Contingent Annuity payment will be a percentage of the
monthly annuity payment payable before the Annuitant's death. The
percentage is established when the annuity is purchased and may be
33 1/3%, 50%, 66 2/3%, or 100%, or any other percentage we accept.
PAYMENT CERTAIN ANNUITY:
The first monthly payment of a Payment Certain annuity is payable on the
date the annuity is purchased. Monthly payments are payable on the
first day of each month thereafter until the total number of Payments
Certain specified when the annuity was purchased has been paid. The
number of payments may be 60, 120, 180, 240 or any other number we
accept. If the Annuitant dies before his Beneficiary, monthly annuity
payments will continue to be made to the Beneficiary until the number of
payments specified by the Annuitant has been made.
Other forms of annuity may be provided with our consent.
21
<PAGE>
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- - - --------------------------------------------------------------------------------
ANNUITY SCHEDULES
The schedules show the monthly amount of annuity purchased per $10,000, after
deduction of any taxes on annuity premiums that may apply.
The amounts of annuity for other ages of the Annuitant or Contingent Annuitant
will be provided upon request.
- - - --------------------------------------------------------------------------------
SCHEDULE B - LIFE - PAYMENT CERTAIN ANNUITY (120 PAYMENTS CERTAIN)
MONTHLY AMOUNT
If the date the annuity is purchased is in:
<TABLE>
<CAPTION>
AGE 1998 1999 2000 2005
--- ---- ---- ---- ----
<S> <C> <C> <C> <C>
60 $34.89 $34.75 $34.61 $33.90
65 39.86 39.67 39.49 38.59
70 46.17 45.93 45.70 44.55
</TABLE>
SCHEDULE C - LIFE - CONTINGENT ANNUITY
MONTHLY AMOUNT
--------------
If Annuitant and Contingent Annuitant have same date of birth.
If the date the annuity is purchased is in:
<TABLE>
<CAPTION>
AGE 1998 1999 2000 2005
--- ---- ---- ---- ----
If specified percentage to Contingent Annuitant is 100%:
<S> <C> <C> <C> <C>
60 $29.87 $29.77 $29.66 $29.15
65 33.64 33.49 33.35 32.66
70 38.74 38.54 38.34 37.40
If specified percentage to Contingent Annuitant is 50%:
60 $32.36 $32.23 $32.10 $31.48
65 36.87 36.70 36.53 35.71
70 42.97 42.74 42.50 41.37
</TABLE>
- - - --------------------------------------------------------------------------------
22
<PAGE>
- - - --------------------------------------------------------------------------------
SCHEDULE D - PAYMENT CERTAIN ANNUITY
MONTHLY AMOUNT
--------------
If the date the annuity is purchased is in:
<TABLE>
<CAPTION>
NUMBER OF
PAYMENTS
CERTAIN 1998 1999 2000 2005
------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
60 $160.49 $160.49 $160.49 $160.49
120 84.21 84.21 84.21 84.21
180 58.87 58.87 58.87 58.87
</TABLE>
- - - --------------------------------------------------------------------------------
23
<PAGE>
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
THIS AGREEMENT is made this 6th day of August, 1998, by and between The
Prudential Insurance Company of America, a New Jersey mutual life insurance
company ("Prudential"), and BISYS Plan Services, L.P., a Pennsylvania limited
partnership ("BISYS").
WHEREAS, Prudential provides certain recordkeeping and administrative
services, trust reporting and accounting services, and order placement and
processing services to certain defined contribution pension plans that qualify
or intend to qualify under Section 401(k) and/or Section 401(a) of the Internal
Revenue Code of 1986, as amended ("Code");
WHEREAS, Prudential desires to retain BISYS to provide those recordkeeping
and administrative services, or certain of such services, and to arrange for the
provision of those trust reporting and accounting services and those order
placement and processing services to selected Prudential plan clients meeting
certain size-related and other criteria established by Prudential and to provide
certain other related services to Prudential, in accordance with the terms and
conditions of this Agreement;
WHEREAS, BISYS is willing to provide such recordkeeping and administrative
services to the Plans and related services to Prudential and to arrange for the
provision of such trust reporting and accounting services and such order
placement and processing services, in accordance with the terms and conditions
of this Agreement;
THEREFORE, in consideration of the premises and mutual covenants contained
in this Agreement, Prudential and BISYS agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement:
(a) "Administrative Services Agreement" means: (1) for an agreement
executed on or after the Effective Date, either of the forms of
Administrative Services Agreement as set forth in Schedule A
attached hereto (as modified or substituted by Prudential from
time to time with the approval of BISYS to reflect its then
current form(s) of agreement); or (2) otherwise, the particular
administrative services agreement approved by Prudential for a
Plan or the particular services and operations that have been and
are anticipated to be provided by Prudential (or its designee).
(b) "Effective Date" means the date which is sixty (60) calendar days
after the date written above (or, if such sixtieth (60th) day is
not a business day, the first business day thereafter) but in no
event later than November 1, 1998.
(c) "Employer" means the employer who executes the Administrative
Services Agreement on behalf of a Plan.
<PAGE>
(d) "Investment Option" means an investment in which the Plan is
authorized to invest, as described in Schedule B attached hereto
and as such Schedule may be modified by agreement of Prudential
and BISYS to reflect changes directed by the Plan pursuant to its
Administrative Services Agreement.
(e) "Participant" means a participant, or an eligible employee
enrolling as a participant, under a Plan and, where applicable,
includes the participant's beneficiary(ies) under the Plan or an
alternate payee under a qualified domestic relations order, as
defined in the Code and the Employee Retirement Income Security
Act of 1974, as amended ("ERISA").
(f) "Plan" means an employee benefit plan that: is qualified, or
seeks to qualify, under Section 401(a) of the Code as a plan
described in Section 401(k) of the Code or as a profit sharing or
money purchase plan pension plan; uses the Prudential PruArray
Prototype 401(k) Plan Document (or such other plan document as
Prudential may specify), as such document may be from time to
time amended; and at the time services are initially provided to
it by Prudential or BISYS, meets the criteria for Plans set forth
in Schedule C attached hereto.
(g) "Services" means those services BISYS is obligated to provide or
arrange for the provision of pursuant to Section 2(a), (b) and/or
(c) of this Agreement, depending on the Administrative Services
Agreement with each particular Plan.
(h) "Service Team" means those employees of BISYS dedicated to the
provision of services under this Agreement on a full- or
part-time basis, including but not limited to personnel who deal
directly with Plans or Participants and/or handle Plan records,
as set forth in Schedule D attached hereto.
2. SERVICES OF BISYS. BISYS shall enable Prudential to satisfy
Prudential's obligations to each Plan under the Administrative
Services Agreement with that Plan. Accordingly, and subject to the
further provisions of this Agreement, beginning on the Effective Date
and thereafter:
(a) BISYS shall provide, through the Service Team, the following
services with respect to Plans:
(1) The recordkeeping and administrative services as described
in the Administrative Services Agreements (except with
respect to the availability of Prudential Account Executives
and the design or maintenance of the Prudential Web site).
These services shall be
2
<PAGE>
performed in accordance with the standards, as applicable,
set forth in Schedule E attached hereto.
(2) The Plan documentation and disclosure services as described
in the Administrative Services Agreements.
(3) Plan testing as described in the Administrative Services
Agreements.
(4) The services relating to Discovery Select Group Retirement
Annuity as described in Schedule F attached hereto.
(5) Any additional services as shall be necessary to enable
Prudential to meet its obligations to each Plan under the
Administrative Services Agreement with that Plan. The
process for approving such additional services and changes
to the Administrative Services Agreement shall be as set
forth in Schedule G attached hereto.
(b) BISYS shall arrange for the provision of the following services
with respect to Plans:
(1) The trust and accounting services as described in Schedule H
attached hereto.
(2) The order placement, processing and related services as
described in Schedule I attached hereto.
(c) Notwithstanding the foregoing provisions of Section 2(a) of this
Agreement, as to those Plans designated by Prudential in writing
to BISYS, BISYS shall provide only the administrative and
recordkeeping services required under the respective
Administrative Services Agreements for those Plans, which
services may be less than all of the services described in
Section 2(a) above. Prudential shall not provide for servicing,
and BISYS shall not be obligated to provide services to, any Plan
pursuant to this Section 2(c) until such date, and unless such
Plan meets such additional criteria, if any, as Prudential and
BISYS may agree.
(d) BISYS shall provide, to the extent reasonably practicable through
the appropriate members of the Service Team, training sessions
and/or marketing support, on-site or otherwise and which may
include Plan-related materials, as set forth in Schedule J
attached hereto or otherwise as Prudential may reasonably
request.
3
<PAGE>
(e) All services provided by BISYS and related materials and records
produced or maintained (in whatever form produced or maintained)
under this Agreement shall be performed, produced and/or
maintained, as applicable, in a manner that reflects that such
services, materials and records are so performed, produced and/or
maintained, as applicable, by Prudential through BISYS.
(f) BISYS shall furnish Prudential with the reports specified on
Schedule K attached hereto, at such times and in the manner
specified on such Schedule. In addition, BISYS shall promptly
notify Prudential of any action or matter relating to a Plan or
that may present a material legal or business issue, including
but not limited to the commencement (or anticipated commencement)
of any audit, examination or inspection by an Employer, the U.S.
Department of Labor, the Internal Revenue Service, the Securities
and Exchange Commission and/or a State insurance department
("Examination"), and shall promptly respond, as agreed to by
Prudential, to such Examination.
(g) BISYS shall promptly notify Prudential of any change it proposes
to make relating to Services or BISYS's other activities and
obligations under this Agreement to implement new statutory or
regulatory requirements and shall implement such change only with
the prior approval of Prudential, which approval shall not be
unreasonably withheld. Prudential shall promptly notify BISYS of
any change it intends to make in the prototype plan document used
or to be used by a Plan, which change(s) shall be subject to the
prior approval of BISYS.
3. NUMBER OF PLANS. During the initial twelve (12) months beginning on
the Effective Date, Prudential shall provide at least five hundred
(500) Plans for which BISYS shall provide Services. Prudential and
BISYS may agree that Prudential may provide, and BISYS shall accept,
more than five hundred (500) Plans during such period. If Prudential
fails to provide for servicing by BISYS at least five hundred (500)
Plans during the initial twelve (12)-month period beginning on the
Effective Date, Prudential shall pay BISYS an amount equal to Two
Thousand Dollars ($2,000) times the difference between five hundred
(500) and the number of Plans provided, which amount shall be paid
within thirty (30) days of the close of such period. However, in no
event shall the total amount payable by Prudential pursuant to this
Section 3 exceed: Five Hundred Thousand Dollars ($500,000) if
Prudential terminates this Agreement after the date written above and
prior to the thirtieth (30th) calendar day thereafter; Seven Hundred
and Fifty Thousand Dollars ($750,000) if Prudential terminates this
Agreement on or after the thirty-first (31st) day from the date
written above and prior to the Effective Date; and One Million Dollars
($1,000,000) if Prudential terminates this Agreement on or after the
Effective Date.
4
<PAGE>
4. LIMITATIONS ON ACCEPTANCE OF NON-PRUDENTIAL PLANS. BISYS shall not
accept for servicing more than fifteen hundred (1,500) net new defined
contribution pension plans or other retirement plans or accounts,
exclusive of the Plans provided by Prudential hereunder (collectively,
"New Plan Business"), during the initial twelve (12)-month period
commencing on the Effective Date, provided Prudential has provided
BISYS with at least five hundred (500) Plans during such initial
period. If, during the initial twelve (12)-month period commencing on
the Effective Date, BISYS's New Plan Business exceeds the limit
specified in the preceding sentence as a result of an acquisition by
BISYS or one of its affiliates of control, or the assets, of another
entity in the business of providing services comparable to those
provided by BISYS to Plans under this Agreement, BISYS shall promptly
so notify Prudential and BISYS shall consult with Prudential for
Prudential's consent to permit BISYS to exceed such New Plan Business
limit.
5. COMMITMENT TO COMPLETE CERTAIN SERVICE ENHANCEMENTS. BISYS shall
complete installation and implementation of an automated process
tracking system by September 17, 1998, according to specifications
provided to Prudential and attached hereto as Schedule L. BISYS shall
permit Prudential to review and test to its satisfaction the process
tracking system in operation prior to the Effective Date. If, in
Prudential's reasonable business judgment, BISYS fails to materially
comply with the requirements of this Section 5, Prudential may notify
BISYS of such failure, and if, within thirty (30) days after such
notice, BISYS has not cured such failure, Prudential shall have the
right to terminate this Agreement effective immediately upon notice to
BISYS.
6. COMMITMENT TO IMPROVE PIN SECURITY. BISYS shall enhance the security
relating to personal identification numbers ("PINs") by October 6,
1998, as specified in Schedule M attached hereto. BISYS shall permit
Prudential to review and test to its satisfaction the use of PINs, as
enhanced, prior to the Effective Date. If, in Prudential's reasonable
business judgment, BISYS fails to materially comply with the
requirements of this Section 6, Prudential may notify BISYS of such
failure, and if, within thirty (30) days after such notice, BISYS has
not cured such failure, Prudential shall have the right to terminate
this Agreement effective immediately upon notice to BISYS.
7. CONVERSION AND YEAR-END PROCESSING.
(a) BISYS shall complete the conversion of its computer systems, as
planned ("Conversion"), by the Effective Date and shall also
complete the systems enhancements as described and within the
time period(s) specified in Schedule N attached hereto
("Enhancements"). If the Conversion is not substantially
completed, in Prudential's reasonable business judgment, by the
Effective Date or the Enhancements are not materially completed,
in Prudential's reasonable business judgment, as and within the
time period(s) specified in Schedule N, Prudential may notify
BISYS of such
5
<PAGE>
failure, and if, within thirty (30) days after such notice, BISYS
has not cured such failure, Prudential shall have the right to
terminate this Agreement immediately upon notice to BISYS.
(b) After the Conversion, Prudential shall have the right to select a
representative Plan and use it to test, to the extent determined
by Prudential, BISYS's computer systems and related operations
with respect to the services required to be provided by BISYS
under this Agreement. If the results of this test are not
satisfactory to Prudential in its reasonable business judgment,
Prudential may notify BISYS of such failure, and if, within
thirty (30) days after such notice, BISYS has not cured such
failure, Prudential shall have the right to terminate this
Agreement effective immediately upon notice to BISYS.
(c) BISYS represents and warrants that no later than the Effective
Date it shall have, and thereafter maintain, sufficient capacity
(in terms of both systems and personnel), including prudent
excess capacity, to accommodate the Conversion and the Plans
without any adverse effect upon BISYS's ability to perform
properly and in a timely manner the year-end processing required
for the Plans.
(d) BISYS shall demonstrate to Prudential, at such time(s) in
October, November and/or December of 1998 as Prudential and BISYS
shall agree, the effective operation of BISYS's 1998 year-end
processing for Plans.
8. DUE DILIGENCE.
(a) BISYS shall cooperate with Prudential to enable Prudential to
complete, prior to the Effective Date, such due diligence with
respect to BISYS as Prudential shall reasonably deem necessary,
and if the results of such due diligence are not satisfactory, in
Prudential's reasonable business judgment, Prudential may notify
BISYS of such failure, and if, within thirty (30) days after such
notice, BISYS has not cured such failure, Prudential shall have
the right to terminate this Agreement immediately upon notice to
BISYS.
(b) BISYS shall cooperate with Prudential to enable Prudential to
complete, prior to the Effective Date, such due diligence with
respect to Frontier Trust Company as Prudential shall reasonably
deem necessary, and if the results of such due diligence are not
satisfactory, in Prudential's reasonable business judgment,
Prudential may notify BISYS of such failure, and if, within
thirty (30) days after such notice, BISYS has not cured such
failure or provided another party acceptable to Prudential in
lieu of Frontier Trust Company, Prudential shall have the right
to terminate this Agreement immediately upon notice to BISYS.
6
<PAGE>
9. CHANGE OF CONTROL OR SENIOR MANAGEMENT OF BISYS.
(a) In the event of a change of control of BISYS or a transfer of
substantially all of its business to another entity or entities
not under common control with BISYS, BISYS shall promptly notify
Prudential of such change or transfer, and at any time within one
hundred and eighty (180) days after receipt of such notice,
Prudential shall have the right to terminate this Agreement
immediately upon notice to BISYS. For this purpose, control
means fifty percent (50%) or more of the outstanding voting
interests of BISYS.
(b) In the event of a change or planned change in any of the senior
management positions of BISYS, BISYS shall promptly notify
Prudential of such change or planned change. BISYS shall, within
a reasonable period of time which shall not exceed one hundred
and eighty (180) days, fill any vacancy resulting from such
change with a person of at least comparable industry experience
and at least the same level of competence. However, if any
senior management position is eliminated or substantially
modified as a result of a reorganization of BISYS, BISYS will
promptly so notify Prudential and consult with Prudential for
Prudential's consent to the elimination or modification of such
position. If BISYS fails, in Prudential's reasonable business
judgment, to satisfy its obligations under this subsection (b),
Prudential may notify BISYS of such failure, and if, within
thirty (30) days after such notice, BISYS has not cured such
failure, Prudential shall have the right to terminate this
Agreement immediately upon notice to BISYS. For this purpose,
the senior management positions of BISYS are the following:
president, vice president for marketing, director of business
development, senior vice president for plan services, director of
client services, head of operations, and head of systems
development; or their respective equivalents, however named.
10. OTHER PLAN SERVICE PROVIDERS. Prudential and BISYS agree that:
(a) Either Prudential Bank & Trust Company or Prudential Trust
Company (or other person approved by Prudential) shall serve as
the trustee for each Plan under the terms of the Plan's trust
agreement.
(b) BISYS shall make such arrangements with one or more third parties
approved by Prudential as may be necessary for the placement and
processing of orders on behalf of Plans with respect to
Investment Options.
(c) BISYS acknowledges that for each Plan designated by Prudential
pursuant to Section 2(c) of this Agreement, certain recordkeeping
and/or
7
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administrative services will not be required of Prudential, and
accordingly not be provided by BISYS, under the Plan's
Administrative Services Agreement and, instead, will be provided
to the Plan by a third party. BISYS shall coordinate with each
such third-party recordkeeper to ensure the effective delivery of
Services to the affected Plan(s).
11. PRUDENTIAL CLIENTS. BISYS acknowledges and agrees that each of the
Employers and Plans is a client of Prudential and that all information
and records relating to any of them (or to Participants) in connection
with BISYS's services under this Agreement belong to Prudential and/or
each such Employer and/or Plan, as applicable. BISYS shall not,
without the consent of Prudential, market any of its products to
current or prospective Prudential clients identified by or during
BISYS's relationship with Prudential.
12. NEW PLAN ACCOUNTS AND PROTOTYPE CHANGES. The process following the
initial contact with an Employer with respect to a Plan and the
process for responding to an Employer's (or Plan's) request to amend
the Plan which would result in an individually-designed Plan, and the
respective responsibilities of Prudential and BISYS regarding
initiation of Services to that Plan or handling such request, as the
case may be, shall be as set forth on Schedule G attached hereto.
13. PLAN INVESTMENT TRANSACTIONS.
(a) With respect to Plan investment transactions, pricing information
shall be provided, orders shall be placed and settlements shall
be made as provided in Schedule I attached hereto. BISYS shall
provide and maintain appropriate computer systems linking the
system on which it maintains Plan records under this Agreement
with the recordkeeping system maintained by or on behalf of each
Investment Product for its investors. Prudential shall have
on-line access to such BISYS system.
(b) BISYS shall ensure that all of the Plan's Investment Option
accounts reflect Prudential Securities Incorporated as the Plan's
broker of record. Except where commissions are paid through the
National Securities Clearing Corporation, BISYS shall properly
calculate and track all commissions payable to Prudential
Securities Incorporated and its registered representatives with
respect to Investment Options.
(c) BISYS shall have no obligation or duty to inquire into or verify
the investment performance of any Investment Option.
14. MAINTENANCE OF RECORDS. BISYS shall maintain and preserve all records
as required by law to be maintained and preserved in connection with
providing the Services and with the care, skill, prudence and
diligence that a prudent person acting in like capacity and familiar
with such matters would use in maintaining
8
<PAGE>
such records. Upon the request of Prudential, BISYS will provide
copies (or such other form of durable record as Prudential may
approve) of all historical records relating to transactions involving
the Plan(s), written communications regarding the Plan(s) and other
materials, in each case (a) as are maintained by BISYS in the ordinary
course of its business, (b) as may reasonably be requested to enable
Prudential, or its representatives, including without limitation
auditors or legal counsel, to (i) monitor and review the Services,
(ii) comply with any request of a governmental body or self-regulatory
organization or a Plan, (iii) verify compliance by BISYS with the
terms of this Agreement, (iv) make required regulatory reports or (v)
perform general assessment of Services. BISYS will permit Prudential
or such representatives to have reasonable access, during normal
business hours and subject to reasonable notice to BISYS, to its
personnel, records and facilities in order to facilitate the
monitoring of the quality of the Services.
15. CONFIDENTIALITY.
(a) Prudential and BISYS acknowledge that each may be provided with
information about, and BISYS's engagement by Prudential may bring
each into close contact with, confidential and proprietary
information of the other. In addition, Prudential and BISYS each
may be provided with or be exposed to confidential information
of third parties with which the other conducts business. Such
confidential information of a party and of the third parties with
which it does business is collectively referred to as its
"Confidential Information." In recognition of the foregoing,
Prudential and BISYS each covenant and agree that:
(1) it will keep and maintain all Confidential Information of
the other in strict confidence, using such degree of care as
is appropriate to avoid unauthorized use or disclosure;
(2) it will not, directly or indirectly, disclose any
Confidential Information of the other to anyone outside of
the other, except with the other's prior consent;
(3) it will not make use of any Confidential Information of the
other for its own purposes or the benefit of anyone or any
other entity except the other;
(4) it will (A) on termination of discussions between the
parties, or, (B) if BISYS is engaged to perform Services for
Prudential, upon completion of the engagement, or (C) at any
time the other may so request, deliver promptly to the
other, or, at the other's option, destroy all memoranda,
notes, records, reports, media and other documents and
materials (and all copies thereof) regarding or
9
<PAGE>
including any Confidential Information which it may then
possess or have under its control; and
(5) it will take no action with respect to the Confidential
Information that is inconsistent with the confidential and
proprietary nature of such Information.
(b) Prudential and BISYS each shall be permitted to disclose the
Confidential Information of the other only to its employees and
agents ("Employees") having a need to know such information in
connection with the performance of the Services. Prudential and
BISYS each shall instruct all such of its Employees as to their
obligations under this Agreement.
(c) Subject to the provision of Section 11 of this Agreement, for
purposes of this Agreement, Confidential Information shall
include all business information of Prudential or BISYS, as
applicable, including the following:
(1) information relating to its planned or existing computer
systems and systems architecture, including computer
hardware, computer software, source code, object code,
documentation, methods of processing and operational
methods;
(2) policyholder or Participant data, customer lists, sales,
profits, organizational restructuring, new business
initiatives and financial information;
(3) information that describes insurance and financial products,
including actuarial calculations, product designs, and how
such products are administered and managed;
(4) information that describes product strategies, tax
interpretations, tax positions and treatment of any item;
and
(5) confidential information of third parties with which it
conducts business.
(d) Notwithstanding the foregoing, Confidential Information of a
party shall not include information that (1) is or becomes
generally known to the public not as a result of a disclosure by
the other, (2) is rightfully in the possession of the other prior
to disclosure by the first party, or (3) is received by the other
in good faith and without restriction from a third party, not
under a confidentiality obligation to the first party and having
the right to make such disclosure. Prudential and BISYS each
acknowledge that the disclosure of Confidential Information of
the other may cause irreparable injury to the other and damages
which may be difficult to ascertain. Therefore,
10
<PAGE>
Prudential and BISYS each shall, upon a disclosure or threatened
disclosure of any of its Confidential Information, be entitled to
injunctive relief, including, but not limited to, a preliminary
injunction and an order of seizure and impoundment under Section
503 of the Copyright Act upon an EX PARTE application by it to
protect and recover the Confidential Information, and the other
shall not object to the entry of an injunction or other equitable
relief against it on the basis of an adequate remedy at law, lack
of irreparable harm or any other reason. Without limitation of
the foregoing, Prudential and BISYS each shall advise the other
immediately in the event that it learns or has reason to believe
that any person or entity which has had access to Confidential
Information has violated or intends to violate the terms of this
Agreement.
16. DISASTER RECOVERY PLANS; FORCE MAJEURE.
(a) BISYS currently maintains an agreement with a third party whereby
BISYS is to be permitted to use, at no cost to Prudential, on a
"shared use" basis a "hot site" (the "Recovery Facility")
maintained by such party in event of a disaster rendering the
necessary BISYS facilities ("BISYS Facilities") inoperable.
BISYS has developed and is continually revising a business
contingency plan ("Business Contingency Plan") detailing which,
how, when, and by whom data maintained by BISYS at the BISYS
Facilities will be installed and operated at the Recovery
Facility. BISYS shall by August 31, 1998, provide Prudential
with a copy of its then current Business Contingency Plan
applicable to the Plans and shall promptly provide Prudential
with a copy of any amendment or modification to the Business
Contingency Plan. BISYS will, in event of a disaster rendering
the BISYS Facilities inoperable, use reasonable efforts to
convert the computer (or other) systems ("Systems") containing
the designated Prudential and/or Plan data to the computers at
the Recovery Facility in accordance with the then current
Business Contingency Plan. BISYS conducts regular tests of
BISYS's ability to operate the Systems at the Recovery Facility
and shall provide Prudential with reports of the results of such
tests.
(b) In addition to its obligations under the foregoing subsection (a)
of this Section, BISYS shall, by November 16, 1998, have tested
its Business Contingency Plan and its ability to operate the
Systems at the Recovery Facility and have provided to Prudential
a copy of the report(s) of the results of such testing. If the
results of such testing are not satisfactory, in Prudential's
reasonable business judgment, Prudential may notify BISYS of such
failure, and if, within thirty (30) days after such notice, BISYS
has not cured such failure, Prudential shall have the right to
terminate this Agreement immediately upon notice to BISYS.
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<PAGE>
(c) BISYS also currently maintains, separate from the area in which
the operations which provide the Services hereunder are located,
a Crisis Management Center consisting of phones, computers and
the other equipment reasonably necessary to operate a retirement
plan servicing business in the event one of its operations areas
is rendered inoperable. The transfer of operations to other
operating areas or to the Crisis Management Center is also
covered in BISYS's Business Contingency Plan.
(d) Provided it has complied with its obligations under this Section
16, BISYS shall not be responsible or liable for its failure or
delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including, without
limitation: any interruption, loss or malfunction of any utility
or transportation service; inability to obtain transportation or
a delay in mails; governmental or exchange action, statute,
ordinance, rulings, regulations or direction; war, strike, riot,
emergency, civil disturbance, terrorism, vandalism, explosions,
freezes, floods, fires, tornadoes, hurricanes, acts of God or
public enemy, revolutions, or insurrection; or any other cause,
contingency, circumstance or delay not subject to BISYS's
reasonable control which prevents or hinders BISYS's performance
hereunder.
17. FINANCIAL REPORTS.
(a) BISYS agrees to furnish to Prudential annual reports of the
financial condition of The BISYS Group, Inc., the parent company
of BISYS, consisting of a balance sheet, earnings statement and
any other financial information reasonably requested by
Prudential, and shall, on an annual basis, arrange for the
preparation, and promptly furnish to Prudential a copy, of a
report with respect to BISYS that is prepared in accordance with
the requirements of STATEMENT ON AUDITING STANDARDS NO. 70, as
amended from time to time, issued by the American Institute of
Certified Public Accountants (the "SAS 70 Report"). The annual
financial statements will be certified, and the SAS 70 Report
will be prepared and issued, by BISYS's certified public
accountants. Prudential agrees to keep confidential all
information provided to it pursuant to the preceding sentence and
shall not disclose the same to any person, except with the prior
consent of BISYS, or use the same except in connection with
Section 14 of this Agreement, unless such information has been
disclosed by BISYS to the public.
(b) BISYS shall, no later than August 31, 1998, provide Prudential
with a copy of BISYS's SAS 70 Report for the period July 1, 1997,
through June 30, 1998. If BISYS does not do so, or that report
is qualified, or Prudential, in its reasonable business
discretion, determines that the results
12
<PAGE>
of that report are unsatisfactory, Prudential may notify BISYS of
such failure, and if, within thirty (30) days after such notice,
BISYS has not cured such failure, Prudential shall have the right
to terminate this Agreement effective immediately upon notice to
BISYS.
18. COMPLIANCE WITH PLAN TERMS AND LAWS. At all times, BISYS shall comply
in all material respects with all Plan documents and all laws, rules
and regulations applicable to it by virtue of entering into this
Agreement.
19. YEAR 2000 COMPLIANCE.
(a) BISYS represents and warrants that all software, hardware and
electronic data processing systems used or that will be used by
it, and by its suppliers and vendors, prior to, during, or after
the calendar year 2000 in connection with the provision of
services hereunder (the "Software and Hardware"), includes, at no
additional cost to Prudential, any Plan or any Employer, design
and performance capabilities such that BISYS and Prudential in
connection with the services performed hereunder, shall not
experience Software and Hardware abnormally ending and/or invalid
and/or incorrect results from the Software and Hardware in the
operation of its business.
(b) BISYS further represents and warrants that in connection with the
provision of services hereunder, BISYS shall not use (or provide
to any Plan for its use) Software and Hardware that is not "year
2000 compliant." For purposes of this paragraph, the term "year
2000 compliant" shall mean that the data outside of the range
1900-1999 shall be correctly processed in any level of computer
hardware or software, including but not limited to, microcode,
firmware, application programs, files and databases.
(c) BISYS further represents and warrants that the Software and
Hardware will lose no functionality with respect to the
introduction of records containing dates after December 31, 1999,
and that the advent of the year 2000 will not adversely affect
BISYS's performance of the Services.
20. SERVICE IMPROVEMENTS. BISYS represents and agrees that it shall use
reasonable commercial efforts to keep current on the trends of the
retirement plan services industry relating to recordkeeping and
administrative services and shall use reasonable efforts to continue
to modernize and improve at no cost to Prudential. BISYS shall modify
its computer systems and applicable policies, procedures and practices
to timely comply with changes in applicable statutory and regulatory
requirements at no cost to Prudential. Any downtime necessary for
normal systems upgrades and/or maintenance by BISYS shall be on
off-peak hours, and BISYS shall provide Prudential with reasonable
prior notice of any such downtime.
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<PAGE>
21. FEES.
(a) BISYS shall collect on Prudential's behalf the fees and charges
specified on Schedule O attached hereto ("Fees") and may keep
such Fees collected as payment in full for BISYS's satisfactory
performance of its services and obligations under this Agreement.
Prudential shall have no obligation to collect such Fees and
shall have no further liability for payment to BISYS. BISYS
shall have the right to terminate Services for any Plan for
non-payment of fees due for more than ninety (90) days, provided
BISYS shall, at least thirty (30) days prior to any such
termination of Services, have informed Prudential of its
intention to do so.
(b) Upon collection of the installation fee for any start-up Plan
and/or the collection of the conversion fee for any conversion
Plan (as specified in Schedule O), BISYS shall pay Prudential a
one-time fee of $250 for each such Plan, or such other amount as
Prudential and BISYS shall agree. These fees payable by BISYS
may be accumulated and remitted to Prudential no less frequently
than quarterly.
(c) The parties agree that the Fees are for administrative and
recordkeeping services only and do not constitute payment in any
manner for investment advisory or distribution services.
(d) Except as otherwise provided in this Agreement or otherwise
agreed by Prudential and BISYS, each party will bear all expenses
incidental to the performance of its obligations under this
Agreement.
(e) BISYS may charge Employers/Plans the Fees set forth in Schedule O
attached hereto, as such Schedule may be revised from time to
time by agreement of Prudential and BISYS.
(f) BISYS shall have the right to receive sub-transfer agency or
other administrative fees at the annual rate of $6 (or, for Plans
designated by Prudential pursuant to Section 2(c) of this
Agreement, $10) per Participant per mutual fund Investment Option
position, on a quarterly basis, either directly from each
Investment Option (or its affiliate) or indirectly through
Prudential. If, depending on the arrangement with respect to the
particular mutual fund Investment Option, Prudential or BISYS, as
the case may be, does not timely receive direct payment of the
fees due from the mutual fund or its affiliate, then (A)
whichever party is to have directly received such fees shall
promptly so notify the other party and (B) Prudential and BISYS
shall take such action as may be necessary to remove that mutual
fund as an Investment Option or take such other action as
Prudential and BISYS shall, within thirty (30) days after notice
under the preceding clause, agree.
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<PAGE>
22. RELATIONSHIP OF PARTIES. Except to the extent BISYS is expressly
authorized in this Agreement to act as Prudential's limited agent for
certain purposes, it is understood and agreed that all services
performed under this Agreement by BISYS will be as an independent
contractor and not as an employee or agent of Prudential, and neither
party will hold itself out as an agent of the other party with the
authority to bind such party.
23. USE OF NAMES.
(a) Except as otherwise expressly provided for in Schedule P attached
hereto or otherwise in this Agreement, BISYS will not use, nor
allow its employee or agents to use, the name or logo of
Prudential or any affiliate of Prudential, or any products or
services sponsored, managed, advised, administered or distributed
by Prudential, for advertising, trade or other commercial or
noncommercial purposes without the express prior consent of
Prudential.
(b) Except as otherwise expressly provided for in Schedule P attached
hereto or otherwise in this Agreement, Prudential will not use,
nor allow its employees or agents to use, the name or logo of
BISYS, any affiliate of BISYS, or any products or services
sponsored or offered by BISYS or any of its affiliates, for
advertising, trade or other commercial or noncommercial purposes
without the express prior consent of BISYS.
24. REPRESENTATIONS WITH RESPECT TO INVESTMENT OPTIONS. BISYS and its
agents will not make any representations concerning Prudential, or any
Investment Option except those contained in the then current
prospectus of such Investment Option, in current sales literature
furnished by Prudential to BISYS, and/or in current sales literature
created by BISYS and submitted to and approved in writing by
Prudential before first use.
25. LICENSES, INSURANCE AND BONDING.
(a) BISYS shall maintain such licenses as may be necessary for it to
provide its services and perform its obligations under this
Agreement and shall provide Prudential upon request with a copy
of each such license BISYS maintains.
(b) BISYS shall obtain from a company or companies acceptable to
Prudential and maintain in force during the term of this
Agreement and for not less than two (2) years thereafter, the
following insurance coverages in at least the amounts indicated:
(1) Worker's Compensation - Statutory
limits
15
<PAGE>
(2) Employer's Liability
Bodily injury by disease by person - $250,000
Bodily injury by accident - $250,000
Bodily injury by disease policy limit - $250,000
(3) Commercial General Liability, including
Broad Form Property Damage and
Contractual Liability
General Aggregate - $2,000,000
Products/Completed Operations
Aggregate - $2,000,000
Each Occurrence - $1,000,000
Personal and Advertising Injury - $1,000,000
Medical Payments - $5,000/person
(4) Excess Liability - $5,000,000
(5) Comprehensive Auto Liability - $1,000,000
including, Owned, Non-owned combined single
and Hired Car coverage for vehicles limit
which are operated on behalf of
BISYS in furtherance of BISYS's
performance of activities hereunder.
If BISYS does not own any - $1,000,000
vehicles, then non-owned and
hired Auto Liability
(6) Property Coverage
(7) Professional Liability (Errors & Omissions) - $5,000,000
Where applicable, the above policy(ies) shall name Prudential as
an additional insured. BISYS shall, upon request, provide
Prudential with a certificate or certificates of insurance
evidencing that the above-noted insurance requirements have been
satisfied and specifying the Prudential shall receive a thirty
(30)-day advance notice of any cancellation of or reduction in
coverage.
(c) As a part of the fixed price for this Agreement, BISYS shall
obtain from a licensed surety acceptable to Prudential and
deliver to Prudential a fidelity bond which includes employee
dishonesty coverage, with limits in an amount of not less than
Five Million Dollars ($5,000,000) covering BISYS and all BISYS's
agents who provide the Services. Said bond must
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<PAGE>
be blanket in nature covering BISYS and all BISYS agents and
include coverage for property for which BISYS is legally liable.
26. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS. Each party
represents that it is free to enter into this Agreement and that by
doing so it will not breach or otherwise impair any other agreement or
understanding with any other person, corporation or other entity.
(a) BISYS further represents, warrants and covenants that:
(1) it has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform
this Agreement;
(2) with respect to the provision of the Services, it is not,
nor will be, a "fiduciary" of any Plan, as such term is
defined in Section 3(21) of ERISA and Section 4975 of the
Code;
(3) its receipt of the Fees described in Section 21 of this
Agreement will not constitute a non-exempt "prohibited
transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code;
(4) it has and shall maintain policies and procedures to ensure
that the Services are performed in compliance with the terms
of the Plan documents and with the requirements of ERISA,
the Code and all applicable law;
(5) it has and shall maintain personnel policies and procedures
to ensure that its services and obligations are performed in
compliance with this Agreement;
(6) it is not required to be registered as a broker-dealer under
the Securities Exchange Act of 1934, as amended ("1934
Act"), and any applicable state securities laws, including
as a result of entering into, and performing the Services
set forth in, this Agreement;
(7) it has and shall continue to have (or have access to) the
necessary facilities, equipment, software, licenses,
consents, third-party administration licenses, and personnel
(including, but not limited to, the computer or other
systems capabilities necessary to interface with other Plan
service providers and with the Investment Options) to
perform its duties and obligations under this Agreement;
17
<PAGE>
(8) it will provide prior notice to Prudential before entering
into any material new retirement plan servicing arrangements
or terminating any material retirement plan servicing
arrangement currently in effect, and will promptly notify
Prudential of any such change effected by a third party;
(9) to its knowledge, no retirement plan for which it provides
services, or to which it provided services during the past
three (3) years from the date of this Agreement, other than
the plans generally described by BISYS in a notice to
Prudential given prior to August 31, 1998, is or was subject
to an Examination;
(10) as of June 30, 1998, BISYS provided services comparable to
the Services to approximately seven thousand (7,000) plans
qualified under Section 401(k) of the Code;
(11) all transition team and account executive members of the
Service Team in Schedule D shall be dedicated exclusively to
the provision of services under this Agreement, unless
otherwise agreed to by Prudential;
(12) the Services and, to its knowledge, the Software and
Hardware will not infringe upon or violate any copyright,
patent, trade secret or other property right of any third
party;
(13) the Services performed shall in all respects comply with the
standards set forth in Schedule E;
(14) the Services shall be provided in strict conformance within
the time frames and response times for the standards set
forth in Schedule E;
(15) each of BISYS's employees, agents and permitted
subcontractors assigned to perform any Services hereunder,
including the training and/or maintenance Services, shall
have the proper skill, training, and background to perform
such Services and that such Services will be performed in a
competent and professional manner;
(16) BISYS has not paid or caused to be paid and shall not pay or
cause to be paid, directly or indirectly, any wages,
compensation, gifts or gratuities to any employee or agent
of Prudential or to any government agent, official, or
employee for the purpose of influencing any decisions with
respect to the making of this Agreement, or in connection
with any Services contemplated hereby;
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<PAGE>
(17) BISYS represents and warrants that its processing sites have
and shall maintain without cost to Prudential sufficient
capacity, including prudent excess capacity, to accommodate
no later than the Effective Date the Plans and New Plan
Business described in Section 4 of this Agreement; and
(18) to its knowledge, any software or other materials delivered
to Prudential do not contain any virus or any other
contaminant, or disabling devices including, but not limited
to, codes, commands or instructions that may have the effect
or be used to access, alter, delete, impede damage and/or
disable the Services, other software, Prudential information
or other Prudential property, in a manner other than in
accordance with the specifications set forth in Schedule R
attached hereto.
(b) Prudential further represents, warrants and covenants that it has
full power and authority under applicable law, and has taken all
action necessary, to enter into and perform this Agreement.
27. SECURITY REGULATIONS.
(a) BISYS and its employees and agents shall implement and maintain
security regulations consistent with the highest industry
standards as are reasonably necessary for BISYS to perform its
obligations under this Agreement.
(b) BISYS shall exercise due care and diligence in the selection and
training of its employees who shall perform Services.
(a) BISYS shall establish and maintain facilities and written
procedures for the safekeeping of policy forms, check forms and
facsimile signature imprinting devices, if any, and all other
data, documents, reports, records, books, files, and other
materials relative to this Agreement. BISYS shall review and
update such written procedures at least annually. Prudential
shall have the right to review and approve such procedures, such
approval not to be unreasonably withheld.
(d) It is expressly understood and agreed that all data, documents,
reports, records, books, files and other materials relative to
this Agreement shall be the sole property of Prudential and that
such property shall be held by BISYS, during the effective terms
of this Agreement, and shall be furnished, without additional
charge to Prudential in a form agreed upon by Prudential and
BISYS, upon the expiration or termination of this Agreement for
any reason whatsoever or at any time at Prudential's request.
BISYS further acknowledges and agrees that BISYS shall not
19
<PAGE>
possess any interest, title, lien or right to any such Prudential
data, documents, reports, records, books, files or other
materials relative to this Agreement.
(e) Prudential shall, from time to time, provide BISYS with current
forms of policies, applications, and prospectuses for each
Investment Option, as applicable, names and states of license of
all insurance and/or broker-dealer agents and representatives
authorized to see Prudential's customers' policies.
28. SUBCONTRACTING.
(a) BISYS shall not subcontract any material work or Services under
this Agreement without the prior approval of Prudential. If
BISYS does subcontract work, the limited right granted hereunder
to BISYS to subcontract the tasks specified herein is expressly
conditioned upon BISYS's enforcement and protection of the rights
of Prudential pursuant to this Agreement. If any agent or
subcontractor fails to abide by such agreement, BISYS shall
enforce the Agreement to Prudential's reasonable satisfaction.
(b) BISYS shall remain responsible for the performance of all agents
and subcontractors.
(c) BISYS shall include a provision in all of its agreements with
subcontractors stating that such subcontractors shall look to
BISYS for payment and shall under no circumstances look to any
other party, including Prudential, for payment. BISYS agrees to
defend, indemnify and hold Prudential liable for any loss,
damages, costs, expenses (including attorneys' fees) incurred due
to any claims by or against subcontractor regarding breach of the
provisions of the Agreement, including, but not limited to, the
provisions regarding subcontractor looking only to BISYS for
payment for Services which may be rendered.
29. EEO REQUIREMENTS. The following clauses shall apply if required by
applicable law with respect to the performance of this Agreement and
if this Agreement is not otherwise exempt under federal law or
applicable regulations:
(a) BISYS represents that it is an equal opportunity employer, as
described in Section 202 of Executive Order 11246, dated
September 24, 1976, as amended, and, as such, agrees to comply
with the provisions of said Executive Order and its implementing
regulations during the performance of this Agreement; and
20
<PAGE>
(b) BISYS agrees to comply with the affirmative action requirements
of Part 60-741.4 Title 41, Code of Federal Regulations, with
respect to handicapped workers during the performance of this
Agreement; and
(c) BISYS agrees to comply with the affirmative action requirements
of Part 60-240.4, Title 41, Code of Federal Regulations, with
respect to Disabled Veterans and Veterans of the Vietnam Era
during the performance of this Agreement; and
(d) BISYS agrees to comply with the provisions of Executive Order
11625 and its implementing regulations with respect to the
utilization of minority business enterprises during the
performance of this Agreement.
30. INDEMNIFICATION.
(a) BISYS, as indemnitor, agrees to indemnify and hold harmless
Prudential and each of its affiliates, subsidiaries, directors,
officers, employees, agents and each person, if any, who controls
them within the meaning of the Securities Act of 1933, as amended
("Securities Act"), against any losses, claims, damages,
liabilities or expenses (including attorneys' fees) to which an
indemnitee may become subject insofar as those losses, claims,
damages, liabilities or expenses or actions in respect thereof,
arise directly out of or are based upon (i) BISYS's negligence,
reckless disregard or willful misconduct in performing the
Services, (ii) any breach by BISYS of any material provision of
this Agreement, (iii) any material breach by BISYS of a
representation, warranty or covenant made in this Agreement, or
(iv) any personal injury or property damage resulting from the
performance of BISYS's obligations under this Agreement or the
fault or negligence of BISYS's directors, officers, employees or
agents. BISYS will reimburse the indemnitees for any legal or
other expenses reasonably incurred, as incurred, by them in
connection with investigating or defending such loss, claim, or
action. This indemnity agreement will be in addition to any
liability which BISYS may otherwise have.
(b) Prudential, as indemnitor, agrees to indemnify and hold harmless
BISYS and each of its affiliates, subsidiaries, directors,
officers, employees, agents and each person, if any, who controls
BISYS within the meaning of the Securities Act against any
losses, claims, damages, liabilities or expenses (including
attorneys' fees) to which an indemnitee may become subject
insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise directly out of or are
based upon (i) any breach by Prudential of any material provision
of this Agreement, (ii) negligence, reckless disregard or willful
misconduct by Prudential in carrying out its duties and
responsibilities under this Agreement, or (iii) any material
breach by Prudential of a representation, warranty or
21
<PAGE>
covenant made in this Agreement. Prudential will reimburse the
indemnitees for any legal or other expenses reasonably incurred,
as incurred, by them in connection with investigating or
defending any such material loss, claim or action. This
indemnity agreement will be in addition to any liability which
Prudential may otherwise have.
(c) Promptly after receipt by an indemnitee under this Section 30 of
notice of the commencement of an action, the indemnitee will, if
a claim in respect thereof is to be made against the indemnitor,
notify the indemnitor of the commencement of the action in
accordance with the provisions of Section 32 of this Agreement
within seven (7) days after the summons or other first legal
process shall have been served, unless within such seven (7) days
the indemnitor shall have been served in the same action, in
which case such notification may be given within sixty (60) days
provided that the omission so to notify the indemnitor will not
relieve it from any liability that it may have to any indemnitee
under this Section 30 except to the extent that the indemnitor
has been prejudiced in any material respect by such failure. The
omission so to notify the indemnitor will not relieve it from any
liability that it may have to any indemnitee otherwise than under
this Section 30. If any such action is brought against any
indemnitee and it notifies the indemnitor of the commencement of
the action, the indemnitor will be entitled to assume the defense
of the action with counsel reasonably satisfactory to the
indemnitee, and the defendant or defendants in such action
entitled to indemnification under this Agreement will have the
right to participate in the defense or preparation of the defense
of any such action. If the indemnitor elects to assume the
defense of any such action, and to retain counsel of good
standing, the defendant or defendants in such action will bear
the fees and expenses of any additional counsel retained by any
of them; but if the indemnitor does not assume the defense of any
such action, the indemnitor will reimburse the indemnitee(s)
named a defendant or defendants in such action for the fees and
expenses of one single additional counsel agreed upon by them.
If the indemnitor assumes the defense of any such action, the
indemnitor will not, without the prior written consent of the
indemnitee(s), settle or compromise the liability of the
indemnitee(s) in such action, or permit a default or consent to
the entry of any judgment regarding the action, unless in
connection with such settlement, compromise or consent each
indemnitee receives from such claimant an unconditional release
from all liability in respect of such claim.
(d) IN NO EVENT SHALL EITHER PARTY UNDER THIS AGREEMENT BE LIABLE TO
THE OTHER PARTY UNDER ANY PROVISION OF THIS AGREEMENT FOR ANY
SPECIAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, AND IN NO
EVENT SHALL EITHER PARTY'S LIABILITY FOR
22
<PAGE>
DIRECT DAMAGES EXCEED THE GREATER OF ONE MILLION DOLLARS
($1,000,000.00) OR THE FEES RECEIVED BY BISYS PURSUANT TO THIS
AGREEMENT DURING THE PRECEDING CALENDAR YEAR. NOTWITHSTANDING
ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, THE
LIMITATIONS ON LIABILITY AND REMEDIES CONTAINED IN THIS SECTION
SHALL NOT APPLY TO LIABILITY ARISING OUT OF OR BASED UPON THE
PARTY'S GROSS NEGLIGENCE, RECKLESS DISREGARD OR WILLFUL
MISCONDUCT.
31. TERM AND TERMINATION. Subject to Prudential's right to terminate this
Agreement in accordance with the provisions of Sections 5, 6, 7(a),
7(b), 8, 9, 16(b) and 17(b) of this Agreement, which shall be without
penalty to Prudential or further obligation of Prudential under
Section 3 of this Agreement, and subject also to Prudential's right to
terminate this Agreement in accordance with the provisions of Section
3 of this Agreement:
(a) The initial term of this Agreement shall be two (2) years from
the Effective Date and shall automatically be extended for
successive two (2)-year terms unless, at least one hundred and
eighty (180) days prior to the end of such initial or subsequent
term, BISYS gives Prudential notice that such term shall not be
extended.
(b) If BISYS shall fail to provide the Services in material
compliance with its obligations under this Agreement, which with
respect to the Services described in Schedule E of this Agreement
shall mean compliance with the standards set forth in Schedule E,
Prudential may give notice of such failure, and if, within thirty
(30) days after such notice, BISYS has not cured such failure,
Prudential may, without penalty or further obligation under
Section 3 of this Agreement, cease to provide additional Plans
for servicing by BISYS.
(c) If BISYS shall fail to provide the Services in material
compliance with its obligations under this Agreement, which with
respect to the Services described in Schedule E of this Agreement
shall mean compliance with the standards set forth in Schedule E,
Prudential may give notice of such failure, and if, within ninety
(90) days after such notice, BISYS has not cured such failure,
Prudential may, without penalty or further obligation under
Section 3 of this Agreement, request that BISYS transfer, to
Prudential or other service provider specified by Prudential,
responsibility for servicing such Plan(s) as Prudential shall
designate. Any such transfer of Plan servicing to Prudential or
another service provider shall be timely implemented at the
highest industry standards, including but not limited to the
standards set forth in Schedules E and Q attached hereto, at no
charge
23
<PAGE>
to Prudential or the affected Employer(s) or Plan(s). BISYS's
failure to satisfy the requirements of this Section 31(c) shall
be deemed harmful to Prudential's interests and shall result in
BISYS's obligation to pay Prudential the amount of One Thousand
Dollars ($1,000.00) for each Plan not properly or timely
transferred due to BISYS's (or its agents' or subcontractors')
actions or inaction. Prudential shall determine whether BISYS
has met its transfer obligations under this Section 31(c) by
applying the standards set forth in Schedules E and Q.
(d) Upon one hundred and eighty (180) days prior notice to BISYS and
effective on a date after the initial term of this Agreement
("Transfer Date"), Prudential may request that BISYS transfer
over the two (2) years following the Transfer Date, to Prudential
or other service provider specified by Prudential, responsibility
for servicing such Plan(s) as Prudential shall designate;
provided, however, that BISYS shall not be obligated to transfer
during the initial twelve (12)-month period following the
Transfer Date more than one-half (1/2) of the Plans for which
BISYS is providing Services on the Transfer Date. Any such
transfer of Plan servicing to Prudential or another service
provider shall be timely implemented at the highest industry
standards as set forth in Schedules E and Q, at no charge to
Prudential or the affected Employer(s) or Plan(s). Prudential
shall pay to BISYS, within thirty (30) days after the close of
each month during which Plans are transferred, an amount equal to
Twenty-Five Hundred Dollars ($2,500) times the number of Plans
successfully transferred during such month. The foregoing
provisions of this Section 31(d) notwithstanding, after the
initial term of this Agreement, Prudential may, during any twelve
(12)-month period, upon ninety (90) days prior notice to BISYS,
request that BISYS transfer to Prudential or other service
provider specified by Prudential, responsibility for servicing up
to five percent (5%) of the then-serviced Plans and, subject to
approval by BISYS, up to five percent (5%) of the number of
then-serviced Plans in excess of one thousand (1,000), without
obligation for payment under this Section 31(d).
(e) Upon one hundred and eighty (180) days prior notice to Prudential
and effective after the initial term of this Agreement, BISYS may
terminate its obligation to accept additional Plans.
32. NOTICE. Each notice required by this Agreement must be in writing and
delivered personally or mailed by certified mail or courier service to
the other party at the following address (or such other address as
each party may give notice to the other):
24
<PAGE>
If to Prudential, to: *
Gavin J. Cerco, Vice President, Defined
Contribution Services
Prudential Investments
30 Scranton Office Park
Scranton, PA 18507
* with a copy to:
Mindy R. Leeds, Esq., Chief Legal Officer
Prudential Investments, Retirement Services
100 Mulberry Street, Gateway Center 3,
12th Floor
Newark, NJ 07102
If to BISYS, to: *
Al Shemtob, President
BISYS Plan Services, L.P.
323 Norristown Road
Ambler, PA 19002
* with a copy to:
The BISYS Group, Inc.
150 Clove Road
Little Falls, NJ 07424
Attention: General Counsel
33. COMPLETE AGREEMENT. This Agreement contains the full and complete
understanding of Prudential and BISYS and supersedes all prior
representations, promises, statements, arrangements, agreements,
warranties and understandings between Prudential and BISYS with
respect to the subject matter of this Agreement, whether oral or
written, express or implied.
34. MODIFICATION AND APPROVAL. This Agreement may be modified or
amended, the terms of this Agreement may be waived, and any
agreement of Prudential and BISYS, or the approval or consent of
either of them, required herein may be made, only by writing signed
by such party. Any approval or consent required in this Agreement
shall not be unreasonably withheld or delayed.
35. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New Jersey applicable to
agreements fully executed and to be performed therein, without
reference to choice of law
25
<PAGE>
principles. Any suit, action or proceeding arising out of or
relating to this Agreement shall be brought in a New Jersey court,
and BISYS hereby consents to the exclusive jurisdiction of the
courts of New Jersey.
36. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same Agreement.
37. ASSIGNMENT. This Agreement cannot be assigned by either party
hereto, without the prior written consent of the other parties
hereto, except that a party may assign this Agreement to an
affiliate having the same ultimate ownership as the assigning party
without such consent.
38. SURVIVAL. The provisions of Sections 11, 14, 15, 23, 24, and 30
will survive termination of this Agreement.
39. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that
this Agreement and the arrangement it describes herein are intended
to be non-exclusive and that each of the parties is free to enter
into similar agreements and arrangements with other entities,
subject to the other provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of the day and year written above.
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By:
------------------------------
Mark R. Fetting
Its: Senior Vice President
BISYS PLAN SERVICES, L.P.
By:
------------------------------
Al Shemtob
Its: President
26
<PAGE>
SCHEDULE A TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
Schedule A-1 attached hereto is the form of Prudential's Administrative Services
Agreement for new, full-service Plans. Schedule A-2 attached hereto is the form
of Prudential's Administrative Services Agreement for TPA Alliance Programs.
A-1
<PAGE>
SCHEDULE A-1 TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
PRUDENTIAL INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE SERVICES AGREEMENT
This AGREEMENT is made and entered into by and between _______________
("Employer") on behalf of the __________________ (the "Plan"), and The
Prudential Insurance Company of America ("Prudential"), a New Jersey mutual life
insurance company on this _______ day of _______, 199__ .
The Employer represents and Prudential acknowledges that:
- The Plan is or will be in existence at the time funds are deposited
with Prudential;
- The Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and a related Trust
(the "Trust") exists which is intended to be qualified under Section
501(a) of the Code, and
- The Employer, as Plan Administrator, desires Prudential to perform
certain administrative services for the Plan and to provide certain
assistance to the Employer as more fully described in this Agreement,
and Prudential is willing to perform those services .
In consideration of the premises and mutual covenants contained in this
Agreement, the Employer and Prudential agree as follows:
1. SERVICES.
a. SERVICES TO BE RENDERED BY PRUDENTIAL. Prudential will perform the
following services:
i. PLAN RECORDKEEPING. Prudential will provide to the Plan the
record- keeping services included in Exhibit A to this
Agreement.
ii. PLAN DOCUMENTATION AND DISCLOSURE SERVICES. Prudential will
provide Plan services support to the Plan as described in
Exhibit B to this Agreement.
iii. PLAN TESTING. Prudential will provide Plan testing as included
in Exhibit C to this Agreement.
iv. ADDITIONAL SERVICES. In addition to the foregoing services,
Prudential may provide such other services, and be paid such
amounts therefor, as may from time to time be agreed upon in
writing by the parties.
A-2
<PAGE>
b. NATURE OF SERVICES.
i. RECORDKEEPING ONLY. The Employer understands and agrees that
Prudential's sole function under this Agreement is to act as
recordkeeper and to provide other services at the direction of
the Employer or its agents or designee in accordance with the
terms of this Agreement. Under the terms of this Agreement,
Prudential does not render investment advice, is not the Plan
Administrator, trustee or a Plan fiduciary, as that term is
defined under the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and does not provide legal, tax or
accounting advice with respect to the creation, adoption or
operation of the Plan and the Trust.
ii. DISCONTINUANCE OF SERVICES INCONSISTENT WITH ROLE. If, based
on changes in the applicable regulatory structure or the
interpretation of the regulatory structure, there is a
reasonable likelihood that any service being, or to be,
provided under this Agreement by Prudential could constitute a
discretionary function and thereby subject Prudential to
classification as a "fiduciary" under ERISA with respect to the
Plan, and such service could not be restructured in a manner
that would not subject Prudential to classification as a
"fiduciary" under ERISA, then Prudential, upon reasonable
notice to the Employer may decline to thereafter provide that
service. The failure to provide any such service shall not
constitute a breach of Prudential's obligations under this
Agreement.
c. RELIANCE UPON PLAN DATA. All services provided by Prudential
hereunder shall be based on information supplied by the Employer or
any other designee or agent of the Employer (as designated by the
Employer). The Employer acknowledges that the timely provisions of
accurate, consistent and complete data in the format specified by
Prudential is essential to its delivery of services, and the Employer
is responsible for ensuring such timely and accurate data is delivered
to Prudential in Prudential's approved format. For these purposes,
"Plan Data" means all data and records supplied to Prudential,
obtained by Prudential or produced by Prudential (based on data or
records supplied to, or obtained by, Prudential) in connection with
performing the services pursuant to this Agreement. Plan Data
includes current participant names, addresses and status.
d. RELIANCE UPON NAMED ADMINISTRATORS AND TRUSTEES. Employer will
provide names and other information for persons authorized to take
actions for or provide information on behalf of the Plan and Trust.
Until notified of a change, Prudential may reasonably rely upon this
information and may act upon instructions received from and/or on
information provided by these named persons. Prudential has the right
to assume that those persons continue to be authorized unless notified
otherwise.
A-3
<PAGE>
2. COMPENSATION. In consideration for its services provided hereunder, the
Employer shall pay Prudential in accordance with the Fee Schedule provided
at Exhibit D. Prudential may amend the schedule for services not yet
rendered upon giving notice in writing under the same conditions specified
in Section 7.b. The Employer shall pay all fees within thirty (30) days of
the Prudential invoice date. Any fees not paid when due may be deducted by
Prudential from the trust fund, without prior notice to the Employer. The
Employer shall pay any and all costs that may be incurred by Prudential in
charging the trust fund for these fees. The Employer also agrees that it
shall empower the Trustee to pay compensation to Prudential for services
provided hereunder.
3. INVESTMENTS; GOOD ORDER.
a. INVESTMENTS--GENERALLY. Prudential will invest all assets of the
Trust only as directed in writing or via any authorized phone or
Internet transaction, if applicable:
i. By Participants - to the extent the Plan Adoption Agreement
provides for investment direction by Participants.
ii. By the Employer - to the extent the Plan Adoption Agreement
provides for investment direction by the Employer.
b. UNCLEAR INVESTMENT INSTRUCTIONS; GOOD ORDER.
i. UNCLEAR INVESTMENT INSTRUCTIONS. Prudential will forward
contributions for investment into a short-term interest-bearing
investment contribution account if Prudential determines that
no proper investment directions are in effect. Once proper
instructions are received, Prudential will forward the new
instructions so that contributions can be re-invested and
related earnings can be allocated accordingly.
ii. GOOD ORDER.
a) CONTRIBUTIONS. Prudential will use its best efforts to
process all contributions received in good order on the day
good order is achieved, PROVIDED, HOWEVER, that Prudential
reserves the right to process all contributions received in
good order at Prudential within seventy-two (72) hours of
receipt. Contributions are in "good order" when the
contribution roster remitted by the Employer agrees with the
contribution funding, and when the social security number
and money type correspond to social security numbers and
money types of participants previously enrolled on
Prudential's recordkeeping system.
In the event contribution data is NOT IN GOOD ORDER,
Prudential shall attempt to obtain clarification from the
Employer as to the proper
A-4
<PAGE>
contribution amount and/or funding allocations. The
Employer acknowledges and directs that contributions will be
deposited in an interest or non-interest bearing account (at
Prudential's discretion) until such time as the roster,
contribution amount, and funding allocation are reconciled.
In the event Prudential is unable, in its sole judgment, to
obtain such clarification within thirty (30) days of receipt
of contribution amounts, then Prudential shall return all
such contribution amounts to the Employer's Temporary
Trustee. The Employer hereby agrees that the Employer or
other Employer designated person(s) authorized to take
actions for the Plan and the Trust will constitute the
Temporary Trustee, serving under the terms of the Trust
indenture then in effect, for the limited purposes of
receiving contributions returned as not in good order and
holding them as Plan trustee pending further instructions
from the Employer. Employer understands and agrees that it
shall not have any claim against Prudential or any affiliate
of Prudential in the event that Prudential returns
contribution amounts pursuant to the provision of this
paragraph. Employer further understands and agrees that the
Plan and the Employer will bear the investment risk during
this period.
b) DISTRIBUTIONS. Prudential will process all distribution
requests received in good order at Prudential within three
(3) business days of receipt of said distribution request by
Prudential. Distribution checks will be issued within seven
(7) days of receipt of good order. Distributions are in
"good order" when the distribution request contains all
pertinent information (including type and form of
distribution, any critical dates needed to process the
distribution and, if applicable, all necessary rollover
instructions) and appropriate signatures (including spousal
consent to the extent deemed necessary by the Employer).
c. Employer acknowledges that it:
i. Received a prospectus of each of the Prudential Mutual Funds
and any other mutual funds offered by Prudential in which Plan
participants may invest.
ii. Reviewed such prospectus(es) and is familiar with the fees and
expenses described therein, and that such fees and expenses are
reasonable.
iii. Understands that any Contingent Deferred Sales Charge that may
be due as a result of a sale by the Trust of shares of
Prudential mutual funds and other investment products offered
by Prudential or its affiliates concurrent with or following
the termination of this Agreement, shall not be waived.
A-5
<PAGE>
d. FEES TO PRUDENTIAL AFFILIATES. Employer acknowledges that Prudential
may be deemed to benefit from:
i. Advisory and other fees paid to its affiliates for managing,
selling, or settling of the Prudential mutual funds and other
investment products offered by Prudential or its affiliates
selected as investment options available under that Plan; and
ii. Contingent Deferred Sales Charges imposed in certain instances
on shares of funds, as described in the applicable fund
prospectuses.
Employer also acknowledges that Prudential benefits directly from:
iii. Transfer agent fees paid to it by the Prudential mutual funds
and other investment products offered by Prudential or its
affiliates; and
iv. Fees paid to Prudential in connection with the Guaranteed
Interest Account.
e. INVESTMENT OF FORFEITURE ACCOUNT. Employer agrees that all amounts
maintained as forfeitures will be moved into a fund or account that
Employer and Prudential agree in writing is appropriate to hold
forfeitures pending their reallocation under the terms of the Plan.
4. USE OF AGENTS OR SUBCONTRACTORS. Prudential may perform any of the services
described in this Agreement through agents and subcontractors selected by
Prudential. Prudential specifically selected BISYS Plan Services, L.P. to
provide certain recordkeeping and administrative services under this
agreement to the Plan. Prudential shall adequately supervise any such
agent or subcontractor and the retention of agents or subcontractors shall
not relieve Prudential of its duties hereunder.
5. PRUDENTIAL NOT LEGAL COUNSEL. Employer understands and agrees that it
shall review with its legal and/or tax counsel all documents provided to it
by Prudential and that Employer should consult such counsel on any
questions concerning Employer's responsibilities under this Agreement, the
Plan's documents, and the legal sufficiency of any documents so provided.
Employer understands that neither Prudential nor any of its affiliates are
permitted to provide Employer with legal or tax advice or otherwise engage
in the practice of law. Employer acknowledges that it will not rely on any
information provided as if it were legal or tax advice.
A-6
<PAGE>
6. INDEMNIFICATION.
a. INDEMNIFICATION OF PRUDENTIAL. The Employer shall hold harmless and
indemnify Prudential and its employees, agents, and subcontractors
("Indemnitees") from and against any loss, damage, liability, claims,
costs and expenses, including reasonable attorneys' fees
("Liabilities"), to which the Indemnitees may become subject, which
result from:
i. Any misrepresentation or nonfulfillment of any terms of this
Agreement by the Plan, the Employer, the Plan Administrator or
other Plan fiduciary (including, but not limited to,
Liabilities resulting from the provision of inaccurate,
untimely, or incomplete information to Prudential or the
failure to provide Prudential with clear instructions as to
matters relating to contributions, investment selections, or
distributions).
ii. Any failure by the Plan, the Employer, the Plan Administrator
or other Plan fiduciary to comply with the terms of the Plan,
iii. A violation by the Plan, the Employer, the Plan Administrator
or other Plan fiduciary of the requirements of applicable
Federal and/or state laws,
iv. The making by Prudential of any benefit payment based upon
instructions that Prudential reasonably believes to be
authorized, and
v. Any action, conduct or activity, including the failure to take
action or to perform any activity taken by Prudential at the
direction of the Employer, Plan Administrator or Trustee,
provided that Prudential reasonably believes the direction to
be valid and is not negligent in the execution of such
directions.
b. INDEMNIFICATION OF EMPLOYER. Prudential shall hold harmless and
indemnify the Employer from and against any loss, damage, liability,
claims, costs and expenses, including reasonable attorneys' fees, to
which the Employer may become subject, which result from:
i. Any misrepresentation or nonfulfillment of any terms of this
Agreement by Prudential, and
ii. Prudential's violation of the requirements of applicable
Federal and/or state laws, except when resulting from the
failure to take action or any action taken at the direction of
the Employer, the Employer's agent or designee, or Trustee,
provided that Prudential reasonably believes the direction to
be valid and is not negligent in the execution of such
directions.
A-7
<PAGE>
7. DURATION; TERMINATION; SUCCESSOR RECORDKEEPER.
a. DURATION. This Agreement will continue in effect until terminated.
b. TERMINATION. Each party may terminate this Agreement upon sixty (60)
days prior written notice to the other. Such notice shall be deemed
to have been given three (3) days after mailing in the U.S. mail or
immediately upon receipt if delivered to the address set forth below.
The notice period may be waived by the party entitled to the notice.
c. SUCCESSOR RECORDKEEPER. Upon termination, the parties agree that
Prudential shall have no further duty or responsibility to the Plan
under this Agreement. However, Prudential will use reasonable efforts
to transfer all relevant non-Prudential proprietary information
concerning the Plan, in Prudential's standard format, to the Employer
or to a successor recordkeeper. Any unforeseeable costs or expenses
incurred by Prudential in effecting this transfer shall be paid by the
Employer unless waived in writing by Prudential. Employer agrees that
Prudential may charge reasonable fees for the provision of requested
records or reports that Prudential previously provided.
d. SURVIVAL OF INDEMNIFICATION AND INVESTMENTS. The Employer acknowledges
and agrees that the indemnification provisions of paragraph 6 shall
survive the termination of this Agreement. The Employer understands
and acknowledges that the termination of this Agreement shall not
require the sale by the Trust of shares of Prudential mutual funds
held by the Trust (unless specifically requested by Prudential in
writing).
8. NOTICES. Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when
so delivered personally, telegraphed or telexed or, if sent by facsimile
transmission, upon the recipient's oral verification by telephone of
receipt or, if mailed, three (3) days after the date of deposit in the U.S.
mail, as follows:
If to BISYS on behalf of Prudential: (By other than U.S. mail)
(By U.S. mail)
The Prudential Insurance Company of The Prudential Insurance Company of
America America
c/o BISYS Plan Services, L.P. c/o BISYS Plan Services, L.P.
323 Norristown Road
Ambler, PA 19002
A-8
<PAGE>
If to the Employer:
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
9. ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the Exhibits
hereto, contains the entire Agreement among the parties hereto with respect
to the subject matter hereof, and there are no other Agreements written or
oral, relating to the subject matter hereof other than those explicitly set
forth herein or attached hereto. This Agreement may be amended at any
time, but only when agreed to in writing by the parties.
10. CONSTRUCTION. This Agreement is the result of negotiation by both parties,
and, therefore, no claim shall be made to construe any portion of the
Agreement against either party on the basis of such party's participation
in the negotiating thereof.
11. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns and legal representatives. Neither this Agreement, nor any right
hereunder, may be assigned by any party without the written consent of the
other parties hereto.
12. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall
be an original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the
parties hereto.
13. HEADINGS. The headings in this Agreement are for reference only, and shall
not affect the interpretation of this Agreement.
14. SEVERABILITY. If any word, phrase, sentence, paragraph, provision or
section of this Agreement shall be held, declared, pronounced or rendered
invalid, void, unenforceable or inoperative for any reason by any court of
competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect
any other word, phrase, sentence, paragraph, provision or section of this
Agreement, which shall otherwise remain in full force and effect and be
enforced in accordance with its terms.
A-9
<PAGE>
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of New Jersey applicable to agreements made and to
be performed entirely within such State.
15. THIRD PARTY BENEFICIARIES. The provisions of this Agreement are solely for
the benefit of the parties hereto and their Affiliates and are not intended
to confer upon any person except the parties hereto any rights or remedies
herein.
17. UNFORESEEN CIRCUMSTANCES. Prudential shall not be liable for any default
or delay in the performance of its services under this Agreement if and to
the extent such default or delay is primarily caused, directly or
indirectly, by
a. fire, flood, elements of nature or other acts of God;
b. any outbreak or escalation of hostilities, war, riots or civil
disorders in any country;
c. any act or omission of the other party or any governmental authority;
or
d. nonperformance of a third party or any similar cause beyond the
reasonable control of Prudential, including without limitation,
failures or fluctuations in telecommunications or other equipment.
In any such event, Prudential shall be excused from any further performance
and observance of the obligations so affected only for as long as such
circumstances prevail and Prudential continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
18. WRITING AND SIGNATURE. Unless otherwise explicitly required by law,
a. Any requirement for a writing under this Agreement may be rendered in
any form that can reliably reproduce an accurate physical record of
the communication and authenticate the source, including but not
limited to facsimile transmission, electronic mail, indexed telephone
recording, or Internet transmission.
b. Any requirement of a signature under this Agreement may be rendered in
any form clearly indicated by the signatory to be a signature or which
complies with instructions directly given to the signatory as to the
proper form of indicating a signature in an electronic or voice
response environment. Appropriate forms include, but are not limited
to, personal identification numbers rendered over the Internet,
facsimile transmissions, and unique telephone keypad combinations
pressed during recorded calls.
Notwithstanding a. or b., above, the recipient of any writing or signature
under this Agreement may require the confirmation of any writing or
signature in physical form (such as hand or typewritten or the equivalent)
with a manual signature.
A-10
<PAGE>
IN WITNESS THEREOF, the Employer has caused this Agreement to be executed by its
duly authorized representative.
Date Signed:
----------------------------------
Date Agreement Effective:
----------------------------------
First period or year for
which records are to be
compiled and reports to be
generated (start/end): ----------------------------------
Employer Authorized By: Prudential Authorized By:
- - - ----------------------------------- -----------------------------------
Name Name
- - - ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
- - - ----------------------------------- -----------------------------------
Title Title
This Agreement is not effective until properly countersigned by an authorized
representative of Prudential.
A-11
<PAGE>
EXHIBIT A
Administration and Recordkeeping Services
Prudential will provide the following administrative services under this
Agreement:
1. TRANSITION SERVICES:
a. TRANSFER OF EXISTING RECORDS - Prudential will use the data supplied
by the Employer and its current recordkeeper to transfer all existing
participant records from the current recordkeeping system to the
Prudential system, if applicable. Prudential will rely on the data
received and will not be responsible for omissions or incorrect data
supplied by the Employer or the current recordkeeper. Prudential will
establish recordkeeping accounts in the investments selected by the
Employer. If the data is not in an electronic format acceptable to
Prudential, additional fees may apply, as more fully described in
Exhibit D.
b. REVIEW PROTOTYPE AND PRIOR DOCUMENT - Prudential will prepare for
Employer review and execution the prototype documents. If applicable,
any prior plan documents shall be reviewed for consistency with the
administrative requirements of Prudential's systems and will provide a
suggestion of benefits, rights, or features that may require
preservation.
c. ENROLLMENT AND COMMUNICATIONS - Prudential will provide a welcome
package and its standard enrollment kit with standard forms and
notices necessary to implement the Plan's administration. Prudential
will process all enrollment agreements received and report to the
Employer when contributions may commence.
d. IRS DETERMINATION LETTER - If the Plan uses an Adoption Agreement not
covered by Prudential's opinion letter (such as a Non-Standardized
Adoption Agreement or certain Standard Adoption Agreements),
Prudential urges the Employer to submit the Plan to the IRS for a
determination that the Plan is qualified in form. Prudential will
provide basic plan information, such as participant counts, to support
a determination letter request at no additional charge. Prudential
does not represent clients before the IRS but will prepare Form 5307
subject to the payment of fees as indicated in Exhibit D.
2. PLAN RECORDKEEPING:
a. PARTICIPANT ACCOUNTS: Prudential will establish a participant account
for each Plan participant for whom it receives records. Prudential is
not responsible for determining if such Plan participants are eligible
under the terms of the Plan.
b. PARTICIPANT FILES: Prudential maintains files for all participants
for whom participant accounts have been established. These files
include enrollment forms,
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-12
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
beneficiary designation forms (to the extent provided to Prudential)
and all other written correspondence and documents concerning each
participant's account.
c. CONTRIBUTION PROCESSING: Prudential processes the investment of Plan
contributions when the information is supplied in good order.
Prudential deposits those contributions into the investments provided
for under the Pan, in accordance with the allocation instructions
received from the Employer or Plan participants (if the Plan provides
that participants may direct the investment of contributions made on
their behalf). Prudential will supply automated contribution software
free of charge to Employers who request it. This software should
enable contributions to be processed more efficiently and will help
the Employer avoid Data Submission charges described in Exhibit D.
d. TRANSFERS BETWEEN INVESTMENT OPTIONS: In accordance with the requests
of Plan participants or other authorized representative of the
Employer, Prudential processes transfers of amounts held in
participant accounts among the investment options provided for under
the Plan.
e. DISTRIBUTION PROCESSING: Prudential will process requests for payment
to participants, beneficiaries and alternate payees as permitted by
the Adoption Agreement and upon being notified by the Employer that
the payee has met the necessary standards for withdrawals. Prudential
will provide the Employer (or other individual at the direction of the
Employer) with the funds and the prescribed IRS tax notice to payees.
Prudential will provide the appropriate Form 1099R following the end
of the year in which the distribution occurred.
f. LOAN PROCESSING: To the extent loans are permitted under the Plan,
Prudential will provide a package of standard loan documentation such
as loan policies and notes (for review by Employer's legal counsel)
and will:
i. Disburse loan proceeds upon the Employer's approval; and
ii. Provide for systematic crediting of loan repayments and
re-investment in appropriate funds. Loan repayments will be
made via payroll deduction.
g. ALLOCATE EARNINGS/LOSSES - Prudential will adjust participant accounts
daily for investment performance for those investment options that
price daily; for all other investments, participant accounts will be
periodically adjusted, depending on the investment.
h. QUALIFIED DOMESTIC RELATIONS ORDERS - Upon certification by the
Employer that a domestic relations order is a Qualified Domestic
Relations Order, Prudential will establish a separate participant
record for the alternate payee.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-13
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
3. REPORTS:
a. PERIODIC REPORTS - Prudential will provide Plan-level reports
utilizing the information maintained on its recordkeeping system.
Reports will summarize all transactions that occurred for each
participant within the specified time period. Plan level reports are
normally generated on a quarterly basis.
b. FINANCIAL STATEMENTS - Prudential will provide Plan level information
on each available investment option for the purpose of trust
reporting.
c. 5500 REPORTING - Prudential will supply key information from its
recordkeeping system necessary for the Employer to complete Form 5500,
to be filed annually. This report will not include information or
values from non-Prudential sources. If the Employer requests,
Prudential, with the assistance of the Employer or other service
providers, will complete a signature ready Form 5500 for an additional
fee, as described in Exhibit D.
4. ACCOUNT EXECUTIVES: A Prudential Account Executive will be available at a
toll free number from 8:30 a.m. to 6:00 p.m., Eastern time, Monday through
Friday, to assist the Employer.
5. PARTICIPANT SERVICES:
a. PARTICIPANT SERVICE REPRESENTATIVES - Participant service
representatives will be available at a toll free telephone number from
8:30 a.m. to 6:00 p.m., Eastern time, Monday through Friday, to assist
participants.
b. VOICE RESPONSE AND INTERNET SERVICES - By calling a toll-free number
or, if applicable, logging onto the Prudential Web site, participants
can access certain account information at any time. The Employer must
contact its Prudential representative to initiate these services. At
such time as these services are available, participants will be able
to direct investment changes, loans distributions and other services
calling the toll-free number, or, if applicable, by logging onto the
Prudential Web site.
c. PARTICIPANT STATEMENT OF ACCOUNT - Participants will receive standard
quarterly statements. Statements can include inserts and/or
customized messages provided by Prudential or the Employer.
Statements will be mailed directly to the participants' homes, unless
the Employer requests that they be bulk-mailed to the Employer for
distribution. At such time as Internet service is available,
participants will be able to access their account information by
logging onto the Prudential Web site.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-14
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT B
Plan Document Services
Prudential will provide the following documentation services:
1. MAINTENANCE OF PROTOTYPE
a. Prudential will automatically update the base Prudential sponsored
Prototype Plan Document, adopted by the Employer, as required by
changes in the law and regulations that do not require changes to the
Adoption Agreement. Prudential will provide the updated Prototype
Plan Document to the Employer within a reasonable period of time after
any update.
b. Prudential will inform the Employer of changes to the Adoption
Agreement required by law or regulatory changes and will provide the
Employer with a revised copy of the Adoption Agreement for completion
and execution, or, if applicable, with a model amendment.
c. Prudential will process new Adoption Agreements to implement changes
to the Plan desired by the Employer and return the Adoption Agreement
to the Employer for review and execution. Preparation of the Adoption
Agreement or systems changes to implement them will be billed at
Prudential's Optional Service rates listed in Exhibit D.
2. REVISION OF SUMMARY PLAN DESCRIPTION (SPD)/SUMMARY OF MATERIAL
MODIFICATIONS (SMM) FOR CHANGES IN PROTOTYPE
a. Prudential will provide the Employer with a revised SPD or SMM to
reflect changes made due to base Plan Document or Adoption Agreement
changes required by law or regulatory changes.
b. Prudential will provide the Employer with a revised SPD or SMM to
reflect any Employer initiated amendments at Prudential's service
rates listed in Exhibit D.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-15
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT C
Nondiscrimination and Qualification Testing
Any test or check of operational compliance will be performed by Prudential as
soon as reasonably possible following receipt of all necessary information.
Should Prudential act as soon as reasonably possible and a test or check is not
timely, the Employer will be responsible for all resulting taxes or
consequences.
1. Prudential will perform tests or monitor compliance with qualified plan
requirements as follows:
a. EXCESS DEFERRALS: Prudential will monitor each participant's
contributions to the Plan against the maximum deferral limit [Section
402(g)] and periodically report to the Employer. It is the Employer's
responsibility to act upon the information provided.
b. ACTUAL DEFERRAL PERCENTAGE (ADP) AND ACTUAL CONTRIBUTION PERCENTAGE
(ACP) TESTS: Prudential will conduct ADP, and, as appropriate, ACP
tests using Employer-provided information as follows:
i. [ONE MID-YEAR INTERIM TEST;
ii. ONE YEAR-END TEST;]
The Employer is responsible for determining which of its employees are
Highly Compensated Employees (HCE) and understands that no test will
be run until all necessary information is provided in good order by
the Employer. Additional tests or determinations may be undertaken
(for an additional charge) as follows:
iii. Additional ADP/ACP tests; and
iv. HCE Determination, using Employer-provided data and information
on all members of a controlled group, or affiliated service
group, if applicable.
c. ELIGIBILITY, PARTICIPATION AND ENTRY - Determining which employees are
eligible and when they should enter the Plan and participate.
2. Prudential will not undertake the following testing or demonstrations
required for qualified plans.
a. ANNUAL ADDITIONS LIMITS [Section 415];
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-16
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
b. GENERAL NON-DISCRIMINATION TESTS [Section 401(a)(4)] (including
Comparability and Cross Testing);
c. COVERAGE AND MINIMUM PARTICIPATION [Section 410(b)];
i. Ratio Percentage Test
ii. Reasonable Classification/Average Benefits Test
d. TOP HEAVY TESTING [Section 416]; AND
e. DEFINITION OF COMPENSATION [Section 414(s)].
3. Prudential does not monitor all operational and compliance requirements,
including but not limited to those listed below. These are solely the
responsibility of the Employer.
a. CONTROLLED GROUP - Determining which Employers or employees are in a
controlled group of entities within the meaning of Code Sections
414(b) and (c) or part of an affiliated service group within the
meaning of Code Section 414(m).
b. SEPARATE LINES OF BUSINESS - Determining if Plan or Plans of the
Employer control group may be tested as Separate Lines of Business as
defined in Section 414(r).
c. EMPLOYEE STATUS CHANGES - Including separation from service, change of
work classification, or change in marital status.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-17
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT D
Administrative Fee Schedule
IN CONSIDERATION FOR THE SERVICES PROVIDED UNDER THIS AGREEMENT, THE EMPLOYER
AGREES TO PAY THE FOLLOWING FEES:
- - - - Annual fee per Plan: $2,000
- - - - Annual fee per Participant: $14 or $28, as determined by Prudential
- - - - Installation charge for all startup Plans: $1,500 per Plan, one-time,
nonrefundable upon submission of executed Administrative Services Agreement
- - - - Conversion charge: $2,500 per Plan, one-time - $1,500 nonrefundable upon
submission of executed Administrative Services Agreement and $1,000 upon
completion of conversion
- - - - Trust service: $500 per Plan per year (Trust services are offered through
Prudential Bank & Trust Company or Prudential Trust Company.)
- - - - Signature-ready 5500: $600 per Plan per year (Information required to
complete the 5500 is included in the basic fee for full-service Plans.)
- - - - Testing: Additional fee for top-heavy tests: $350 per test
- - - - Check fee: $15 per check charged to Participant
- - - - Manual contribution data processing: $15 per Participant per year
- - - - Loans: $75 origination fee; $60 maintenance fee per Participant with
outstanding loan balance per year
- - - - Special services: See attached Special Services Fee Schedule
- - - - Termination/cash-out charge: $1,000, one-time
THE FOLLOWING SERVICES WILL NOT BE SUBJECT TO A SEPARATE FEE OR CHARGE:
- - - - Standard or nonstandard prototype Plan document (nonstandardized filing fee
$500 plus $125 IRS user fee)
- - - - Testing: Semi-annual testing for full-service Plans include: ADP/ACP,
402(g), 415. Assumes required data is provided in the specified electronic
format.
- - - - Quarterly Participant statements
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-18
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT D
Special Services Fee Schedule
Depending upon its needs, the Employer may request additional services beyond
those required for normal recordkeeping and reporting (as set forth in the
Administrative Services Agreement). Additional services will be billed on a
flat dollar basis. Examples of additional services are:
- - - - Interim or off-quarter account balances -- $250
- - - - Plan refunds required due to failing either the ADP or ACP test -- $100 per
refund
- - - - Plan refunds required under IRS rules -- $100 per refund
- - - - Plan valuation due to improper financial data or employee census
information supplied by the Employer or its agent -- $500
- - - - Reprocessing of monthly contribution information due to the receipt of
erroneous data -- $500
- - - - Reprocessing of distributions, transfers, or forfeitures due to the receipt
of erroneous data -- $100 per transaction
- - - - Multiple payroll location hard copy -- $250 annually
- - - - Calculate matching, profit sharing, QNEC, QMAC -- $500
- - - - Retroactive recordkeeping 200% of standard fees for the period specified as
retroactive activity
- - - - The standard service is to mail Participant statements to the Employer. If
the Employer requires statements mailed directly to Participants, this will
be billed at $.60 per quarter per Participant ($2.40 per Participant per
year) to cover postage and mailing expense. This cost may change from time
to time based upon current postage and handling rates.
- - - - Plan year-end summary -- $300
- - - - Frozen assets incur a 50% increase in standard recordkeeping fees.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-19
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
SCHEDULE A-2 TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
PRUDENTIAL INSURANCE COMPANY OF AMERICA
ADMINISTRATIVE SERVICES AGREEMENT FOR
TPA ALLIANCE PROGRAMS
This AGREEMENT is made and entered into by and among _______________
("Employer") and ______________ (the "Third Party Administrator" or "TPA") on
behalf of the __________________ (the "Plan"), and The Prudential Insurance
Company of America ("Prudential"), a New Jersey mutual life insurance company on
this _______ day of _______, 199__ .
The Employer represents and Prudential acknowledges that:
- The Plan is or will be in existence at the time funds are deposited
with Prudential;
- The Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and a related Trust
(the "Trust") exists which is intended to be qualified under Section
501(a) of the Code, and
- The Employer, as Plan Administrator, desires Prudential to perform
certain administrative and investment services for the Plan and to
provide certain assistance to the Employer as more fully described in
this Agreement, and Prudential is willing to perform those services .
In consideration of the premises and mutual covenants contained in this
Agreement, the Employer and Prudential agree as follows:
1. SERVICES.
a. SERVICES TO BE RENDERED BY PRUDENTIAL. Prudential will perform the
following services:
i. PLAN RECORDKEEPING. Prudential will provide to the Plan the
limited record-keeping services included in Exhibit A to this
Agreement.
ii. ADDITIONAL SERVICES. In addition to the foregoing services,
Prudential may provide such other services, and be paid such
amounts therefor, as may from time to time be agreed upon in
writing by the parties.
b. NATURE OF SERVICES.
i. INVESTMENT AND ACCOUNTING SERVICES ONLY. The Employer
understands and agrees that Prudential's sole function under this
Agreement is to act as limited recordkeeper of investment
accounts for investments that are within Prudential's control and
to provide other services at the direction of the Employer or its
agents or designee in accordance with the terms of this
A-20
<PAGE>
Agreement. Under the terms of this Agreement, Prudential does
not render investment advice, is not the Plan Administrator,
trustee or a Plan fiduciary, as that term is defined under the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and does not provide legal, tax or accounting advice
with respect to the creation, adoption or operation of the Plan
and the Trust. (Any services to be provided by a Prudential
affiliate as a directed Trustee or investment manager are the
subject of a separate agreement.)
ii. DISCONTINUANCE OF SERVICES INCONSISTENT WITH ROLE. If, based on
changes in the applicable regulatory structure or the
interpretation of the regulatory structure, there is a reasonable
likelihood that any service being, or to be, provided under this
Agreement by Prudential could constitute a discretionary function
and thereby subject Prudential to classification as a "fiduciary"
under ERISA with respect to the Plan, and such service could not
be restructured in a manner that would not subject Prudential to
classification as a "fiduciary" under ERISA, then Prudential,
upon reasonable notice to the Employer may decline to thereafter
provide that service. The failure to provide any such service
shall not constitute a breach of Prudential's obligations under
this Agreement.
c. RELIANCE UPON PLAN DATA. All services provided by Prudential
hereunder shall be based on information supplied by the Employer, its
designated TPA, or any other designee or agent of the Employer (as
designated by the Employer). The Employer acknowledges that the
timely provisions of accurate, consistent and complete data in the
format specified by Prudential is essential to its delivery of
services, and the Employer or its TPA is responsible for ensuring such
timely and accurate data is delivered to Prudential in Prudential's
approved format. For these purposes, "Plan Data" means all data and
records supplied to Prudential, obtained by Prudential or produced by
Prudential (based on data or records supplied to, or obtained by,
Prudential) in connection with performing the services pursuant to
this Agreement. Plan Data includes current participant names,
addresses and status.
d. RELIANCE UPON NAMED ADMINISTRATORS AND TRUSTEES. Employer will
provide names and other information for persons authorized to take
actions for or provide information on behalf of the Plan and Trust.
Until notified of a change, Prudential may reasonably rely upon this
information and may act upon instructions received from and/or on
information provided by these named persons. Prudential has the right
to assume that those persons continue to be authorized unless notified
otherwise.
2. COMPENSATION. In consideration for its services provided hereunder, the
Employer shall pay Prudential in accordance with the Fee Schedule provided
at Exhibit C. Prudential may amend the schedule for services not yet
rendered upon giving notice in writing
A-21
<PAGE>
under the same conditions specified in Section 7.b. The Employer shall pay
all fees within thirty (30) days of the Prudential invoice date. Any fees
not paid when due may be deducted by Prudential from the trust fund,
without prior notice to the Employer. The Employer shall pay any and all
costs that may be incurred by Prudential in charging the trust fund for
these fees. The Employer also agrees that it shall empower the Trustee and
Third Party Administrator to pay compensation to Prudential for services
provided hereunder.
3. INVESTMENTS; GOOD ORDER.
a. INVESTMENTS--GENERALLY. Prudential will invest all assets of the
Trust only as directed in writing or via any authorized phone or
Internet transaction, if applicable:
i. By Participants - to the extent the Plan Adoption Agreement
provides for investment direction by Participants.
ii. By the Employer - to the extent the Plan Adoption Agreement
provides for investment direction by the Employer.
b. UNCLEAR INVESTMENT INSTRUCTIONS; GOOD ORDER.
i. UNCLEAR INVESTMENT INSTRUCTIONS. Prudential will forward
contributions for investment into a short-term interest-bearing
investment contribution account if Prudential determines that no
proper investment directions are in effect. Once proper
instructions are received, Prudential will forward the new
instructions so that contributions can be re-invested and related
earnings can be allocated accordingly.
ii. GOOD ORDER.
a) CONTRIBUTIONS. Prudential will use its best efforts to
process all contributions received in good order on the day
good order is achieved, PROVIDED, HOWEVER, that Prudential
reserves the right to process all contributions received in
good order at Prudential within seventy-two (72) hours of
receipt. Contributions are in "good order" when the
contribution roster remitted by the Employer agrees with the
contribution funding, and when the social security number
and money type correspond to social security numbers and
money types of participants previously enrolled on
Prudential's recordkeeping system.
In the event contribution data is NOT IN GOOD ORDER,
Prudential shall attempt to obtain clarification from the
Employer as to the proper contribution amount and/or funding
allocations. The Employer acknowledges and directs that
contributions will be deposited in an
A-22
<PAGE>
interest or non-interest bearing account (at Prudential's
discretion) until such time as the roster, contribution
amount, and funding allocation are reconciled. In the event
Prudential is unable, in its sole judgment, to obtain such
clarification within thirty (30) days of receipt of
contribution amounts, then Prudential shall return all such
contribution amounts to the Employer's Temporary Trustee.
The Employer hereby agrees that the Employer or other
Employer designated person(s) authorized to take actions for
the Plan and the Trust will constitute the Temporary
Trustee, serving under the terms of the Trust indenture then
in effect, for the limited purposes of receiving
contributions returned as not in good order and holding them
as Plan trustee pending further instructions from the
Employer. Employer understands and agrees that it shall not
have any claim against Prudential or any affiliate of
Prudential in the event that Prudential returns
contribution amounts pursuant to the provision of this
paragraph. Employer further understands and agrees that the
Plan and the Employer will bear the investment risk during
this period.
b) DISTRIBUTIONS. Prudential will process all distribution
requests received in good order at Prudential within three
(3) business days of receipt of said distribution request by
Prudential. Distribution checks will be issued within seven
(7) days of receipt of good order. Distributions are in
"good order" when the distribution request contains all
pertinent information (including type and form of
distribution, any critical dates needed to process the
distribution and, if applicable, all necessary rollover
instructions) and appropriate signatures (including spousal
consent to the extent deemed necessary by the Employer).
c. Employer acknowledges that it:
i. Received a prospectus of each of the Prudential Mutual Funds and
any other mutual funds offered by Prudential in which Plan
participants may invest.
ii. Reviewed such prospectus(es) and is familiar with the fees and
expenses described therein, and that such fees and expenses are
reasonable.
iii. Understands that any Contingent Deferred Sales Charge that may be
due as a result of a sale by the Trust of shares of Prudential
mutual funds and other investment products offered by Prudential
or its affiliates concurrent with or following the termination of
this Agreement, shall not be waived.
d. FEES TO PRUDENTIAL AFFILIATES. Employer acknowledges that Prudential
may be deemed to benefit from:
A-23
<PAGE>
i. Advisory and other fees paid to its affiliates for managing,
selling, or settling of the Prudential mutual funds and other
investment products offered by Prudential or its affiliates
selected as investment options available under that Plan; and
ii. Contingent Deferred Sales Charges imposed in certain instances on
shares of funds, as described in the applicable fund
prospectuses.
Employer also acknowledges that Prudential benefits directly from:
iii. Transfer agent fees paid to it by the Prudential mutual funds and
other investment products offered by Prudential or its
affiliates; and
iv. Fees paid to Prudential in connection with the Guaranteed
Interest Account.
e. INVESTMENT OF FORFEITURE ACCOUNT. Employer agrees that all amounts
maintained as forfeitures will be moved into a fund or account that
Employer and Prudential agree in writing is appropriate to hold
forfeitures pending their reallocation under the terms of the Plan.
4. USE OF AGENTS OR SUBCONTRACTORS. Prudential may perform any of the services
described in this Agreement through agents and subcontractors selected by
Prudential. Prudential specifically selected BISYS Plan Services, L.P. to
provide certain recordkeeping and administrative services under this
agreement to the Plan. Prudential shall adequately supervise any such
agent or subcontractor and the retention of agents or subcontractors shall
not relieve Prudential of its duties hereunder.
5. PRUDENTIAL NOT LEGAL COUNSEL. Employer understands and agrees that it
shall review with its legal and/or tax counsel all documents provided to it
by Prudential and that Employer should consult such counsel on any
questions concerning Employer's responsibilities under this Agreement, the
Plan's documents, and the legal sufficiency of any documents so provided.
Employer understands that neither Prudential nor any of its affiliates are
permitted to provide Employer with legal or tax advice or otherwise engage
in the practice of law. Employer acknowledges that it will not rely on any
information provided as if it were legal or tax advice.
6. INDEMNIFICATION.
a. INDEMNIFICATION OF PRUDENTIAL. The Employer shall hold harmless and
indemnify Prudential and its employees, agents, and subcontractors
("Indemnitees") from and against any loss, damage, liability, claims,
costs and expenses, including reasonable attorneys' fees
("Liabilities"), to which the Indemnitees may become subject, which
result from:
A-24
<PAGE>
i. Any misrepresentation or nonfulfillment of any terms of this
Agreement by the Plan, the Employer, the Plan Administrator,
Third Party Administrator, or other Plan fiduciary (including,
but not limited to, Liabilities resulting from the provision of
inaccurate, untimely, or incomplete information to Prudential or
the failure to provide Prudential with clear instructions as to
matters relating to contributions, investment selections, or
distributions).
ii. Any failure by the Plan, the Employer, the Plan Administrator,
Third Party Administrator, or other Plan fiduciary to comply with
the terms of the Plan,
iii. A violation by the Plan, the Employer, the Plan Administrator,
Third Party Administrator, or other Plan fiduciary of the
requirements of applicable Federal and/or state laws,
iv. The making by Prudential of any benefit payment based upon
instructions that Prudential reasonably believes to be
authorized, and
v. Any action, conduct or activity, including the failure to take
action or to perform any activity taken by Prudential at the
direction of the Employer, Plan Administrator, Third Party
Administrator, or Trustee, provided that Prudential reasonably
believes the direction to be valid and is not negligent in the
execution of such directions.
b. INDEMNIFICATION OF EMPLOYER. Prudential shall hold harmless and
indemnify the Employer from and against any loss, damage, liability,
claims, costs and expenses, including reasonable attorneys' fees, to
which the Employer may become subject, which result from:
i. Any misrepresentation or nonfulfillment of any terms of this
Agreement by Prudential, and
ii. Prudential's violation of the requirements of applicable Federal
and/or state laws, except when resulting from the failure to take
action or any action taken at the direction of the Employer,
Third Party Administrator, the Employer's agent or designee, or
Trustee, provided that Prudential reasonably believes the
direction to be valid and is not negligent in the execution of
such directions.
7. DURATION; TERMINATION; SUCCESSOR RECORDKEEPER.
a. DURATION. This Agreement will continue in effect until terminated.
b. TERMINATION. Each party may terminate this Agreement upon sixty (60)
days prior written notice to the other. Such notice shall be deemed
to have been given three
A-25
<PAGE>
(3) days after mailing in the U.S. mail or immediately upon receipt if
delivered to the address set forth below. The notice period may be
waived by the party entitled to the notice.
b. SUCCESSOR RECORDKEEPER. Upon termination, the parties agree that
Prudential shall have no further duty or responsibility to the Plan
under this Agreement. However, Prudential will use reasonable efforts
to transfer all relevant non-Prudential proprietary information
concerning the Plan, in Prudential's standard format, to the Employer,
Third Party Administrator, or to a successor recordkeeper. Any
unforeseeable costs or expenses incurred by Prudential in effecting
this transfer shall be paid by the Employer unless waived in writing
by Prudential. Employer agrees that Prudential may charge reasonable
fees for the provision of requested records or reports that Prudential
previously provided.
d. SURVIVAL OF INDEMNIFICATION AND INVESTMENTS. The Employer acknowledges
and agrees that the indemnification provisions of paragraph 6 shall
survive the termination of this Agreement. The Employer understands
and acknowledges that the termination of this Agreement shall not
require the sale by the Trust of shares of Prudential mutual funds
held by the Trust (unless specifically requested by Prudential in
writing).
8. NOTICES. Any notice or other communication required or permitted hereunder
shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when
so delivered personally, telegraphed or telexed or, if sent by facsimile
transmission, upon the recipient's oral verification by telephone of
receipt or, if mailed, three (3) days after the date of deposit in the U.S.
mail, as follows:
If to BISYS on behalf of Prudential: (By other than U.S. mail)
(By U.S. mail)
The Prudential Insurance Company of The Prudential Insurance Company of
America America
c/o BISYS Plan Services, L.P. c/o BISYS Plan Services, L.P.
323 Norristown Road
Ambler, PA 19002
If to the Employer:
----------------------------------------
A-26
<PAGE>
----------------------------------------
----------------------------------------
----------------------------------------
9. ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the Exhibits
hereto, contains the entire Agreement among the parties hereto with respect
to the subject matter hereof, and there are no other Agreements written or
oral, relating to the subject matter hereof other than those explicitly set
forth herein or attached hereto. This Agreement may be amended at any
time, but only when agreed to in writing by the parties.
10. CONSTRUCTION. This Agreement is the result of negotiation by both parties,
and, therefore, no claim shall be made to construe any portion of the
Agreement against either party on the basis of such party's participation
in the negotiating thereof.
11. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns and legal representatives. Neither this Agreement, nor any right
hereunder, may be assigned by any party without the written consent of the
other parties hereto.
12. COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which, when so executed and delivered, shall
be an original, but all such counterparts shall together constitute one and
the same instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all of the
parties hereto.
13. HEADINGS. The headings in this Agreement are for reference only, and shall
not affect the interpretation of this Agreement.
14. SEVERABILITY. If any word, phrase, sentence, paragraph, provision or
section of this Agreement shall be held, declared, pronounced or rendered
invalid, void, unenforceable or inoperative for any reason by any court of
competent jurisdiction, governmental authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect
any other word, phrase, sentence, paragraph, provision or section of this
Agreement, which shall otherwise remain in full force and effect and be
enforced in accordance with its terms.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of New Jersey applicable to agreements made and to
be performed entirely within such State.
16. THIRD PARTY BENEFICIARIES. The provisions of this Agreement are solely for
the benefit of the parties hereto and their Affiliates and are not intended
to confer upon any person except the parties hereto any rights or remedies
herein.
A-27
<PAGE>
17. UNFORESEEN CIRCUMSTANCES. Prudential shall not be liable for any default
or delay in the performance of its services under this Agreement if and to
the extent such default or delay is primarily caused, directly or
indirectly, by
a. fire, flood, elements of nature or other acts of God;
b. any outbreak or escalation of hostilities, war, riots or civil
disorders in any country;
c. any act or omission of the other party or any governmental authority;
or
d. nonperformance of a third party or any similar cause beyond the
reasonable control of Prudential, including without limitation,
failures or fluctuations in telecommunications or other equipment.
In any such event, Prudential shall be excused from any further performance
and observance of the obligations so affected only for as long as such
circumstances prevail and Prudential continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
18. WRITING AND SIGNATURE. Unless otherwise explicitly required by law,
a. Any requirement for a writing under this Agreement may be rendered in
any form that can reliably reproduce an accurate physical record of
the communication and authenticate the source, including but not
limited to facsimile transmission, electronic mail, indexed telephone
recording, or Internet transmission.
b. Any requirement of a signature under this Agreement may be rendered in
any form clearly indicated by the signatory to be a signature or which
complies with instructions directly given to the signatory as to the
proper form of indicating a signature in an electronic or voice
response environment. Appropriate forms include, but are not limited
to, personal identification numbers rendered over the Internet,
facsimile transmissions, and unique telephone keypad combinations
pressed during recorded calls.
Notwithstanding a. or b., above, the recipient of any writing or signature
under this Agreement may require the confirmation of any writing or
signature in physical form (such as hand or typewritten or the equivalent)
with a manual signature.
A-28
<PAGE>
IN WITNESS THEREOF, the Employer has caused this Agreement to be executed by its
duly authorized representative.
Date Signed:
-----------------------------------
Date Agreement Effective:
-----------------------------------
First period or year for
which records are to be
compiled and reports to be
generated (start/end): -----------------------------------
Employer Authorized By: Prudential Authorized By:
- - - ----------------------------------- -----------------------------------
Name Name
- - - ----------------------------------- -----------------------------------
Authorized Signature Authorized Signature
- - - ----------------------------------- -----------------------------------
Title Title
Third Party Administrator Authorized By:
- - - -----------------------------------
Name
- - - -----------------------------------
Authorized Signature
- - - -----------------------------------
Title
This Agreement is not effective until properly countersigned by an authorized
representative of Prudential.
A-29
<PAGE>
EXHIBIT A
Administration and Recordkeeping Services
Prudential will provide the following administrative services under this
Agreement:
1. TRANSITION SERVICES:
a. TRANSFER OF EXISTING RECORDS - Prudential will use the data supplied
by the Employer and its current recordkeeper to transfer all existing
participant records from the current recordkeeping system to the
Prudential system, if applicable. Prudential will rely on the data
received and will not be responsible for omissions or incorrect data
supplied by the Employer or the current recordkeeper. Prudential will
establish investment recordkeeping accounts in the investments
selected by the Employer. If the data is not in an electronic format
acceptable to Prudential, additional fees may apply, as more fully
described in Exhibit C.
b. ENROLLMENT AND COMMUNICATIONS - Prudential will provide a welcome
package and its standard enrollment kit with standard forms and
notices necessary to implement the Plan's administration. Prudential
will process all enrollment agreements received and report to the
Employer when contributions may commence.
2. PLAN RECORDKEEPING:
a. PARTICIPANT ACCOUNTS: Prudential will establish a participant account
for each Plan participant for whom it receives investment records that
are not maintained in pooled accounts. Prudential is not responsible
for determining if such Plan participants are eligible under the terms
of the Plan. It will also maintain any pooled assets in separate
pooled accounts in the name of the Plan and Trust.
b. PARTICIPANT FILES: Prudential maintains files for all participants
for whom participant accounts have been established. These files
include enrollment forms, beneficiary designation forms (to the extent
provided to Prudential) and all other written correspondence and
documents concerning each participant's account.
c. CONTRIBUTION PROCESSING: Prudential processes the investment of Plan
contributions when the information is supplied in good order.
Prudential deposits those contributions into the investments provided
for under the Pan, in accordance with the allocation instructions
received from the Employer or Plan participants (if the Plan provides
that participants may direct the investment of contributions made on
their behalf). Prudential will supply automated contribution software
free of charge to Employers with 10 or more employees who request it.
This software should enable contributions to be processed more
efficiently and will help the Employer avoid Data Submission charges
described in Exhibit C.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-30
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
d. TRANSFERS BETWEEN INVESTMENT OPTIONS: In accordance with the requests
of Plan participants or other authorized representative of the
Employer, Prudential processes transfers of amounts held in
participant accounts among the investment options provided for under
the Plan.
e. DISTRIBUTION PROCESSING: Prudential will process requests for payment
to participants, beneficiaries and alternate payees as permitted by
the Plan and upon being notified by the Employer or TPA that the payee
has met the necessary standards for withdrawals. Prudential will
provide the Employer (or other individual at the direction of the
Employer) with the funds and the prescribed IRS tax notice to payees.
f. LOAN PROCESSING: To the extent loans are permitted under the Plan,
Prudential will provide a package of standard loan documentation such
as loan policies and notes (for review by Employer's legal counsel)
and will:
i. Disburse loan proceeds upon the Employer's approval; and
ii. Provide for systematic crediting of loan repayments and
re-investment in appropriate funds. Loan repayments will be made
via payroll deduction.
g. ALLOCATE EARNINGS/LOSSES - Prudential will adjust participant accounts
daily for investment performance for those investment options that
price daily; for all other investments, participant accounts will be
periodically adjusted, depending on the investment.
h. QUALIFIED DOMESTIC RELATIONS ORDERS - Upon certification by the
Employer that a domestic relations order is a Qualified Domestic
Relations Order, Prudential will establish a separate participant
record for the alternate payee.
3. REPORTS:
a. PERIODIC REPORTS - Prudential will provide Plan-level reports
utilizing the information maintained on its recordkeeping system.
Reports will summarize all transactions that occurred for each
participant within the specified time period. Plan level reports are
normally generated on a quarterly basis.
b. FINANCIAL STATEMENTS - Prudential will provide Plan level information
on each available investment option for the purpose of trust
reporting.
c. 5500 REPORTING - Prudential will supply key information from its
recordkeeping system necessary for the Employer to complete Form 5500,
to be filed annually. This report will not include information or
values from non-Prudential sources. If the Employer requests,
Prudential, with the assistance of the Employer or other service
providers, will complete a signature ready Form 5500 for an additional
fee, as described in Exhibit C.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-31
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
4. ACCOUNT EXECUTIVES: A Prudential Account Executive will be available at a
toll free number from 8:30 a.m. to 6:00 p.m., Eastern time, Monday through
Friday, to assist the Employer.
5. PARTICIPANT SERVICES:
a. PARTICIPANT SERVICE REPRESENTATIVES - Participant service
representatives will be available at a toll free telephone number from
8:30 a.m. to 6:00 p.m., Eastern time, Monday through Friday, to assist
participants.
b. VOICE RESPONSE AND INTERNET SERVICES - By calling a toll-free number
or, if applicable, logging onto the Prudential Web site, participants
can access certain account information at any time. The Employer must
contact its Prudential representative to initiate these services. At
such time as these services are available, participants will be able
to direct investment changes, loans distributions and other services
calling the toll-free number, or, if applicable, by logging onto the
Prudential Web site.
c. PARTICIPANT STATEMENT OF ACCOUNT - Participants will receive standard
quarterly statements. Statements can include inserts and/or
customized messages provided by Prudential or the Employer.
Statements will be mailed directly to the participants' homes, unless
the Employer requests that they be bulk-mailed to the Employer for
distribution. At such time as Internet service is available,
participants will be able to access their account information by
logging onto the Prudential Web site.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-32
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT B
Nondiscrimination and Qualification Testing
1. Prudential will not undertake any test or check of operational compliance.
These will be the sole responsibility of the Employer or the TPA,
separately agreed between them. Prudential's sole responsibility will be
to provide on request information maintained on its systems, in the format
it is maintained or can be readily reported to the Employer or TPA. Among
the tests or compliance standards that the Employer or the TPA, not
Prudential, will monitor (as they decide between them) are the following:
a. EXCESS DEFERRALS: [Section 402(g)]
b. ACTUAL DEFERRAL PERCENTAGE (ADP) AND ACTUAL CONTRIBUTION PERCENTAGE
(ACP) TESTS;
c. ANNUAL ADDITIONS LIMITS [Section 415]*;
d. GENERAL NON-DISCRIMINATION TESTS [Section 401(a)(4)] (including
Comparability and Cross Testing);
e. COVERAGE AND MINIMUM PARTICIPATION [Section 410(b)];
i. Ratio Percentage Test
ii. Reasonable Classification/Average Benefits Test
f. TOP HEAVY TESTING* [Section 416]; AND
g. DEFINITION OF COMPENSATION [Section 414(s)].
h. ELIGIBILITY, PARTICIPATION AND ENTRY - Determining which employees are
eligible and when they should enter the Plan and participate.
i. CONTROLLED GROUP - Determining which Employers or employees are in a
controlled group of entities within the meaning of Code Sections
414(b) and (c) or part of an affiliated service group within the
meaning of Code Section 414(m).
j. SEPARATE LINES OF BUSINESS - Determining if Plan or Plans of the
Employer control group may be tested as Separate Lines of Business as
defined in Section 414(r).
k. EMPLOYEE STATUS CHANGES - Including separation from service, change of
work classification, or change in marital status.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-33
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
2. Prudential may agree in writing to undertake one or more of the tests or
demonstration required for qualified plans for an additional fee upon
request, if Prudential deems it possible under the circumstances.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-34
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT C
Administrative Fee Schedule
IN CONSIDERATION FOR THE SERVICES PROVIDED UNDER THIS AGREEMENT, THE EMPLOYER
AGREES TO PAY THE FOLLOWING FEES:
- - - - Annual fee per Participant: $14 for Plans with mutual fund Investment
Options
- - - - Plan setup: $500
- - - - Plan conversion: $500 plus $3 per Participant with an account balance
(assumes transfer of Plan account balances are completely reconciled in
Prudential or designee's system)
- - - - Treasury service: $300 (assumes no trust reporting)
- - - - Loans: $75 origination fee; $60 maintenance fee per Participant with
outstanding loan
- - - - Distribution checks: $15 deducted from each distribution check
- - - - Special services: See attached Special Services Fee Schedule.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-35
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
EXHIBIT C
Special Services Fee Schedule
Depending upon its needs, the Employer may request additional services beyond
those required for normal recordkeeping and reporting (as set forth in the
Administrative Services Agreement). Additional services will be billed on a
flat dollar basis. Examples of additional services are:
- - - - Interim or off-quarter account balances -- $250
- - - - Plan refunds required due to failing either the ADP or ACP test -- $100 per
refund
- - - - Plan refunds required under IRS rules -- $100 per refund
- - - - Plan valuation due to improper financial data or employee census
information supplied by the Employer or its agent -- $500
- - - - Reprocessing of monthly contribution information due to the receipt of
erroneous data -- $500
- - - - Reprocessing of distributions, transfers, or forfeitures due to the receipt
of erroneous data -- $100 per transaction
- - - - Multiple payroll location hard copy -- $250 annually
- - - - Calculate matching, profit sharing, QNEC, QMAC -- $500
- - - - Retroactive recordkeeping 200% of standard fees for the period specified as
retroactive activity
- - - - The standard service is to mail Participant statements to the Employer. If
the Employer requires statements mailed directly to Participants, this will
be billed at $.60 per quarter per Participant ($2.40 per Participant per
year) to cover postage and mailing expense. This cost may change from time
to time based upon current postage and handling rates.
- - - - Plan year-end summary -- $300
- - - - Frozen assets incur a 50% increase in standard recordkeeping fees.
- - - --------------------------------------------------------------------------------
401(k) Administrative Services Agreement A-36
Initials of Authorized Employer Representative/Date: _____/_____
Initials of Authorized Employer Representative/Date: _____/_____
<PAGE>
SCHEDULE B TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
INVESTMENT OPTIONS
THE PLANS' INVESTMENT OPTIONS ARE:
A. MUTUAL FUNDS. Any of the modified Class C shares of the following Funds:
(The asterisked Funds are the suggested portfolio.)
4 core Prudential Funds
*Prudential Jennison Growth Fund
*Prudential Equity Income Fund
*Prudential Diversified Bond Fund
*Prudential Moneymart Assets
Up to 4 additional Prudential Funds
*Prudential Government Income
*Prudential Government High-Yield
*Prudential World Intl Stock
*Prudential Real Estate Secs
Up to 4 additional non-proprietary Funds from Select List
Morgan Stanley Emerg Mkts C Diversified Emerging Markets
*MFS Total Return C Domestic Hybrid
Van Kampen Am Cap Eqty-Inc C Domestic Hybrid
Alliance Balanced Shares C Domestic Hybrid
Kemper International C Foreign Stock
Alliance Worldwd Priv C Foreign Stock
*Oppenheimer Glob Grwth and Inc C Foreign Stock
Oppenheimer U.S. Govt C Intermediate Government
MFS Bond C Intermediate-term Bond
Morgan Stanley Wrldwd HiIncC International Bond
MFS World Total Return C International Hybrid
PIMCo Renaissance C Large Blend
Oppenheimer Capital Ap C Large Growth
Oppenheimer Quest Value C Large Value
Van Kampen Am Cap Comstock C Large Value
Alliance Bond Corp Bond C Long-term Bond
Oppenheimer Ltd-Term Govt C Short Government
B-1
<PAGE>
*Alliance Quasar C Small Growth
*Morgan Stanley Amer Value C Small Value
MFS World Equity C World Stock
Morgan Stanley Glob Eq All C World Stock
PIMCo Stock Plus Mid to Small Cap
B. UNDER PRUDENTIAL DISCOVERY SELECT GROUP RETIREMENT ANNUITY, any of the
following underlying Funds and investments:
Cash and Equivalents Prudential Money Market Portfolio
Fixed Income Prudential Diversified Bond Portfolio
Prudential Government Income Portfolio
Prudential High Yield Bond Portfolio
Prudential Guaranteed Interest Account*
Large Cap Value Prudential Equity Portfolio
Prudential Equity Income Portfolio
OpCap Adv OCC Accumulation Trust Mng Portfolio
T. Rowe Price Equity Income Portfolio
Large Cap Growth Prudential Jennison Portfolio
Prudential Stock Index Portfolio
AIM V.I. Growth & Income Fund
Janus Aspen Series Growth Portfolio
Small/Mid Cap Value AIM V.I. Value Fund
OpCap Adv OCC Accum Trust Small Cap Portfolio
Small/Mid Cap Growth MFS Emerging Growth Series
MFS Research Series
Warburg Pincus Post-Venture Capital
International Equity Prudential Global Portfolio
Janus Aspen Series International Growth Portfolio
T. Rowe Price International Stock Portfolio
Balanced Prudential Conservative Balanced Portfolio
Prudential Flexible Managed Portfolio
* The Guaranteed Interest Account is a group annuity contract issued by
the Prudential Insurance Company of America, Newark, NJ.
B-2
<PAGE>
SCHEDULE C TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
PLAN CRITERIA
PLANS SELECTED BY PRUDENTIAL WILL TYPICALLY HAVE:
Less than $1 million in anticipated Plan assets,
Less than 100 eligible employees,
$3,000 minimum average annual cash flow per Participant (for a start-up
Plan),
$20,000 minimum average Participant balance including cash flow (for a
converted Plan),
Mandatory match for start-up Plans (50% of 2% minimum),
Prudential Trust Company or Prudential Bank & Trust Company as trustee (or
be self-trusteed),
A standardized or non-standardized Prudential prototype plan, and
Only the Investment Options described in Schedule B.
PRUDENTIAL RESERVES THE RIGHT TO SELECT OTHER PLANS.
C-1
<PAGE>
SCHEDULE D TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
SERVICE TEAM
THE SERVICE TEAM SHALL INCLUDE:
1. All members of BISYS senior management as appropriate to ensure the
performance of Services in accordance with the standards provided in
this Agreement.
2. For each block of 500 Plans for which BISYS provides Services under
this Agreement, seven ongoing service associates. As Plans are
provided by Prudential, three new business associates and an ERISA
compliance associate to coordinate the installation of the Plans on
the recordkeeping system. BISYS shall staff its service and new
business teams on a pro-rated basis as Plans are submitted.
BISYS shall promptly notify Prudential of any deviation from the foregoing.
D-1
<PAGE>
SCHEDULE E TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
SERVICE PERFORMANCE STANDARDS
A.1. For each of the following activities required to be performed under the
terms of a particular Plan's Administrative Services Agreement, the
following standards shall apply to BISYS's obligations from the time that
information is received in "good order." "Good order" means all
information required to perform the relevant transaction has been received,
in acceptable form, and contains no obvious inconsistency or error.
a. Plan set-up: On system and available to receive enrollments in 10
days.
b. Enrollment kits: standard -- 95% mailed 10 days; target -- 99% within
7 days.
c. Contribution processing: standard -- 95% within 3 days for magnetic
media, 5 days for hard copy; target -- 99% within 1 day for all good
orders.
d. Plan correspondence: standard -- acknowledge 90% with intent to
resolve within 4 days, or as Prudential and BISYS may otherwise agree;
target -- acknowledge all within 24 hours, resolve within 5 days.
e. Participant statements: standard -- mail 95% within 10 calendar days
of receipt of required information from Prudential; target -- mail
99% within 10 calendar days of receipt of required information from
Prudential.
f. Disbursements: standard -- 95% issued within 7 calendar days; target
-- 99% issued within 7 calendar days for all good orders.
g. Loan checks: standard -- 95% within 5 days; target -- 99% within 5
days for all good orders.
h. 800 line average response time: standard -- 90% within 20 seconds;
target -- all within 20 seconds.
i. Conversion/transfer processing: standard -- 3 weeks after receipt of
final piece of required information; target -- 2 weeks after receipt
of final piece of required information.
These standards shall be reviewed by Prudential and BISYS at least annually
and may be modified by agreement of Prudential and BISYS to reflect
industry standards.
E-1
<PAGE>
2. All references to days shall mean business days unless otherwise specified.
Percentages shall be calculated on the basis of each day's work and
measured on a monthly basis and refer to work completed accurately.
B.1. In the event BISYS fails to meet any of the foregoing standards, Prudential
shall have the right, upon notice to BISYS, to require BISYS to consult
with Prudential regarding BISYS's performance. As part of such
consultation, Prudential and BISYS shall agree to an appropriate cure
period, which shall not be less than thirty (30), nor more than ninety
(90), calendar days. If, within such cure period, BISYS has not cured its
noncompliance, in addition to any other rights Prudential may have,
Prudential shall have the right, upon notice to BISYS, to require BISYS to
take any one or more (including all) of the following actions:
a. To dedicate to Plans additional BISYS senior management attention,
including one member of senior management full-time.
b. To dedicate to Plans additional
(1) client service representatives
(2) transition team representatives
(3) transaction processing staff
(4) other appropriate or desirable staff
c. To require BISYS to increase the Service Team described in Schedule D,
item 2, of this Agreement by fifty percent.
2. Prudential's ability to enforce these provisions will continue until the
service standards under this Schedule E are met, as determined by
Prudential.
E-2
<PAGE>
SCHEDULE F TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
DISCOVERY SELECT SERVICES
PRUDENTIAL AND BISYS SHALL PROVIDE THE FOLLOWING SERVICES WITH RESPECT TO
DISCOVERY SELECT GROUP RETIREMENT ANNUITY:
A. BISYS RESPONSIBILITIES
- Provide Participant-level recordkeeping for all investment options
available under the Discovery Select product, including the Guaranteed
Interest Account ("GIA").
- Administer the following features of the Discovery Select product on a
Participant-level basis, as described in the Discovery Select
prospectus provided by Prudential:
- Death benefit
- 90-day Equity Wash between GIA and any competing funds as
identified by Prudential
- Promptly inform Prudential of any Plan terminations. Apply any
applicable surrender charge communicated by Prudential to the Plan
sponsor or Participants as directed by the Plan sponsor.
- Compute the daily value of the GIA based on the interest rate factor
provided by Prudential each quarter.
- For each Discovery Select variable Investment Option and the GIA,
break out by Plan each contribution, loan initiation, default, and
repayment, transfer in and out, and withdrawal.
- Assess an annual account charge on Plans as instructed by Prudential.
This charge should be assessed to each Plan at an initial rate of $30
for Participant account in the Plan during the year. This amount is
to be billed by BISYS directly to the client in January of each year.
BISYS shall provide Plans with necessary details supporting the amount
of the total annual account charge.
- For each Investment Option under Discovery Select, BISYS shall provide
Prudential with an aggregate instruction as to net activity for each
business day after BISYS has performed a reconciliation for that day.
- For each business day where there is a net purchase of a particular
Investment Option, BISYS shall wire the amount necessary to honor the
net purchase request to Prudential immediately after that day's
reconciliation but in no event later than 12:00 noon Eastern time.
- Communicate any adjustment to the aggregate balance of each Investment
Option under Discovery Select to Prudential via phone and facsimile as
soon as possible following the discovery of the adjustment.
- Conduct a reconciliation each business day of its Participant-level
records to Plan-level information provided by Prudential.
F-1
<PAGE>
B. PRUDENTIAL RESPONSIBILITIES
- Provide BISYS with a daily price file each business day by 8:00 p.m.
Eastern time. This file will include the current net asset value of
each Investment Option within Discovery Select.
- Provide BISYS prior to the beginning of each calendar quarter with an
Excel spreadsheet that lists the daily interest rate factors for the
GIA for the upcoming quarter.
- Provide a daily confirmation file to BISYS by 8:00 a.m. Eastern time
the following business day containing the daily trade activity and
share position for all Investment Options under Discovery Select.
This file will be used as a source for the daily reconciliation
between Prudential and BISYS to ensure that Participant records are in
balance with Plan records.
- For each business day where there is a net withdrawal of a particular
Investment Option under Discovery Select, Prudential shall execute a
wire instruction to the Plan trustee in the amount of the withdrawal
immediately after that day's reconciliation but in no event later than
12:00 noon Eastern time.
- Maintain Plan-level records for the following purposes:
- daily reconciliation conducted by BISYS between the Plan and
Participant accounts.
- calculation of Plan-level transactions such as the surrender
charge and GIA market value adjustment.
- Communicate surrender charge and market value adjustment amount to
BISYS where applicable.
All services provided by BISYS shall be performed in accordance with the
then-current prospectus for Discovery Select ("Prospectus") and the then-current
prospectus for each applicable underlying fund Investment Option.
Notwithstanding the preceding sentence, Prudential shall provide BISYS with a
copy of the Prospectus as anticipated to be in effect on the Effective Date and
sufficiently in advance of such Effective Date as to afford BISYS a reasonable
opportunity to review such Prospectus. Within fourteen (14) calendar days after
receipt of such Prospectus, BISYS shall notify Prudential whether BISYS can, in
BISYS's reasonable business judgment, perform the services described in A.
above. If BISYS notifies Prudential that it is unable to perform all, or
certain specified, of those services and, after consultation with Prudential,
BISYS determines, in its reasonable business judgment, that it remains unable to
perform such services, then BISYS shall not be obligated to perform services
pursuant to Section 2(a)(4) of this Agreement, unless Prudential and BISYS
otherwise agree.
After BISYS has begun to perform services pursuant to Section 2(a)(4) of
this Agreement, Prudential shall provide BISYS with reasonable prior notice of
any proposed revision or amendment to the Prospectus.
F-2
<PAGE>
SCHEDULE G TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
SERVICE OR PROTOTYPE CHANGES AND NEW PLAN ACCOUNTS
SERVICE OR PROTOTYPE CHANGES AND NEW PLAN ACCOUNTS:
1. Requests by Plans, or by Prudential representatives on behalf of
Plans, that BISYS receives for services different than the standard
services under the Administrative Services Agreement shall be referred
to Prudential for decision. BISYS shall indicate to Prudential if the
requested services:
a. could be performed by BISYS at no extra charge
b. could be performed by BISYS for an additional charge, and what
that charge would be
c. cannot be performed by BISYS
2. Prudential will review the request and deny or accept it in whole or
in part, with the charges specified in 1.b. above.
G-1
<PAGE>
SCHEDULE H TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
TRUST AND ACCOUNTING SERVICES
BISYS shall arrange for the provision of the following trust and accounting
services to Plans in accordance with the form of Trustee Services Delegation
Agreement attached hereto as Exhibit H-1 (or in such other form agreed upon by
Prudential and BISYS) by a party approved by Prudential.
H-1
<PAGE>
EXHIBIT H-1
PRUDENTIAL TRUST COMPANY
TRUSTEE SERVICES DELEGATION AGREEMENT
THIS AGREEMENT is made this ___ day of August, 1998, by and between
Prudential Trust Company, a ________________ trust company ("Trustee"), and
BISYS Plan Services, L.P., a Pennsylvania limited partnership ("BISYS").
WHEREAS, pursuant to the Retirement Plan Services Outsourcing Agreement
dated August __, 1998, by and between The Prudential Insurance Company of
America ("Prudential") and BISYS ("Outsourcing Agreement"), BISYS has agreed to
provide certain recordkeeping and administrative services, and to arrange for
the provision of certain trust reporting and accounting services and certain
order placement and processing services, to selected Prudential defined
contribution pension plan clients that have adopted certain specified forms of
plan documents;
WHEREAS, Trustee has agreed to serve as the trustee or custodian for such
plans and desires to delegate to BISYS the performance of certain of its duties
under such plan documents, in accordance with the terms and conditions of this
Agreement;
WHEREAS, BISYS is willing to perform, or arrange for the performance of,
such delegated duties, in accordance with the terms and conditions of this
Agreement;
THEREFORE, in consideration of the premises and mutual covenants contained
in this Agreement, Trustee and BISYS agree as follows:
1 CERTAIN DEFINITIONS. As used in this Agreement:
a. "Effective Date" means October 1, 1998, or such later date
constituting the effective date as defined in Section 1 of the
Outsourcing Agreement.
b. "Participant" means a participant as defined in Section 1 of the
Outsourcing Agreement.
c. "Plan" means a plan as defined in Section 1 of the Outsourcing
Agreement and for which BISYS is obligated to provide services under
the Outsourcing Agreement.
d. "Plan Administrator" means the person named as such for a Plan under
the Plan Documents.
e. "Plan Documents" means the trust instrument for a Plan and the
PruArray Prototype 401(k) Plan Document (or such other Plan document)
under which Trustee serves as the [trustee/custodian] for the Plan.
H-2
<PAGE>
f "Services" means those services BISYS is obligated to perform, or
arrange for the performance of, pursuant to Section 2 of this
Agreement, depending on the Plan Documents for each particular Plan.
2. SERVICES OF BISYS. BISYS shall enable Trustee to satisfy Trustee's
obligations to each Plan under the Plan Documents for that Plan.
Accordingly, and subject to the further provisions of this Agreement,
beginning on the Effective Date and thereafter:
a. BISYS shall perform, or arrange for the performance of, the following
services with respect to Plans:
i. Receive contributions under the terms of the applicable Plan
Documents and hold, invest and reinvest the assets of each Plan
in accordance with the written instructions of the Plan
Administrator.
ii. Make distributions from the assets of the Plan to Participants in
accordance with the written instructions of the Plan
Administrator.
iii. Maintain, for each Plan, such records of contributions,
investment earnings and gains (or losses), withdrawals and all
other transactions as may be required under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and
the Internal Revenue Code of 1986, as amended ("Code").
iv. Prepare and timely file such information returns with respect to
distributions from Plans as may be required under the Code.
v. Perform such additional services as shall be necessary to enable
Trustee to meet its obligations with respect to each Plan under
the Plan Documents for that Plan.
b. All services performed, or for which the performance is arranged, by
BISYS and related materials and records produced or maintained (in
whatever form produced or maintained) under this Agreement shall be
performed, produced and/or maintained, as applicable, in a manner that
reflects that such services, materials and records are so performed,
produced and/or maintained, as applicable, by Trustee through BISYS
(or such other party performing services and/or producing or
maintaining records for Plans pursuant to an arrangement with BISYS
permitted under this Agreement).
c. Trustee hereby delegates to BISYS the authority to act on Trustee's
behalf, and to execute such documents as may be necessary, to effect:
i. The establishment of Plan accounts.
ii. The transfer of assets to or from a Plan account.
H-3
<PAGE>
iii. The distributions to Participants.
iv. The filing of information returns with respect the distribution
of Plan assets to Participants.
d. All services performed and actions taken, and all services or other
actions for which the performance is arranged, by BISYS under this
Agreement for a Plan shall be performed in accordance the terms of the
Plan Documents for that Plan.
3. MAINTENANCE OF RECORDS. BISYS shall maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Services and with the care, skill, prudence and diligence that a
prudent person acting in like capacity and familiar with such matters would
use in maintaining such records. Upon the request of Trustee, BISYS will
provide copies (or such other form of durable record as Trustee may
approve) of all historical records relating to transactions involving the
Plan(s), written communications regarding the Plan(s) and other materials,
in each case (a) as are maintained by BISYS in the ordinary course of its
business, (b) as may reasonably be requested to enable Trustee, or its
representatives, including without limitation auditors or legal counsel, to
(i) monitor and review the Services, (ii) comply with any request of a
governmental body or self-regulatory organization or a Plan, (iii) verify
compliance by BISYS with the terms of this Agreement, (iv) make required
regulatory reports or (v) perform general assessment of Services. BISYS
will permit Trustee or such representatives to have reasonable access,
during normal business hours and subject to reasonable notice to BISYS, to
its personnel, records and facilities in order to facilitate the monitoring
of the quality of the Services.
4. CONFIDENTIALITY.
a. Trustee and BISYS acknowledge that each may be provided with
information about, and BISYS's engagement by Trustee may bring each
into close contact with, confidential and proprietary information of
the other. In addition, Trustee and BISYS each may be provided with
or be exposed to confidential information of third parties with which
the other conducts business. Such confidential information of a party
and of the third parties with which it does business is collectively
referred to as its "Confidential Information." In recognition of the
foregoing, Trustee and BISYS each covenant and agree that:
i. it will keep and maintain all Confidential Information of the
other in strict confidence, using such degree of care as is
appropriate to avoid unauthorized use or disclosure;
ii. it will not, directly or indirectly, disclose any Confidential
Information of the other to anyone outside of the other, except
with the other's prior consent;
H-4
<PAGE>
iii. it will not make use of any Confidential Information of the other
for its own purposes or the benefit of anyone or any other entity
except the other;
iv. it will (A) on termination of discussions between the parties,
or, (B) if BISYS is engaged to perform Services for Trustee, upon
completion of the engagement, or (C) at any time the other may so
request, deliver promptly to the other, or, at the other's
option, destroy all memoranda, notes, records, reports, media and
other documents and materials (and all copies thereof) regarding
or including any Confidential Information which it may then
possess or have under its control; and
v. it will take no action with respect to the Confidential
Information that is inconsistent with the confidential and
proprietary nature of such Information.
b. Trustee and BISYS each shall be permitted to disclose the Confidential
Information of the other only to its employees and agents
("Employees") having a need to know such information in connection
with the performance of the Services. Trustee and BISYS each shall
instruct all such of its Employees as to their obligations under this
Agreement.
c. Subject to the provisions of Section 11 of the Outsourcing Agreement
and for purposes of this Agreement, Confidential Information shall
include all business information of Trustee or BISYS, as applicable,
including the following:
i. information relating to its planned or existing computer systems
and systems architecture, including computer hardware, computer
software, source code, object code, documentation, methods of
processing and operational methods;
ii policyholder or Participant data, customer lists, sales, profits,
organizational restructuring, new business initiatives and
financial information;
iii. information that describes insurance and financial products,
including actuarial calculations, product designs, and how such
products are administered and managed;
iv. information that describes product strategies, tax
interpretations, tax positions and treatment of any item; and
v. confidential information of third parties with which it conducts
business.
d. Notwithstanding the foregoing, Confidential Information of a party
shall not include information that (1) is or becomes generally known
to the public not as a result of a disclosure by the other, (2) is
rightfully in the possession of the other
H-5
<PAGE>
prior to disclosure by the first party, or (3) is received by the
other in good faith and without restriction from a third party, not
under a confidentiality obligation to the first party and having
the right to make such disclosure. Trustee and BISYS each
acknowledge that the disclosure of Confidential Information of the
other may cause irreparable injury to the other and damages which
may be difficult to ascertain. Therefore, Trustee and BISYS each
shall, upon a disclosure or threatened disclosure of any of its
Confidential Information, be entitled to injunctive relief,
including, but not limited to, a preliminary injunction and an
order of seizure and impoundment under Section 503 of the Copyright
Act upon an ex parte application by it to protect and recover the
Confidential Information, and the other shall not object to the
entry of an injunction or other equitable relief against it on the
basis of an adequate remedy at law, lack of irreparable harm or any
other reason. Without limitation of the foregoing, Trustee and
BISYS each shall advise the other immediately in the event that it
learns or has reason to believe that any person or entity which has
had access to Confidential Information has violated or intends to
violate the terms of this Agreement.
5. COMPLIANCE WITH PLAN TERMS AND LAWS. At all times, BISYS shall materially
comply with all Plan Documents and all laws, rules and regulations
applicable to it by virtue of entering into this Agreement.
6. FEES.
a. BISYS shall collect on Trustee's behalf the fees and charges specified
on Schedule A attached hereto ("Fees") and may keep such Fees
collected as payment in full for BISYS's satisfactory performance of
its services and obligations under this Agreement. Trustee shall have
no obligation to collect such Fees and shall have no further liability
for payment to BISYS. BISYS shall have the right to terminate
Services for any Plan for non-payment of fees due for more than ninety
(90) days, provided BISYS shall, at least thirty (30) days prior to
any such termination of Services, have informed Trustee of its
intention to do so.
b. Except as otherwise provided in this Agreement, each party will bear
all expenses incidental to the performance of its obligations under
this Agreement.
7. RELATIONSHIP OF PARTIES. Except to the extent BISYS is expressly
authorized in this Agreement to act as Trustee's limited agent for certain
purposes, it is understood and agreed that all services performed under
this Agreement by BISYS will be as an independent contractor and not as an
employee or agent of Trustee, and neither party will hold itself out as an
agent of the other party with the authority to bind such party.
8. USE OF NAMES.
a. Except as otherwise expressly provided for in the Outsourcing
Agreement or otherwise in this Agreement, BISYS will not use, nor
allow its employee or agents to use, the name or logo of Trustee or
any affiliate of Trustee, or any
H-6
<PAGE>
products or services sponsored, managed, advised, administered or
distributed by Trustee, for advertising, trade or other commercial
or noncommercial purposes without the express prior consent of
Trustee.
b. Except as otherwise expressly provided for in the Outsourcing
Agreement or otherwise in this Agreement, Trustee will not use, nor
allow its employees or agents to use, the name or logo of BISYS, any
affiliate of BISYS, or any products or services sponsored or offered
by BISYS or any of its affiliates, for advertising, trade or other
commercial or noncommercial purposes without the express prior consent
of BISYS.
9. SUBCONTRACTING.
a. BISYS shall not subcontract any material work or Services under this
Agreement without the prior approval of Trustee. If BISYS does
subcontract work, the limited right granted hereunder to BISYS to
subcontract the tasks specified herein is expressly conditioned upon
BISYS's enforcement and protection of the rights of Trustee pursuant
to this Agreement. If any agent or subcontractor fails to abide by
such agreement, BISYS shall have an opportunity to enforce the
Agreement against such agent or subcontractor and agrees to enforce
the Agreement to Trustee's satisfaction.
b. BISYS shall remain responsible for the performance of all agents and
subcontractors.
c. BISYS shall include a provision in all of its agreements with
subcontractors stating that such subcontractors shall look to BISYS
for payment and shall under no circumstances look to any other party,
including Trustee, for payment. BISYS agrees to defend, indemnify and
hold Trustee liable for any loss, damages, costs, expenses (including
attorneys' fees) incurred due to any claims by or against
subcontractor regarding breach of the provisions of the Agreement,
including, but not limited to, the provisions regarding subcontractor
looking only to BISYS for payment for Services which may be rendered.
10. INDEMNIFICATION.
a. BISYS, as indemnitor, agrees to indemnify and hold harmless Trustee
and each of its affiliates, subsidiaries, directors, officers,
employees, agents and each person, if any, who controls them within
the meaning of the Securities Act of 1933, as amended ("Securities
Act"), against any losses, claims, damages, liabilities or expenses
(including attorneys' fees) to which an indemnitee may become subject
insofar as those losses, claims, damages, liabilities or expenses or
actions in respect thereof, arise directly out of or are based upon
(i) BISYS's negligence, reckless disregard or willful misconduct in
performing the Services, (ii) any breach by BISYS of any material
provision of this Agreement, (iii) any material breach by BISYS of a
representation, warranty or covenant made in this
H-7
<PAGE>
Agreement, or (iv) any personal injury or property damage resulting
from the performance of BISYS's obligations under this Agreement or
the fault or negligence of BISYS's directors, officers, employees or
agents. BISYS will reimburse the indemnitees for any legal or other
expenses reasonably incurred, as incurred, by them in connection with
investigating or defending such loss, claim, or action. This
indemnity agreement will be in addition to any liability which BISYS
may otherwise have.
h. Trustee, as indemnitor, agrees to indemnify and hold harmless BISYS
and each of its affiliates, subsidiaries, directors, officers,
employees, agents and each person, if any, who controls BISYS within
the meaning of the Securities Act against any losses, claims, damages,
liabilities or expenses (including attorneys' fees) to which an
indemnitee may become subject insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) arise directly
out of or are based upon (i) any breach by Trustee of any material
provision of this Agreement, (ii) negligence, reckless disregard or
willful misconduct by Trustee in carrying out its duties and
responsibilities under this Agreement, or (iii) any material breach by
Trustee of a representation, warranty or covenant made in this
Agreement. Trustee will reimburse the indemnitees for any legal or
other expenses reasonably incurred, as incurred, by them in connection
with investigating or defending any such material loss, claim or
action. This indemnity agreement will be in addition to any liability
which Trustee may otherwise have.
c. Promptly after receipt by an indemnitee under this Section 10 of
notice of the commencement of an action, the indemnitee will, if a
claim in respect thereof is to be made against the indemnitor, notify
the indemnitor of the commencement of the action in accordance with
the provisions of Section 12 of this Agreement within seven (7) days
after the summons or other first legal process shall have been served,
unless within such seven (7) days the indemnitor shall have been
served in the same action, in which case such notification may be
given within sixty (60) days provided that the omission so to notify
the indemnitor will not relieve it from any liability that it may have
to any indemnitee under this Section 10 except to the extent that the
indemnitor has been prejudiced in any material respect by such
failure. The omission so to notify the indemnitor will not relieve it
from any liability that it may have to any indemnitee otherwise than
under this Section 10. If any such action is brought against any
indemnitee and it notifies the indemnitor of the commencement of the
action, the indemnitor will be entitled to assume the defense of the
action with counsel reasonably satisfactory to the indemnitee, and the
defendant or defendants in such action entitled to indemnification
under this Agreement will have the right to participate in the defense
or preparation of the defense of any such action. If the indemnitor
elects to assume the defense of any such action, and to retain counsel
of good standing, the defendant or defendants in such action will bear
the fees and expenses of any additional counsel retained by any of
them; but if the indemnitor does not assume the defense of any such
action, the indemnitor will reimburse the indemnitee(s)
H-8
<PAGE>
named a defendant or defendants in such action for the fees and
expenses of one single additional counsel agreed upon by them. If the
indemnitor assumes the defense of any such action, the indemnitor will
not, without the prior written consent of the indemnitee(s), settle or
compromise the liability of the indemnitee(s) in such action, or
permit a default or consent to the entry of any judgment regarding the
action, unless in connection with such settlement, compromise or
consent each indemnitee receives from such claimant an unconditional
release from all liability in respect of such claim.
d. Notwithstanding the above, the provisions of this Section 10 shall not
apply if, and to the extent that, BISYS satisfies its obligations
under Section 30 of the Outsourcing Agreement.
11. TERM AND TERMINATION.
a. The initial term of this Agreement shall be two (2) years from the
Effective Date and shall automatically be extended for successive two
(2)-year terms unless, at least one hundred and eighty (180) days
prior to the end of such initial or subsequent term, BISYS gives
Trustee notice that such term shall not be extended.
b. If, pursuant to Section 31(c) or (d) of the Outsourcing Agreement,
Prudential requests that BISYS transfer, and BISYS so transfers,
responsibility for servicing particular Plans, BISYS's responsibility
and authority to perform, or arrange for the performance of, Services
under this Agreement for such Plans shall cease upon such transfer(s).
c. If, pursuant to Section 31(e) of the Outsourcing Agreement, BISYS
terminates its obligation to accept additional Plans for servicing,
BYSYS's responsibility and authority to perform, or arrange for the
performance, of Services under this Agreement shall cease on the
effective date specified by BISYS pursuant to Section 31(e) of the
Outsourcing Agreement.
d. Notwithstanding the above, this Agreement shall automatically
terminate in the event of termination of the Outsourcing Agreement.
12. NOTICE. Each notice required by this Agreement must be in writing and
delivered personally or mailed by certified mail or courier service to the
other party at the following address (or such other address as each party
may give notice to the other):
H-9
<PAGE>
If to Trustee, to: *
---------------------------------
---------------------------------
---------------------------------
---------------------------------
* with a copy to:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
If to BISYS, to: *
---------------------------------
---------------------------------
---------------------------------
---------------------------------
* with a copy to:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
13. COMPLETE AGREEMENT. This Agreement contains the full and complete
understanding of Trustee and BISYS and supersedes all prior
representations, promises, statements, arrangements, agreements, warranties
and understandings between Trustee and BISYS with respect to the subject
matter of this Agreement, whether oral or written, express or implied.
14. Modification and Approval. This Agreement may be modified or amended, the
terms of this Agreement may be waived, and any agreement of Trustee and
BISYS, or the approval or consent of either of them, required herein may be
made, only by writing signed by such party. Any approval or consent
required in this Agreement shall not be unreasonably withheld or delayed.
15. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements fully executed and to be performed therein, without reference to
choice of law principles. Any suit, action or proceeding arising out of or
relating to this Agreement shall be brought in a
H-10
<PAGE>
Pennsylvania court, and BISYS hereby consents to the exclusive jurisdiction
of the courts of Pennsylvania.
16. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which will be deemed an original, but all of which together will
constitute one and the same Agreement.
17. ASSIGNMENT. This Agreement cannot be assigned by either party hereto,
without the prior written consent of the other parties hereto, except that
a party may assign this Agreement to an affiliate having the same ultimate
ownership as the assigning party without such consent.
18. SURVIVAL. The provisions of Sections 3, 4, 8 and 10 will survive
termination of this Agreement.
19. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees that this
Agreement and the arrangement it describes herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities, subject to the other
provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement by their
duly authorized officers as of the day and year written above.
PRUDENTIAL TRUST COMPANY
By:
------------------------------
Its:
-----------------------------
BISYS PLAN SERVICES, L.P.
By:
------------------------------
Its:
-----------------------------
H-11
<PAGE>
SCHEDULE A TO
TRUSTEE SERVICES DELEGATION AGREEMENT
FEES
THE FOLLOWING FEES AND CHARGES MAY BE IMPOSED WITH RESPECT TO BISYS'S SERVICES
TO PLANS:
- Trust service: $500 per Plan per year
provided, however, that BISYS may impose such fee(s) and charge(s), if
different from or in addition to the foregoing, that are not duplicative of
any of the fees charged under the Outsourcing Agreement, subject to
Prudential's right to receive reasonable notice of such fees or any changes
to them. Subject to the preceding sentence, if the person with whom BISYS
arranges to provide trust and accounting services under this Agreement is
Frontier Trust Company, BISYS may charge the fees for the services
applicable to Plans, as set forth in Exhibit O-2 of the Outsourcing
Agreement, as such may be changed from time to time after reasonable prior
notice to Prudential.
H-12
<PAGE>
SCHEDULE I TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
ORDER PLACEMENT, PROCESSING AND RELATED SERVICES
BISYS shall provide, or arrange with a third party designated in accordance with
Section 10(b) of this Agreement for the provision of, the following order
placement, processing and related services with respect to transactions in
mutual fund Investment Options.
- Establish a single account ("Account") for each Plan with each Fund in
which the Plan invests.
- Designate Prudential Services Incorporated ("PSI") as each Plan's
broker of record on the Account and assign or change the appropriate
PSI registered representative only as directed by Prudential.
- Transmit, directly or indirectly on each business day to the
appropriate Investment Option, the appropriate data associated with
each Plan's transaction(s) that day with respect to that Investment
Option.
- Process all Plan Investment Option transactions each business day and
on a timely basis to ensure same day pricing.
- Reconcile on each business day each Account balance to BISYS's
recordkeeping system.
- Pay commissions (including trail commissions) received with respect to
Investment Options, as applicable, to PSI.
- Properly calculate and track, and provide reports to PSI showing, the
commissions (including trail commissions) payable to PSI and to each
PSI registered representative, currently at the rate of 80% of the
fees payable to PSI, with respect to the Accounts, except where
commissions are paid through the National Securities Clearing
Corporation, in which case no such reports shall be required of BISYS.
I-1
<PAGE>
SCHEDULE J TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
TRAINING AND MARKETING SUPPORT AND MATERIALS
The training and marketing support and materials to be provided by BISYS shall
be as agreed upon by Prudential and BISYS.
J-1
<PAGE>
SCHEDULE K TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
REPORTS BY BISYS TO PRUDENTIAL
BISYS shall provide to Prudential reports corresponding in substance to the
attached Exhibits K-1 through K-4, in substantially the same format or such
other format as Prudential and BISYS may agree, and with the frequency indicated
on the particular report, as such Exhibits may be modified from time to time by
agreement of Prudential and BISYS. BISYS shall provide such additional reports
as may be required by Prudential in such formats as Prudential and BISYS may
agree.
K-1
<PAGE>
EXHIBIT K-1
TRUST REPORT
BYSIS shall provide Prudential, on at least a monthly basis, an EXCEL
spreadsheet in electronic form that contains the following information for each
Plan:
Plan #
Plan Name
Fund ID Code
Fund Name
Market Value
Units
BYSIS shall also provide Prudential with copies of the reconciliations performed
between BYSIS and each Plan trustee.
K-2
<PAGE>
EXHIBIT K-2
<TABLE>
<CAPTION>
BISYS OPERATION REPORT PRU ARRAY DISCOVERY SELECT
W. Class Week 25 Week 24 YTD W. Class Week 25 Week 24 YTD
Indicator 26-Jun-98 19-Jun-98 Wkly Avg Indicator 26-Jun-98 19-Jun-98 Wkly Avg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WEEK 25
WK ENDING 26-JUN-98
STAFFING
Total # Staff
Total Outside Help
Management/Non-Management %
FINANCIAL
Assets Under Management (000s)
# Inforce (Participants, Contracts)
(000s)
NEW BUSINESS (ENROLLMENTS)
On-Hand Beginning of Week
Received
Processed
MisDirects
Rejects
On-Hand End of Week
Processing Standard
% meeting standard (99% W C S) *
# items greater than standard
% Quality (99% W C S) *
SURRENDERS
# Full Surrenders
$ Full Surrenders
CALL CENTERS
Total Call Volume
% VRU (70% W C S) *
Average Speed to Answer (20 secs W C *
S) *
Abandon Rate (2% W C S) *
Service Level (% calls ans in 20 sec *
or less)
Once and Done (60% W C S)
COMPLAINTS
On-Hand Beginning of Week
Received
Redirected
Resolved
On Hand EOP
24 Hour Acknowledgement (95% W C S) *
5 Day Resolution (95% W C S) *
DISTRIBUTIONS/DISBURSEMENTS
Periodic Payment (000s)
On-Hand Beginning of Week
Received
Processed
MisDirects
Rejects
On-Hand End of Week
Processing Standard
% meeting standard (99% W C S) _
# items greater than standard
% Quality (99% W C S) *
REMITTANCES/CONTRIBUTIONS
On-Hand Beginning of Week
Received
Processed
MisDirects
Rejects
On-Hand End of Week
Processing Standard
% meeting standard (99% W C S) *
# items greater than standard
% Quality (99% W C S) *
K-3
<PAGE>
EXHIBIT K-2, CONTINUED
<CAPTION>
BISYS OPERATION REPORT TOTAL (WHERE APPROPRIATE)
W. Class Week 25 Week 24 YTD
Indicator 26-Jun-98 19-Jun-98 Wkly Avg
<S> <C> <C> <C> <C>
WEEK 25
WK ENDING 26-JUN-98
STAFFING
Total # Staff
Total Outside Help
Management/Non-Management %
FINANCIAL
Assets Under Management (000s)
# Inforce (Participants, Contracts)
(000s)
NEW BUSINESS (ENROLLMENTS)
On-Hand Beginning of Week
Received
Processed
MisDirects
Rejects
On-Hand End of Week
Processing Standard
% meeting standard (99% W C S)
# items greater than standard
% Quality (99% W C S)
SURRENDERS
# Full Surrenders
$ Full Surrenders
CALL CENTERS
Total Call Volume
% VRU (70% W C S)
Average Speed to Answer (20 secs W C
S)
Abandon Rate (2% W C S)
Service Level (% calls ans in 20 sec
or less)
Once and Done (60% W C S)
COMPLAINTS
On-Hand Beginning of Week
Received
Redirected
Resolved
On Hand EOP
24 Hour Acknowledgement (95% W C S)
5 Day Resolution (95% W C S)
DISTRIBUTIONS/DISBURSEMENTS
Periodic Payment (000s)
On-Hand Beginning of Week
Received
Processed
MisDirects
Rejects
On-Hand End of Week
Processing Standard
% meeting standard (99% W C S) _
# items greater than standard
% Quality (99% W C S) *
REMITTANCES/CONTRIBUTIONS
On-Hand Beginning of Week
Received
Processed
MisDirects
Rejects
On-Hand End of Week
Processing Standard
% meeting standard (99% W C S) *
# items greater than standard
% Quality (99% W C S) *
</TABLE>
K-4
<PAGE>
EXHIBIT K-3
FINANCE REPORT
Monthly & YTD:
- Summary of Plans and Participants, including new Plans added and Plans
cashing out
- Assets flows by fund/share class, including
BOP Assets
Converting assets
Contributions
Cashouts
Distributions
Net Loans
Net Exchanges
Dividends and Market Appreciation
EOP assets
- For Plans with Guaranteed Interest Account
Cash flow information listed above, by market (i.e. 401(k), etc.)
New money by quarter
- Commission Information
Asset sales and commissions payable by F/A or Agent
- Transfer Agency Information
Total number of Participant accounts by fund (proprietary and
non-proprietary)
- Outside Fund Commissions
Sales (contributions, conversions and net exchanges) by Plan and
Agent for all non-Prudential fund options
K-5
<PAGE>
EXHIBIT K-4
BPS SYSTEM UPTIME STATISTICS
Digital UNIX system up time statistics from _______________________
The UNIX server is currently a DEC 4100 which is operational 7 by 24.
Our service standard is to have the system operational 100% of the time with
scheduled weekly maintenance on the weekends.
Scheduled Down Time:
- - - --------------------
Time system went down Time system came up Total time down Reason
- - - --------------------- ------------------- --------------- ------
Unscheduled Down Time:
Time system went down Time system came up Total time down Reason
- - - --------------------- ------------------- --------------- ------
Up Time:
- - - --------
Total Elapse Time =
Up Time:
Percentage Up Time:
K-6
<PAGE>
SCHEDULE L TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
PROCESS TRACKING SYSTEM
The Process Tracking System will allow users to track the progress of various
recordkeeping procedures. This application will also allow users to see the
underlying detail of various activities. Items to be tracked are as follows:
1. Financial Activity
- Contributions
- Distributions
- Earnings/Fees
- Exchanges
2. Client Communications
- Enrollment Forms
- Mail Confirm (MPC)
3. Compliance Testing
- 415
- Discrimination (ADP)
4. Mail Log/Data Entry
- Census
- Enrollment Forms
- Payroll Controls
- Transaction Forms
5. Participant Indicative Change
- By Participant
6. Statements
- Production Information
The Process Tracking System will be implemented by September 17, 1998.
L-1
<PAGE>
SCHEDULE M TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
PIN SECURITY ENHANCEMENTS
BISYS SHALL PROVIDE THE FOLLOWING ENHANCEMENTS TO ITS PERSONAL IDENTIFICATION
NUMBER ("PIN") SECURITY:
- The initial PIN shall be randomly generated and not available for
viewing within BISYS. Encryption of PINs shall be present throughout
the system.
- PINs shall be mailed in automatically generated PIN envelopes directly
to the respective Participants or Employers, as applicable.
- A Participant who uses his or her randomly generated PIN may reset his
or her PIN over the Voice Response Unit.
- PIN reset shall follow the process specified above if a Participant
forgets his or her PIN.
- Employer master PINs and associated transaction authority shall be
restricted in accordance with security procedures established for the
Plan.
M-1
<PAGE>
SCHEDULE N TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
SYSTEMS ENHANCEMENT WORK PLAN
BISYS SHALL IMPLEMENT THE FOLLOWING SYSTEMS ENHANCEMENTS, AND BY THE RESPECTIVE
FINAL DATES INDICATED:
<TABLE>
<CAPTION>
ID TASK NAME DESCRIPTION FINAL DATE
<S> <C> <C> <C>
112 Frontier Trust Project to fulfill special reporting requirements, which
includes check history, balance reports and general client data.
Tue 8/4/98
98 Mail Log System Programs to record receipt of all incoming mail for clients that
are converted to new system.
Program Complete/Phase II includes special reporting requests. Tue 8/11/98
127 Block Conversion Program Programs to convert partners, clients in mass from old system to
new system.
Phase I completed in early May. Phase II includes new broker
definitions and new compensation and contribution definitions
for ASC software. Fri 8/14/98
153 Plan Administrator ADMIN Project to produce administrator's report on a quarterly basis.
Desktop version complete; working on batch version using
Medicode printer. Mon 8/17/98
123 Compliance Project to connect Recordkeeping database to ASC compliant
software. Also make test results available to monthly plan
confirms and process control system. Wed 8/19/98
162 Global Processing Refer to separate Global Processing description. Fri 8/21/98
180 New Business/Conversion Plan Project to expedite and automate the setting up of new plans.
Part of the process will be enabled by the WyStar Plan Processes
(Plan Cloning). Rest of project is special allocation
procedures requested by the conversion group. Fri 8/28/98
183 Data Entry Project to add new functionality and reporting capabilities to
the keying process for MCS, Census, Enrollments and Transaction
forms. Functionality will include the driving of keyers through
the transaction form process, dropping problem forms into "red"
box and creating status reports for the customer service area. Tue 9/8/98
N-1
<PAGE>
196 Customer Service Log Creating new customer service log with GUI front end allowing
for sorting/reporting capabilities off of log entries.
Application will allow linking to the new process control
screens. Tue 9/29/98
202 Process Control Refer to separate Process Control description. Thu 9/17/98
Pin Procedure Project to automate the production of pin numbers Tue 10/6/98
72 Distribution Processing Project to generate check-writing instructions for transmission
to appropriate trust companies. Also includes new distribution
reports. Transmission project is complete. Reporting part is
in acceptance. Phase II - new loan reports, update check
history, Premier distribution Accounts. Fri 10/9/98
213 Statement Backend Processing Project to deliver up-front editing, automatic extraction and
statement production. Tue 10/20/98
221 Enrollment Process Project Project to automate the production of enrollment forms and to
generate those forms on Medicode printers. Tue 11/3/98
176 1099R Process Project to pull 1099R form information from the new
Recordkeeping database. That information will feed currently
existing end of year process. Date moved out, specs not ready. Fri 12/4/98
251 Stif Processing Project to automatically calculate and allocate short term
interest. Fri 12/11/98
255 EOY Auditors Pack This project is being merged with Year End Summary. Fri 1/8/99
259 Loan Default Letters Project to automate delivery of Loan Default Letters and
generate 1099s. Fri 2/5/99
263 Automate Trust Reports Project to automate the production and delivery of trust reports
including an automatic reconciliation to recordkeeping balances. Mon 2/15/99
</TABLE>
N-2
<PAGE>
SCHEDULE O TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
FEES
A. FOR PLANS OTHER THAN THOSE DESIGNATED BY PRUDENTIAL PURSUANT TO
SECTION 2(c) OF THE AGREEMENT:
THE FOLLOWING FEES AND CHARGES MAY BE IMPOSED WITH RESPECT TO BISYS'S SERVICES
TO PLANS WHOSE ADMINISTRATIVE SERVICES AGREEMENTS ARE EFFECTIVE ON OR AFTER THE
EFFECTIVE DATE:
- - - - Annual fee per Plan: $2,000
- - - - Annual fee per Participant: $14 or $28, as determined by Prudential
- - - - Installation charge for all startup Plans: $1,500 per Plan, one-time,
nonrefundable upon submission of executed Administrative Services Agreement
- - - - Conversion charge: $2,500 per Plan, one-time - $1,500 nonrefundable upon
submission of executed Administrative Services Agreement and $1,000 upon
completion of conversion
- - - - Trust service: $500 per Plan per year (Trust services are offered through
Prudential Bank & Trust Company or Prudential Trust Company.)
- - - - Signature-ready 5500: $600 per Plan per year (Information required to
complete the 5500 is included in the basic fee for full-service Plans.)
- - - - Testing: Additional fee for top-heavy tests: $350 per test
- - - - Check fee: $15 per check charged to Participant
- - - - Manual contribution data processing: $15 per Participant per year
- - - - Loans: $75 origination fee; $60 maintenance fee per Participant with
outstanding loan balance per year
- - - - Special services: See attached Exhibit O-1 for applicable fee schedule
- - - - Termination/cash-out charge: $1,000, one-time
THE FOLLOWING SERVICES PROVIDED BY BISYS TO PLANS WHOSE ADMINISTRATIVE SERVICES
AGREEMENTS ARE EFFECTIVE ON OR AFTER THE EFFECTIVE DATE WILL NOT BE SUBJECT TO A
SEPARATE FEE OR CHARGE:
- - - - Standard or nonstandard prototype Plan document (nonstandardized filing fee
$500 plus $125 IRS user fee)
- - - - Testing: Semi-annual testing for full-service Plans include: ADP/ACP,
402(g), 415. Assumes required data is provided in the specified electronic
format.
- - - - Quarterly Participant statements
A. FOR PLANS DESIGNATED BY PRUDENTIAL PURSUANT TO SECTION 2(C) OF THIS
AGREEMENT:
THE FOLLOWING FEES AND CHARGES MAY BE IMPOSED WITH RESPECT TO BISYS'S SERVICES
TO PLANS WHOSE ADMINISTRATIVE SERVICES AGREEMENTS ARE EFFECTIVE ON OR AFTER THE
EFFECTIVE DATE AND FOR WHICH NO SERVICES ARE PROVIDED BY BISYS PURSUANT TO
SECTION 2(a)(4) OF THE AGREEMENT:
- - - - Annual fee per Participant: $14 for Plans with mutual fund Investment
Options
- - - - Plan setup: $500
- - - - Plan conversion: $500 plus $3 per Participant with an account balance
(assumes transfer of
O-1
<PAGE>
Plan account balances are completely reconciled in BISYS system)
- - - - Treasury service: $300 (assumes no trust reporting)
- - - - Loans: $75 origination fee; $60 maintenance fee per Participant with
outstanding loan
- - - - Distribution checks: $15 deducted from each distribution check
- - - - Special services: See Section A. of attached Exhibit O-1 for applicable
fee schedule.
O-2
<PAGE>
EXHIBIT O-1
SPECIAL SERVICES FEE SCHEDULE
A. Depending upon its needs, the Employer may request additional services
beyond those required for normal recordkeeping and reporting (as set forth
in the Administrative Services Agreement). Additional services will be
billed by BISYS on a flat dollar basis. Examples of additional services
are:
- Interim or off-quarter account balances -- $250
- Plan refunds required due to failing either the ADP or ACP test --
$100 per refund
- Plan refunds required under IRS rules -- $100 per refund
- Plan valuation due to improper financial data or employee census
information supplied by the Employer or its agent -- $500
- Reprocessing of monthly contribution information due to the receipt of
erroneous data -- $500
- Reprocessing of distributions, transfers, or forfeitures due to the
receipt of erroneous data -- $100 per transaction
- Multiple payroll location hard copy -- $250 annually
- Calculate matching, profit sharing, QNEC, QMAC -- $500
- Retroactive recordkeeping 200% of standard fees for the period
specified as retroactive activity
- The standard service is to mail Participant statements to the
Employer. If the Employer requires statements mailed directly to
Participants, this will be billed at $.60 per quarter per Participant
($2.40 per Participant per year) to cover postage and mailing expense.
This cost may change from time to time based upon current postage and
handling rates.
- Plan year-end summary -- $300
- Frozen assets incur a 50% increase in standard recordkeeping fees.
BISYS may add fees for special services, or change any fees for special
services, upon reasonable prior notice to Prudential.
B. BISYS may also charge such fees as are applicable to Plans under the fee
schedule of the person providing trust and accounting services under
Section 2(b) of the Agreement and that are not duplicative of any of the
fees otherwise identified on Schedule O to the Agreement, subject to
Prudential's right to receive reasonable prior notice of such fees or any
changes to them. Subject to the preceding sentence, if such service
provider is Frontier Trust Company, BISYS may charge the fees for the
Services applicable to Plans, as set forth in Exhibit O-2 attached hereto,
as such may be changed from time to time after reasonable prior notice to
Prudential.
O-3
<PAGE>
EXHIBIT O-2
FRONTIER TRUST COMPANY
FEE SCHEDULE EFFECTIVE JANUARY 1, 1998
A. Set Up. There is no set up fee if the only assets in the plan are the
standard investments offered in the 401(k) Program. There is a $500 set up
fee for each non-standard asset except company stock which has a $1,000 set
up fee.
Frontier will generally accept the following non-standard assets:
1. Annuity contracts and insurance policies issued by leading insurance
companies.
2. GIC contracts issued by leading insurance companies.
3. Real estate investment trust interests IF the current trustee of the
REIT will sign the Frontier Trust Custodial Agreement.
4. Company (i.e., employer) stock.
5. Certificates of deposit issued by major banking institutions.
Frontier will not accept:
1. Limited partnership interests. 4. Mortgages.
2. Collectibles (e.g. art, coins). 5. Real estate.
3. Brokerage account assets.
The ownership of all non-standard assets must be changed to: Frontier Trust
Company FBO The (Plan Name) 401(k) Plan. With the exception of company stock,
new contributions cannot be allocated to non-standard assets.
B. Annual Fee. The annual fee is $500 if the only assets are the standard
investments offered in the 401(k) Program. For each non-standard asset, except
company stock, there will be a $50 charge for each transaction, with a minimum
additional annual fee of $200 which covers the first four transactions. The
company stock fee will be an additional $1,000 per year. All fees quoted are
based on contributions being invested once per month and contributions being
sent to Frontier by check. If contributions are sent to Frontier by wire, there
is a fee of $10 per wire. If contributions are to be invested more than once
per month (12 times per year), add $15 to the $500 annual fee for each
additional investment.
C. Check Fees. The fee for issuing a check to a plan participant from paper
documents is $30. The fee for issuing a check to a plan participant from
diskette or computer transmission is $15. After checks have been issued,
Frontier retains any interest earned on amounts in its disbursement account.
Stop payments are $10.
If a check is returned to be reinvested, the original fee plus a processing fee
of $10 is charged.
O-4
<PAGE>
If a check to be reissued is returned, the total fee includes: the original
check fee, $10 for processing the void, and the new check fee. If a check to be
reissued is not returned, the total fee includes: the original check fee, $20
for processing (including the stop payment fee), and the new check fee.
If a check made payable to a new trustee or IRA is returned to be made payable
to the participant (or vice versa), the original fee plus a processing fee of
$50 is charged. A check made payable to a participant will not be changed to be
payable to a new trustee or IRA unless the check was made payable to the
participant due to an error made by someone other than the participant.
D. Miscellaneous Fees. 1. There is a fee of $150 to process a plan
termination or a transfer of plan assets to a new trustee. In addition, all
outstanding fees must be paid before the plan assets are distributed or
transferred. 2. A fee of $25 is charged if a check is returned for
non-sufficient funds or account closed.
E. Fee Increases. Increases in annual fees will be applicable as of January 1
and become effective for a given plan on the anniversary of the trust effective
date on or after January 1. Increases in check fees will be announced 90 days
in advance and become effective on the date specified.
O-5
<PAGE>
SCHEDULE P TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
USE OF NAMES
BISYS may use the name or logo of Prudential or a Prudential affiliate, or
of a Prudential product or service, as such may be contained in Prudential's
Administrative Services Agreement, the Plan documents, including the Adoption
Agreement, the summary plan description and statements to Employers and
Participants, solely for the purpose of providing services under this Agreement.
Prudential may use the name of BISYS or a BISYS affiliate, or of a BISYS
product or Service, as such may be contained in materials used to explain to
clients, potential clients or other relevant parties the nature of the Services
offered under this Agreement.
P-1
<PAGE>
SCHEDULE Q TO
RETIREMENT PLAN SERVICES OUTSOURCING AGREEMENT
STANDARDS FOR TRANSFER OF PLANS BACK TO PRUDENTIAL OR ITS DESIGNEE FOR SERVICING
For all transfers of plan servicing, BISYS shall:
- - - - Review attached data requirements prior to conference call with Prudential.
- - - - Assign a Programmer/Analyst who can answer questions regarding tape layout
and contents
- - - - Provide Prudential with the layout of the conversion files prior to
conference call.
- - - - Provide Prudential with a code/symbol translation key prior to conference
call.
- - - - Ensure that the format and content of the test and live files are exactly
the same.
- - - - Supply control totals for all financial data.
- - - - Supply hard copy reports.
- - - - Provide the data set forth in Exhibit S-1 to this Schedule. In this
regard:
Data may be provided via tape, diskette, or data transmission.
Tapes should be in EBCDIC format.
Diskettes should be in ASCII (text) format.
Modem instructions will be provided upon request.
Q-1
<PAGE>
EXHIBIT Q-1
CONVERSION DATA REQUIREMENTS
PARTICIPANT DATA ELEMENTS
- - - --------------------------------------------------------------------------------
DATA ELEMENT EXPLANATION COMMENTS
- - - --------------------------------------------------------------------------------
Social Security Number Required field for every Not hyphenated.
record.
- - - --------------------------------------------------------------------------------
Participant Name Prudential format uses
two fields: (1) Last
Name (2) First Name,
MI.
- - - --------------------------------------------------------------------------------
Date of Birth
- - - --------------------------------------------------------------------------------
Date of Hire
- - - --------------------------------------------------------------------------------
Date of Participation
- - - --------------------------------------------------------------------------------
Vesting Date Used if vesting is
calculated using a date
other than date of hire
or date of
participation.
- - - --------------------------------------------------------------------------------
Date of Termination
- - - --------------------------------------------------------------------------------
Status Translation key
required.
- - - --------------------------------------------------------------------------------
Marital Status
- - - --------------------------------------------------------------------------------
Employee ID Number
- - - --------------------------------------------------------------------------------
Street Address Prudential format uses
up to two street
address lines.
- - - --------------------------------------------------------------------------------
City, State and ZIP Code
- - - --------------------------------------------------------------------------------
Division Used for sorting client Translation key
data. required.
- - - --------------------------------------------------------------------------------
Deferral Rates Use separate fields if
multiple source deferral
rates are stored.
- - - --------------------------------------------------------------------------------
Investment Allocation Use separate fields if Each source investment
multiple source allocation must add to
investment allocations 100%.
are stored.
- - - --------------------------------------------------------------------------------
Vesting Modifiers Prior years and hours of
service.
- - - --------------------------------------------------------------------------------
Vesting Overrides Used when system
calculated vesting is
being overridden.
- - - --------------------------------------------------------------------------------
Q-2
<PAGE>
FINANCIAL DATA ELEMENTS
- - - --------------------------------------------------------------------------------
DATA ELEMENT EXPLANATION COMMENTS
- - - --------------------------------------------------------------------------------
Investment Balances by Cash Fields As of valuation date.
Source Should not include
outstanding loan
balances.
- - - --------------------------------------------------------------------------------
Share Balances by Source Share Fields Same as above.
- - - --------------------------------------------------------------------------------
Tax Cost Basis for After- Post 86 Contributions Net of withdrawals.
Tax Sources Pre 87 Contributions
Cash Fields
- - - --------------------------------------------------------------------------------
Hardship Balances for Pre- This amount is equal to
Tax Sources the 12/31/88 market value
plus post 88
contributions less
withdrawals for pre-tax
sources only.
- - - --------------------------------------------------------------------------------
Inception to Date Cash Fields
Contributions by Source
- - - --------------------------------------------------------------------------------
Year to Date Contributions Cash Fields
by Source
- - - --------------------------------------------------------------------------------
Cost Basis of Company
Stock
- - - --------------------------------------------------------------------------------
Pending Forfeitures Please indicate how
pending forfeiture
amounts are tracked.
- - - --------------------------------------------------------------------------------
Inception to Date Cash Fields
Withdrawals by Source
Q-3
<PAGE>
LOAN DATA ELEMENTS
- - - --------------------------------------------------------------------------------
DATA ELEMENT EXPLANATION COMMENTS
- - - --------------------------------------------------------------------------------
Loan ID Prudential may need to
assign new loan ID.
- - - --------------------------------------------------------------------------------
Original Loan Amount
- - - --------------------------------------------------------------------------------
Loan Origination Date
- - - --------------------------------------------------------------------------------
Interest Rate
- - - --------------------------------------------------------------------------------
First Payment Date
- - - --------------------------------------------------------------------------------
Payment Amount Cash Fields
- - - --------------------------------------------------------------------------------
Total Number of Payments
- - - --------------------------------------------------------------------------------
Loan Duration
- - - --------------------------------------------------------------------------------
Total Number of Payments
Made
- - - --------------------------------------------------------------------------------
Payment Frequency Translation key
required.
- - - --------------------------------------------------------------------------------
Next Payment Due Date
- - - --------------------------------------------------------------------------------
Outstanding Balances by Cash Fields As of the valuation
Source date.
- - - --------------------------------------------------------------------------------
Highest Outstanding
Balance for Each of the
Previous 12 Months
- - - --------------------------------------------------------------------------------
Loan Reinvestment Method Will default to current
contribution
allocation.
- - - --------------------------------------------------------------------------------
Q-4
<PAGE>
August 19, 1998
The Prudential Insurance Company
of America
751 Broad Street
Newark, New Jersey 07102-3777
Gentlemen:
In my capacity as Assistant General Counsel of The Prudential Insurance Company
of America, I have reviewed the establishment of the Prudential Discovery Select
Group Variable Contract Account ("the Account") on February 11, 1997 by the
Finance Committee of the Board of Directors of Prudential as a separate account
for assets applicable to certain variable annuity contracts, pursuant to the
provisions of Section 17B: 28-7 of the Revised Statues of New Jersey.
I was responsible for oversight of the preparation and review of Post-Effective
Amendment No. 2 to the Registration Statement (Registration Number 333-23271)
under the Securities Act of 1933 for the registration of certain variable
annuity contracts issues with respect to the Account.
I am of the following opinion:
(1) Prudential was duly organized under the laws of New Jersey and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of New Jersey
Law.
(3) The portion of the assets held in the Account equal to the reserve and
other liabilities for variable benefits under the variable annuity
contracts is not chargeable with liabilities arising out of any other
business Prudential may conduct.
(4) The variable annuity contracts are legal and binding obligations of
Prudential in accordance with their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Peter T. Scott
Assistant General Counsel
<PAGE>
Shea & Gardner
1800 Massachusetts Avenue NW
Washington, D.C. 20036
(202) 828-2000
Fax: (202) 828-2195
CONSENT OF SHEA & GARDNER
We consent to the reference to Shea & Gardner under the heading "Legal Matters"
in this Post-Effective Amendment No. 2 to Registration Statement No. 333-23271
on Form N-4 of the Prudential Discovery Select Group Variable Contract Account
of The Prudential Insurance Company of America.
Shea & Gardner
by: /s/ Christopher E. Palmer
August 18, 1998
