AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 23, 1999.
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. 4 [X]
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
POST-EFFECTIVE AMENDMENT NO. 4 [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 07102-4077
DEPOSITOR'S TELEPHONE NUMBER: (973) 802-6997
----------
C. CHRISTOPHER SPRAGUE, ESQ.
ASSISTANT GENERAL COUNSEL
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
3 GATEWAY CENTER, 12TH FLOOR
NEWARK, NJ 07102-4077
(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 _______ pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[X] on May 1, 1999 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
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 Commissions
(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
(ii) Transfers..........................Brief Description of the
Contract; Transfers
(iii) Exchanges.........................Transfers
(c) Changes.................................Substitution of Funds; The
Contracts; Modified
Procedures;
(d) Inquiries...............................Cover page
<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 Commissions
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
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 Accountants..........Expert
(d) Assets of Registrant....................Prudential Discovery Select
Group Variable Contract
Account (prospectus)
(e) Affiliated Persons......................Prudential Insurance Company
of America (prospectus)
(f) Principal Underwriter...................Sale of the Contract and
Sales Commissions
(prospectus)
<PAGE>
19. Purchase of Securities Being Offered........Sale of the Contract and
Sales Commissions
(prospectus)
Offering Sales Load.........................N/A
20. Underwriters................................Sale of the Contract and
Sales Commissions
(prospectus)
21. Calculation of Performance Data.............Performance Information;
Performance Information
(prospectus)
22. Annuity Payments............................Effecting An Annuity
(prospectus)
23. Financial Statements........................Financial Statements
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 (in
Statement of Additional
Information)
26. Persons Controlled By or Under Common
Control with the Depositor or Registran...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
<PAGE>
PART A
<PAGE>
PROSPECTUS MAY 1, 1999
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"). The Contracts are group variable annuity contracts
sold by The Prudential Insurance Company of America ("Prudential") to retirement
plans qualifying for federal tax benefits under sections 401, 403(b), 408 or 457
of the Internal Revenue Code of 1986 as amended (the "Code") and to
non-qualified defined contribution annuity plans. In this Prospectus, Prudential
may be referred to as either "Prudential" or as "we" or "us". We may refer to a
participant under a retirement plan as "you."
We sell one of the Contracts (the "Small Plan Contract") exclusively to
retirement plans qualified under Sections 401(k) or 401(a) of the Code that
generally have 100 or fewer participants. We may delegate most of the
administrative services in connection with those Contracts to a third party
recordkeeper (the "Small Plan Contract Recordkeeper").
As a plan participant, you can allocate contributions made on your behalf in a
number of ways. You can allocate contributions to one or more of the twenty-two
Subaccounts. Each Subaccount 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 Flexible Managed Portfolio Equity Portfolio
Diversified Bond Portfolio High Yield Bond Portfolio Prudential Jennison
Government Income Portfolio Stock Index Portfolio Portfolio
Conservative Balanced Portfolio Equity Income Portfolio Global Portfolio
- --------------------------------------------------------------------------------
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Fund AIM V.I. Value Fund
JANUS ASPEN SERIES MFS VARIABLE INSURANCE TRUST
Growth Portfolio Emerging Growth Series
International Growth Portfolio Research Series
OCC ACCUMULATION TRUST T. ROWE PRICE EQUITY SERIES, INC.
Managed Portfolio Equity Income Portfolio
Small Cap Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC. WARBURG PINCUS TRUST
International Stock Portfolio Post-Venture Capital Portfolio
You also can allocate contributions to the Guaranteed Interest Account, which
guarantees a stipulated rate of interest if held for a specified period of time.
In this Prospectus, we do not describe that account in detail. Rather, we
mention the Guaranteed Interest Account only where necessary to explain how the
Prudential Discovery Select Group Variable Contract Account works.
----------
In this Prospectus, we provide information that you should know before you
invest. We have filed additional information about the Contracts with the
Securities and Exchange Commission ("SEC") in a Statement of Additional
Information ("SAI"), dated May 1, 1999. That SAI is legally a part of this
Prospectus. You can get a copy of the SAI free of charge by contacting us at the
address or telephone number shown on the cover page.The SEC maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference,
and other information regarding registrants that file electronically with the
SEC.
The accompanying prospectuses for the Funds and the related statements of
additional information describe the investment objectives and risks of investing
in the Funds. We may offer additional Funds and Subaccounts in the future.
The contents of the SAI with respect to the Contracts appears on page 44 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. YOU SHOULD READ THOSE
PROSPECTUSES CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
AS WITH ALL VARIABLE ANNUITY CONTRACTS, THE FACT THAT WE HAVE REGISTERED THE
CONTRACTS WITH THE SEC DOES NOT MEAN THAT THE SEC HAS DETERMINED THAT THE
CONTRACTS ARE A GOOD INVESTMENT. NOR HAS THE SEC DETERMINED THAT THIS PROSPECTUS
IS COMPLETE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
3 Gateway Center, 12th Floor
Newark, NJ 07102-4077
Telephone 1-800-458-6333
* DISCOVERY SELECT IS A SERVICE MARK OF PRUDENTIAL
<PAGE>
PROSPECTUS CONTENTS
PAGE
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................................................................. 13
GUARANTEED INTEREST ACCOUNT............................................... 16
THE CONTRACTS................................................................ 17
THE ACCUMULATION PERIOD................................................... 17
ALLOCATION OF PURCHASE PAYMENTS .......................................... 19
ASSET ALLOCATION PROGRAM.................................................. 19
TRANSFERS................................................................. 19
DOLLAR COST AVERAGING .................................................... 21
AUTO-REBALANCING.......................................................... 22
WITHDRAWALS.................................................................. 22
SYSTEMATIC WITHDRAWAL PLAN................................................ 23
TEXAS OPTIONAL RETIREMENT PLAN............................................ 24
DEATH BENEFIT............................................................. 25
DISCONTINUANCE OF CONTRIBUTIONS........................................... 26
LOAN PROVISION............................................................ 27
MODIFIED PROCEDURES....................................................... 28
CHARGES, FEES AND DEDUCTIONS................................................. 28
ADMINISTRATIVE FEE AND ANNUAL ACCOUNT CHARGE.............................. 28
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS........................... 29
EXPENSES INCURRED BY THE FUNDS............................................ 29
WITHDRAWAL CHARGE......................................................... 29
LIMITATIONS ON WITHDRAWAL CHARGE.......................................... 30
PREMIUM TAXES............................................................. 31
FEDERAL TAX STATUS........................................................... 32
ANNUITY QUALIFICATION..................................................... 32
TAX-QUALIFIED RETIREMENT ARRANGEMENTS USING THE CONTRACTS................. 32
NON-QUALIFIED ARRANGEMENTS USING THE CONTRACTS............................ 34
ENTITY OWNERS............................................................. 36
WITHHOLDING............................................................... 36
TAXES ON PRUDENTIAL ...................................................... 36
EFFECTING AN ANNUITY......................................................... 36
LIFE ANNUITY WITH PAYMENTS CERTAIN........................................ 37
ANNUITY CERTAIN........................................................... 37
JOINT AND SURVIVOR ANNUITY WITH PAYMENTS CERTAIN.......................... 37
PURCHASING THE ANNUITY.................................................... 38
OTHER INFORMATION............................................................ 38
MISSTATEMENT OF AGE OR SEX................................................ 38
SALE OF THE CONTRACT AND SALES COMMISSIONS................................ 38
VOTING RIGHTS............................................................. 39
SUBSTITUTION OF FUND SHARES............................................... 39
PERFORMANCE INFORMATION...................................................... 39
REPORTS TO PARTICIPANTS................................................... 40
STATE REGULATION.......................................................... 40
LEGAL PROCEEDINGS......................................................... 41
YEAR 2000 COMPLIANCE...................................................... 42
SUBSEQUENT EVENTS......................................................... 44
STATEMENT OF ADDITIONAL INFORMATION....................................... 44
ADDITIONAL INFORMATION.................................................... 44
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.
CONTRACTS--The Group Variable Annuity Contracts that we describe in this
Prospectus and offer 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. The Small Plan Contract is one
of such Contracts.
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 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.
SMALL PLAN CONTRACT--Atype of Contract used exclusively with retirement plans
qualified under Sections 401(k) or 401(a) of the Code that generally have 100 or
fewer Participants.
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--We credit a Participant with Units for 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. We will reduce the number of Units
credited to a Participant under any Subaccount by the number of Units canceled
as a result of any transfer or withdrawal by a Participant from that Subaccount.
Because of its differing charges, the Small Plan Contract will have different
Unit Values than the other Contracts.
VALUATION PERIOD--The period of time from one determination of the value of the
amount invested in a Subaccount to the next. We make such determinations 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. Currently, the Prudential business unit that receives
transaction requests for the Contracts is open each day on which the New York
Stock Exchange is open.
VARIABLE INVESTMENT OPTIONS--The Subaccounts.
1
<PAGE>
BRIEF DESCRIPTION OF THE CONTRACTS
Prudential offers the Contracts to retirement plans qualifying for federal tax
benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of
1986, as amended (the "Code") and to nonqualified annuity arrangements. The
Contracts are group annuity contracts that we typically issue to employers.
These employers then make contributions under the Contract 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. We invest the assets
of each Subaccount in one of the Funds listed beginning on page 13. You may
direct contributions to one or a combination of variable investment options as
well as the Guaranteed Interest Account. We set up a separate Participant
Account to record your investment choices. You can withdraw amounts held under
your Participant Account, in whole or in part, prior to the annuity date. We
also provide for a death benefit under the Contract.
Through payroll deduction or similar agreements with the Contractholder, you may
make contributions under the Contract. In addition, you may make contributions
in ways other than payroll deduction under certain circumstances.
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. We deduct a mortality and
expense risk charge equal to an annual rate of 0.15% from the assets held in the
variable investment options with respect to all the Contracts. We deduct an
administrative charge 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, we deduct an administrative
charge equal to an annual rate of 1.05% from the assets held in the variable
investment options. You can find further details about the administrative charge
in the Fee Tables, pages 4 and 5, and under Administrative Fee and Annual
Account Charge, page 28.
With respect to Contracts other than the Small Plan Contract, we assess an
additional administrative charge of up to $32 per Participant (the annual
account charge) on the last Business Day of each calendar year and at the time
of a full withdrawal. We will prorate this annual account charge for new
Participants on a monthly basis for their first year of participation. With
respect to the Small Plan Contract, we assess an annual administrative charge of
up to $32 per Participant 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. We do not prorate this charge for new Participants under the Small Plan
Contract.
Under Contracts other than the Small Plan Contract, we may impose a withdrawal
charge 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. You can find
further details about charges under the section entitled Charges, Fees and
Deductions, page 28.
Unless restricted by the retirement arrangement under which you are covered, or
by a section of the Code, you may withdraw, at any time, all or part of your
Participant Account. See "Withdrawals," page 22. If you withdraw, you may be
taxed under the Code, including, under certain circumstances, a 10% penalty tax
on premature withdrawals. See "Federal Tax Status," page 32. In addition, you
may transfer all or a part of your Participant Account Value 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. You should send all written requests, notices, and transfer
requests required by the Contracts (other than withdrawal requests and death
benefit claims), to Prudential at the address shown on the cover of this
Prospectus. You may effect the telephone transactions that are permitted by your
retirement plan by calling Prudential at 1-800-458-6333. You must send all
written withdrawal requests or death benefit claims to Prudential by one of the
following three means: (1) By U.S. mail to: Prudential, 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,
30 Scranton Office Park, Scranton, Pennsylvania 18507-1789; or (3) Fax to
Prudential, Attention: Client Payments at: (570) 340-4328. 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 28.
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 on a given Business Day if
received in good order prior to 4:00 PM Eastern Time on that Business Day. For
purposes of the preceding sentence, we define "good order" generally as an
instruction received by the Small Plan Contract Recordkeeper that is
sufficiently complete and clear that the Small Plan Contract Recordkeeper does
not need to exercise any discretion to follow such instruction. 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.
We intend this brief description of the Contracts to provide a broad overview of
the more significant features of the Contracts. You can find more detailed
information about the Contracts in subsequent sections of this Prospectus and in
the Contracts themselves.
Transaction requests (including death benefit claims) received directly by
Prudential in good order on a given Business Day before the established
transaction cutoff time (4 PM Eastern Time, or such earlier time that the New
York Stock Exchange may close) will be effective for that Business Day. For
purposes of the preceding sentence, we define "good order" generally as an
instruction received by Prudential that is sufficiently complete and clear that
Prudential does not need to exercise any discretion to follow such instruction.
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):
- ------------------------------------- ------------------------------------------
THE WITHDRAWAL CHARGE WILL BE EQUAL
TO THE FOLLOWING PERCENTAGE OF THE
YEARS OF CONTRACT PARTICIPATION CONTRIBUTIONS WITHDRAWN
- ------------------------------------- ------------------------------------------
First Year 5%
Second Year 4%
Third Year 3%
Fourth Year 2%
Fifth Year 1%
Sixth and Subsequent Years No Charge
- ------------------------------------- ------------------------------------------
Maximum Annual Account Charge................................................$32
DISCOVERY ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE PARTICIPANT ACCOUNT VALUE)
ALL SUBACCOUNTS
---------------
Mortality and Expense Risk Charge .................. 0.15%
Administrative Fee ................................. 0.85%
------
Total Separate Account Annual Expenses ............. 1.00%
=====
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:
- ------------------------------------- ------------------------------------------
THE WITHDRAWAL CHARGE WILL BE EQUAL
TO THE FOLLOWING PERCENTAGE OF THE
YEARS CONTRACT HAS BEEN IN EFFECT CONTRIBUTIONS WITHDRAWN
- ------------------------------------- ------------------------------------------
First Year 5%
Second Year 4%
Third Year 3%
Fourth Year 2%
Fifth Year 1%
Sixth and Subsequent Years No Charge
- ------------------------------------- ------------------------------------------
Maximum Annual Account Charge................................................$32
DISCOVERY ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE PARTICIPANT ACCOUNT VALUE)
ALL SUBACCOUNTS
-----------------
Mortality and Expense Risk Charge ................... 0.15%
Administrative Fee .................................. 1.05%
------
Total Separate Account Annual Expenses .............. 1.20%
=====
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)
-------------------------------------
THE PRUDENTIAL SERIES FUND, INC(1)
<S> <C> <C> <C>
Money Market Portfolio ........................................ 0.40%
Diversified Bond Portfolio..................................... 0.40%
Government Income Portfolio.................................... 0.40%
Conservative Balanced Portfolio................................ 0.55% [to be added by
Flexible Managed Portfolio..................................... 0.60% post-effective amendment]
High Yield Bond Portfolio...................................... 0.55%
Stock Index Portfolio.......................................... 0.35%
Equity Income Portfolio........................................ 0.40%
Equity Portfolio............................................... 0.45%
Prudential Jennison Portfolio.................................. 0.60%
Global Portfolio............................................... 0.75%
AIM VARIABLE INSURANCE FUNDS, INC.(2)
AIM V.I. Growth and Income Fund................................ 0.63%
AIM V.I. Value Fund............................................ 0.62%
JANUS ASPEN SERIES(3)
Growth Portfolio............................................... 0.65%
International Growth Portfolio................................. 0.67%
MFS VARIABLE INSURANCE TRUST
Emerging Growth Series......................................... 0.75%
Research Series................................................ 0.75%
OCC ACCUMULATION TRUST(4)
Managed Portfolio.............................................. 0.80%
Small Cap Portfolio............................................ 0.80%
T. ROWE PRICE(5)
T. Rowe Price Equity Series, Inc., Equity Income Portfolio..... 0.85%
T. Rowe Price International Series, Inc., International Stock
Portfolio..................................................... 1.05%
WARBURG PINCUS TRUST(6)
Post-Venture Capital Portfolio................................. 1.07%
</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.
6
<PAGE>
(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.
(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. Expenses for the fiscal year ended December 31, 1997 for these
portfolios were below this expense limitation. 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 you would incur on each $1,000 of investment.
o The examples assume a consistent 5% annual return on invested assets.
o 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 .......................................
Diversified Bond Subaccount....................................
Government Income Subaccount................................... [to be added by
Conservative Balanced Subaccount............................... post-effective
Flexible Managed Subaccount.................................... amendment]
High Yield Subaccount..........................................
Stock Index Subaccount.........................................
Equity Income Subaccount.......................................
Equity Subaccount..............................................
Prudential Jennison Subaccount.................................
Global Subaccount..............................................
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount..........................
AIM V.I. Value Subaccount......................................
JANUS ASPEN SERIES
Growth Subaccount..............................................
International Growth Subaccount................................
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount.....................................
Research Subaccount............................................
OCC ACCUMULATION TRUST
Managed Subaccount.............................................
Small Cap Subaccount...........................................
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income Subaccount....
T. Rowe Price International Series, Inc., International Stock
Subaccount....................................................
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................................
</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 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 .......................................
Diversified Bond Subaccount....................................
Government Income Subaccount................................... [to be added by
Conservative Balanced Subaccount............................... post-effective
Flexible Managed Subaccount.................................... amendment]
High Yield Bond Subaccount.....................................
Stock Index Subaccount.........................................
Equity Income Subaccount.......................................
Equity Subaccount..............................................
Prudential Jennison Subaccount.................................
Global Subaccount..............................................
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount..........................
AIM V.I. Value Subaccount......................................
JANUS ASPEN SERIES
Growth Subaccount..............................................
International Growth Subaccount................................
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount.....................................
Research Subaccount............................................
OCC ACCUMULATION TRUST
Managed Subaccount.............................................
Small Cap Subaccount...........................................
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income Subaccount....
T. Rowe Price International Series, Inc., International Stock
Subaccount....................................................
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................................
</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 5 YEARS 10 YEARS
-----------------------------------------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market Subaccount .......................................
Diversified Bond Subaccount.................................... [to be added by
Government Income Subaccount................................... post-effective
Conservative Balanced Subaccount............................... amendment]
Flexible Managed Subaccount....................................
High Yield Bond Subaccount.....................................
Stock Index Subaccount.........................................
Equity Income Subaccount.......................................
Equity Subaccount..............................................
Prudential Jennison Subaccount.................................
Global Subaccount..............................................
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount..........................
AIM V.I. Value Subaccount......................................
JANUS ASPEN SERIES
Growth Subaccount..............................................
International Growth Subaccount................................
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount.....................................
Research Subaccount............................................
OCC ACCUMULATION TRUST
Managed Subaccount.............................................
Small Cap Subaccount...........................................
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income Subaccount....
T. Rowe Price International Series, Inc., International Stock
Subaccount....................................................
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................................
</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 5 YEARS 10 YEARS
-----------------------------------------
<S> <C> <C> <C> <C>
THE PRUDENTIAL SERIES FUND, INC.
Money Market Subaccount .......................................
Diversified Bond Subaccount....................................
Government Income Subaccount................................... [to be added by
Conservative Balanced Subaccount............................... post-effective
Flexible Managed Subaccount.................................... amendment]
High Yield Bond Subaccount.....................................
Stock Index Subaccount.........................................
Equity Income Subaccount.......................................
Equity Subaccount..............................................
Prudential Jennison Subaccount.................................
Global Subaccount..............................................
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Growth and Income Subaccount..........................
AIM V.I. Value Subaccount......................................
JANUS ASPEN SERIES
Growth Subaccount..............................................
International Growth Subaccount................................
MFS VARIABLE INSURANCE TRUST
Emerging Growth Subaccount.....................................
Research Subaccount............................................
OCC ACCUMULATION TRUST
Managed Subaccount.............................................
Small Cap Subaccount...........................................
T. ROWE PRICE
T. Rowe Price Equity Series, Inc., Equity Income Subaccount....
T. Rowe Price International Series, Inc., International Stock
Subaccount....................................................
WARBURG PINCUS TRUST
Post-Venture Capital Subaccount................................
</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 45.
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. Our corporate office is located at 751 Broad
Street, Newark, New Jersey. We have 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
could take two years to complete. No plan of demutualization has been adopted
yet by Prudential's Board of Directors. Any plan of reorganization adopted by
the Board of Directors would have to be approved by qualified policyholders and
appropriate state insurance regulators. Throughout the process, there will be a
continuing evaluation by the Board of Directors and management of Prudential as
to the desirability of demutualization. The Board of Directors, in its
discretion, may choose not to demutualize or to delay demutualization for a
time.
Prudential 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 that we bear 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. Currently, the Small Plan Contract Recordkeeper is BISYS Plan
Services, L.P., 323 Norristown Road, Ambler, PA 19002.
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
Prudential established the Prudential Discovery Select Group Variable Contract
Account (the "Discovery Account") 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 sufficient to support its
obligations under the Contracts. Prudential segregates the Discovery Account
assets from all of its other assets. Thus, those assets are not chargeable with
liabilities arising out of any other business Prudential conducts. 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, Prudential
will transfer these additional assets 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.
12
<PAGE>
Prudential registered the Discovery Account 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
registration does not mean that the SEC supervises 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. These Subaccounts
invest in corresponding portfolios of the Funds available under the Contracts.
Prudential may establish additional Subaccounts in the future.
THE FUNDS
The following is a list of each Fund, its investment objective and its
investment adviser:
THE PRUDENTIAL SERIES FUND, INC.
MONEY MARKET PORTFOLIO. The investment objective is maximum current income
consistent with the stability of capital and the maintenance of liquidity. The
portfolio invests in short-term debt obligations that mature in 13 months or
less.
DIVERSIFIED BOND PORTFOLIO. The investment objective is a high level of income
over a longer term while providing reasonable safety of capital. The portfolio
invests primarily in higher grade debt obligations and high quality money market
instruments.
GOVERNMENT INCOME PORTFOLIO. The investment objective is a high level of income
over the longer term consistent with the preservation of capital. The portfolio
invests primarily in U.S. Government securities, including intermediate and
long-term U.S. Treasury securities and debt obligations issued by agencies or
instrumentalities established by the U.S. Government.
CONSERVATIVE BALANCED PORTFOLIO. The investment objective is a total investment
return consistent with a conservatively managed diversified portfolio. The
portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
FLEXIBLE MANAGED PORTFOLIO. The investment objective is a total investment
return consistent with an aggressively managed diversified portfolio. The
portfolio invests in a mix of money market instruments, debt obligations and
common stocks.
HIGH YIELD BOND PORTFOLIO. The investment objective is a high total return. The
portfolio invests primarily in high yield/high risk debt securities.
STOCK INDEX PORTFOLIO. The investment objective is to achieve an investment
return that corresponds to the performance of publicly-traded common stocks
generally. The portfolio invests to duplicate the price and yield performance of
the Standard & Poor's 500 Composite Stock Price Index.
13
<PAGE>
EQUITY INCOME PORTFOLIO. The investment objective is both current income and
capital appreciation. The portfolio invests primarily in common stocks and
convertible securities that provide good prospects for returns above those of
the Standard & Poor's 500 Composite Stock Price Index or the NYSE Composite
Index.
EQUITY PORTFOLIO. The investment objective is capital appreciation. The
portfolio invests primarily in common stocks of major established corporations
as well as smaller companies that offer attractive prospects of appreciation.
PRUDENTIAL JENNISON PORTFOLIO. The investment objective is to achieve long-term
growth of capital. The portfolio invests primarily in equity securities of major
established corporations that offer above average growth prospects.
GLOBAL PORTFOLIO. The investment objective is long-term growth of capital. The
portfolio invests primarily in common stocks (and their equivalents) of foreign
and U.S. companies.
Prudential is the investment advisor for 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.
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.
14
<PAGE>
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.
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.
15
<PAGE>
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.
You can find further information about the Fund portfolios in the accompanying
prospectuses for each Fund.
-----------------------------------------
The investment advisors 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.
Prudential recognizes 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 to a conflict. 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.
An affiliate of each of the Funds (other than the portfolios in the Prudential
Series Fund) will compensate Prudential 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.
You can review a full description of the Funds in the accompanying prospectuses
for each Fund and in the related statements of additional information. You
should read those documents in conjunction with this Prospectus. There is no
assurance that the investment objectives will be met.
A Fund may have an investment objective and investment policies closely
resembling those of a mutual fund within the same complex that is sold directly
to individual investors. Despite such similarities, there can be no assurance
that the investment performance of any such Fund will resemble that of its
retail fund counterpart.
GUARANTEED INTEREST ACCOUNT
The Guaranteed Interest Account is a credited interest option available to fund
certain group annuity contracts issued by Prudential. Amounts that you allocate
to the Guaranteed Interest Account become part of the General Account of
Prudential. Prudential's General Account consists of all assets owned by
Prudential other than those in the Discovery
16
<PAGE>
Account and other 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, Prudential has not registered
interests in the General Account (which include interests in the Guaranteed
Interest Account) under the Securities Act of 1933. Nor has Prudential
registered the General Account as an investment company under the Investment
Company Act of 1940. Accordingly, those Acts do not apply to the General Account
or any interests therein, 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 that we make 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 that you allocate to the Guaranteed Interest
Account may be held within one or more guaranteed separate accounts. Prudential
has not registered interests in such separate account(s) under the Securities
Act of 1933 and has not registered the separate accounts as investment companies
under the Investment Company Act of 1940.
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. Prudential may issue a Contract 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 will have the rights and interests under
them that are described in this Prospectus. When a Contract is used to fund a
deferred compensation plan established by a tax-exempt entity under Section 457
of the Code, all rights under the Contract are owned by the Employer to whom, or
on whose behalf, the Contract is issued. All amounts that Prudential pays 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.
Notwithstanding the foregoing, the rules for Section 457 plans established by
state and local governments would be similar to those specified in this
paragraph.
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.
Ordinarily, an Employer will make contributions periodically to the Contract
pursuant to a payroll deduction or similar agreement between the Participant and
his Employer. In addition, you may make contributions in ways other than payroll
deduction under certain circumstances.
As a Participant, you designate what portion of the contributions made on your
behalf should be invested in the Subaccounts or the Guaranteed Interest Account.
The Participant may change this designation usually by notifying
17
<PAGE>
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. Participants under those Contracts must contact the
record-keeper. See "Modified Procedures," page 28.
Prudential credits the full amount (100%) of each contribution designated for
investment in any Subaccount to a Participant Account maintained for the
Participant. Except for the initial contribution, the number of Units that
Prudential credits 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.
Prudential will invest the initial contribution made for a Participant 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 Prudential does not receive the necessary enrollment
information 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) to the Contractholder. Any proceeds that Prudential pays to the
Contractholder under this procedure may be considered a prohibited and taxable
reversion to the Contractholder under current provisions of the Code. Similarly,
proceeds that Prudential returns 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. The Contractholder may avoid both
problems if it arranges to have the proceeds paid into a qualified trust or
annuity contract.
A change in the value of a Unit will not affect the number of Units of a
particular Subaccount credited to a Participant. However, the dollar value of a
Unit will vary from Business Day to Business Day depending upon the investment
experience of the Subaccount. Prudential will reduce the number of Units
credited to a Participant in a Subaccount to reflect any annual account charge.
Prudential determines the value of a Participant Account in a Subaccount on any
particular day by multiplying the total number of Units credited to the
Participant by the Subaccount's Unit Value on that day.
Prudential set the Unit Value for each Subaccount at $10.00 on the date of
commencement of operations of that Subaccount. Prudential determines the Unit
Value for any subsequent Business Day 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. Because of its differing charges, the Small Plan Contract will have a
different Unit Value than the other Contracts.
Prudential determines the Unit Change Factor for any Business Day 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.
Prudential determines the value of the assets of a Subaccount 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.
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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, we will allocate subsequent
contributions 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, 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
Prudential may make available an Asset Allocation Program 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, Prudential may make available a more comprehensive
model based on an internet web site for use by Participants. Prudential offers
the Asset Allocation Program 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.
Prudential regards the Asset Allocation Program as an aid in making purchase
payment allocations. You should not view the Program as any guarantee of
investment return. You also should realize that there can be no assurance that
any Fund portfolio will attain its investment objectives. As a Participant, you
should consider reviewing your investor profile questionnaire annually, and each
time your 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.
Under certain Contracts, Prudential 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 (or to the Small Plan
Contract Recordkeeper, with respect to such Contracts), or by telephone,
internet or telecopy, depending on the terms of the arrangement applicable to
the Participant.
If a Contractholder chooses telephone privileges, each Participant will
automatically be enrolled to use the Telephone Transfer System. A Participant
may decline telephone 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
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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, when Prudential receives a duly completed written transfer request form
or properly authorized telephone transfer request, Prudential will transfer all
or a portion of the Participant Account in any of the Subaccounts to another
Subaccount or from the Guaranteed Interest Account to the Subaccounts.
Prudential may restrict transfers from the Guaranteed Interest Account. There is
no minimum transfer amount. As of the Business Day you make the transfer
request, Prudential will reduce the Subaccount(s) from which the transfer is
made 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 Prudential credits 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.
Prudential did not design the Contracts 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
Prudential will discourage such a practice. 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.
Prudential may stipulate different procedures 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.
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 a Contract precludes such
transfers, 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 Participant
Account Value 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:
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o continue to make transfers of all or part of his interest in his
Participant Account among the available investment options offered,
and
o 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 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 that you make among Subaccounts will take effect as of the end of the
Valuation Period in which a proper transfer request is received at Prudential
(or the Small Plan Contract Recordkeeper, in the case of the Small Plan
Contract).
From time to time, Prudential may make an offer to holders of other variable
annuities that Prudential or an affiliate issues to exchange their variable
annuity contracts for interests in a Contract issued by the Account. Prudential
will conduct any such exchange offer in accordance with SEC rules and other
applicable law. Current SEC rules pertaining to exchange offers among affiliated
variable annuity contracts generally require, with certain exceptions, that no
fee be imposed at the time of the exchange. Under this rule, Prudential could
charge an administrative fee at the time of the exchange, although we have no
present intention of doing so. SEC rules also require Prudential to give an
exchanging variable annuity contractholder "credit", for purposes of calculating
any withdrawal charge applicable under the Contract, for the time during which
the contractholder held the variable annuity that was exchanged.
DOLLAR COST AVERAGING
Prudential may make available an administrative feature called Dollar Cost
Averaging ("DCA"). 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. Prudential currently imposes no
charge for this feature. Prudential would impose such a charge only pursuant to
an amendment to the administrative services agreement. Such an amendment would
have to be agreed to in writing by both Prudential and the Contractholder.
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AUTO-REBALANCING
The Contracts may offer another investment technique. 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. It 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. Prudential currently imposes no charge for this feature. Prudential
would impose such a charge only pursuant to an amendment to the administrative
services agreement, which would have to be agreed to in writing by both
Prudential and the Contractholder.
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, a
Participant can make withdrawals 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
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, 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. You may specify the withdrawal amount 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.
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Only amounts that you withdraw from contributions (including full withdrawals)
may be subject to a withdrawal charge. For purposes of determining withdrawal
charges, we consider withdrawals as having been made first from contributions.
See Withdrawal Charge, page 29. 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. We will effect the
withdrawal as of the end of the Valuation Period in which a proper withdrawal
request is received at Prudential (or the Small Plan Contract Recordkeeper, in
the case of the Small Plan Contract).
Prudential will generally pay the amount of any withdrawal within 7 days after
receipt of 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. 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 withdrawals by beneficiaries
must satisfy certain minimum distribution rules. See "Federal Tax Status," page
32.
You may arrange systematic withdrawals 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 will be made on a monthly, quarterly,
semi-annual, or annual basis.
Prudential will effect all systematic withdrawals 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 will 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, 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.
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Prudential will take systematic withdrawals first out of the Participant's
investment, if any, in the Guaranteed Interest Account until that amount is
exhausted. Thereafter, Prudential will take systematic withdrawals 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 or Prudential's designee.
Prudential will provide such a form to a Participant 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. No systematic withdrawals will be made for a
Participant after Prudential has received this 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.
If a Participant arranges for systematic withdrawals, that 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 would
impose any such charge only on Contracts other than the Small Plan Contract in
accordance with the withdrawal charge schedule set out in the Fee Table.
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 Participant 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.
A Participant has withdrawal benefits for Contracts issued under the Texas
Program only in the event of the 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. A Participant may, however, transfer the value of the
Participant's interest under the Contract to another Prudential contract or
contracts of other carriers approved under the Texas Program during the period
of the Participant's Texas Program participation.
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DEATH BENEFIT
When Prudential receives due proof of a Participant's death and a claim and
payment election submitted on a form approved by us, we will pay to the
designated beneficiary a death benefit made up of the balance in the Participant
Account (after deduction of any annual account charges). 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, Prudential will
pay the death benefit, according to the Participant's instructions, in:
o one sum as if it were a single withdrawal,
o systematic withdrawals,
o an annuity, or
o a combination of the three.
Any such payment will be subject to the minimum distribution rules of Code
Section 401(a)(9) as described below under "Federal Tax Status." With respect to
the Small Plan Contract, the death benefit payment option listed in the fourth
bullet immediately 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:
o to receive a one sum cash payment;
o 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;
o to receive regular payments in accordance with the systematic
withdrawal plan; or
o a combination of all or any two of (a), (b), and (c) above.
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, the total amount that Prudential will make available to the
beneficiary will be the greatest of:
o the Participant's Account Value as of the date Prudential receives a
death benefit payment request in good order;
o the sum of all contributions made to the Participant Account less
withdrawals, transfers and charges; and
o 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.
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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, Prudential
will pay 50% of the balance in the Participant Account to such spouse even if
the designated beneficiary is someone other than the spouse. Under these
circumstances, Prudential would pay the remaining 50% 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 36. 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, Prudential will make
a one sum cash payment to the beneficiary, after deducting 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 Prudential pays a death benefit that results in reducing to zero the
balance in the Participant Account, Prudential will maintain the Participant
Account Value in the Subaccounts and the Guaranteed Interest Account that make
up the Participant Account for the beneficiary in the same manner as they had
been for the Participant, except:
o the beneficiary may make no contributions; and
o the beneficiary may not take a loan; and
o no withdrawal charge will be imposed upon withdrawals.
DISCONTINUANCE OF CONTRIBUTIONS
By notifying Prudential, the Contractholder may discontinue contributions on
behalf of all Participants under a Contract or for all Participants of an
Employer covered under a Contract. Contributions under the Contract will also be
discontinued for all Participants covered by a retirement arrangement that is
terminated.
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 fact that contributions on a Participant's behalf are discontinued does not
otherwise affect the Participant's rights under the Contracts. 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 Account 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 that Participant Account unless prohibited by the retirement
arrangement, and pay the Participant the value (less the annual account charge)
as of the date of cancellation.
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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:
o $50,000, reduced by the highest outstanding balance of loans during
the one year period immediately preceding the date of the loan, or
o 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. Prudential invests those payments 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, we will deduct the loan
amount pro rata from the Participant Account Value in the Subaccounts. With
respect to the Small Plan Contract, we deduct amounts borrowed from a
Participant's Subaccounts on a pro rata basis. With respect to such Contracts,
amounts that a Participant repays 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. In that event,
Prudential will send the appropriate tax information to the Participant and the
Internal Revenue Service.
Prudential charges a loan application fee of up to $75, 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 of up to $60 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 we generally deduct it quarterly.
Under certain Contracts, we will deduct the loan maintenance fee annually. With
respect to Contracts other than the Small Plan Contract, Prudential will deduct
the loan maintenance charge first 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, Prudential will then deduct
the charge against any one or more of the Subaccounts in which the
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Participant is invested. With respect to the Small Plan Contract, Prudential
will deduct the loan maintenance fee pro rata from each of the Participant's
Subaccounts.
MODIFIED PROCEDURES
Under certain Contracts, but not 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. The Contract will set forth
any such different procedures.
CHARGES, FEES AND DEDUCTIONS
ADMINISTRATIVE FEE AND ANNUAL ACCOUNT CHARGE
Prudential imposes an administrative fee to compensate 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. Prudential deducts this fee 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.
Prudential deducts an annual account charge for recordkeeping and other
administrative services pro rata from each Participant Account or bills this
charge directly to the Employer. This annual account charge is payable to
Prudential. With respect to Contracts other than the Small Plan Contract,
Prudential imposes this charge 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, Prudential
assesses the annual account charge either:
o quarterly, on or about 14 days after the end of each quarter, or
o annually, on the last Business Day of the calendar year.
With respect to Contracts other than the Small Plan Contract, Prudential will
pro rate the annual account charge 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, Prudential will not pro rate the annual account charge 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, Prudential will
impose the charge on the date that the 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). Prudential will not impose the
annual account charge, 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.
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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, Prudential will first assess the charge 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,
Prudential will then assess the charge 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 where its costs of administration are less.
Such lesser costs may be attributable to economies of scale associated with the
amount of the Contractholder's Plan assets and the fact that the Contractholder
itself performs administrative services that Prudential otherwise would perform.
CHARGE FOR ASSUMING MORTALITY AND EXPENSE RISKS
Prudential makes a deduction daily from the assets of each of the Subaccounts as
compensation 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. Prudential assesses the charge daily at an
annual rate of 0.15% of the assets held in the Subaccounts for all of the
Contracts.
EXPENSES INCURRED BY THE FUNDS
Participants indirectly bear the charges and expenses of the Funds. You can
review details about investment management fees and other Fund expenses 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, Prudential may
assess a withdrawal charge 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. Prudential does not impose a withdrawal charge whenever
earnings are withdrawn.
With respect to Contracts other than the Small Plan Contract, the amount of the
withdrawal charge that Prudential imposes 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 that
Prudential deducts with respect to Contracts other than the Small Plan Contract.
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- ------------------------------------- ------------------------------------------
THE WITHDRAWAL CHARGE WILL BE EQUAL
TO THE FOLLOWING PERCENTAGE OF THE
YEARS OF CONTRACT PARTICIPATION CONTRIBUTIONS WITHDRAWN
- ------------------------------------- ------------------------------------------
First Year 5%
Second Year 4%
Third Year 3%
Fourth Year 2%
Fifth Year 1%
Sixth and Subsequent Years No Charge
- ------------------------------------- ------------------------------------------
We determine the withdrawal charge applicable to the Small Plan Contract 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, Prudential assesses the withdrawal charge against the Employer
based on the total value of contributions withdrawn under the terminated
Contract. Under a partial termination of the Contract, Prudential assesses the
withdrawal charge 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 a new employer, under
a new qualified retirement plan not covered under the Contract. Prudential would
assess the withdrawal charge 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,we no longer deduct a withdrawal charge. This withdrawal
charge compensates Prudential and its affiliates for the costs associated with
contacting Small Plans and their participants and initially establishing Plan
and participant records.
In general, Prudential will reduce the proceeds received by a Participant upon
any withdrawal 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 with respect to contributions withdrawn
for any of the following purposes:
o to purchase an annuity
o to provide a death benefit
o pursuant to a systematic withdrawal plan generally
o to provide a minimum distribution payment
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o in cases of financial hardship or disability retirement as determined
pursuant to provisions of the Employer's retirement arrangement
o roll-over contributions.
Further, for all plans other than IRAs, we will impose no withdrawal charge upon
contributions withdrawn due to resignation or retirement by the Participant or
termination of the Participant by the Contractholder.
Contributions that you transfer 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 we impose no
withdrawal charge upon them. Those contributions 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.
We consider loans to be withdrawals from the Subaccounts from which the loan
amount was deducted. However, we do not consider a loan to be a withdrawal from
the Contract. Therefore, we do not impose a withdrawal charge upon loans.
However, we will treat the principal portion of any loan repayment 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, we will treat the
outstanding balance of the loan as a withdrawal for purposes of the withdrawal
charge. We will deduct the withdrawal charge from the same Subaccounts, and in
the same proportions, as the loan amount was withdrawn. If sufficient funds do
not remain in those Subaccounts, we will deduct the withdrawal charge from the
Participant's other Subaccounts and the Guaranteed Interest Account.
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:
o the utilization of mass enrollment procedures; or
o 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
o an accumulated surplus of charges over expenses under a particular
Contract.
Generally, we lower or waive the withdrawal charge depending on the amount of
local service the Contractholder requires. In addition, we may lower the charge
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%.
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FEDERAL TAX STATUS
The following discussion is general in nature and describes only federal income
tax law (not state or other tax laws). It is based on current law and
interpretations, which may change. It is not intended as tax advice.
Participants and Contractholders should consult a qualified tax adviser for
complete information and advice.
ANNUITY QUALIFICATION
This discussion assumes the Contracts will be treated as annuity contracts for
federal income tax purposes. In order to qualify for the tax rules applicable to
annuity contracts, the assets underlying the Contracts must be diversified
according to certain rules. For further detail on diversification requirements,
see DIVIDENDS, DISTRIBUTIONS AND TAXES in the attached prospectus for the
Prudential Series Fund. Tax rules also require that Prudential must have
sufficient control over the underlying assets to be treated as the owner of the
underlying assets for tax purposes. Treasury Department regulations do not
provide guidance concerning the extent to which Participants may direct
investments in the particular investment options without causing Participants,
instead of Prudential, to be considered the owner of the underlying assets.
Prudential believes the Contracts are annuity contracts under the tax rules.
However, Prudential reserves the right to make any changes it deems necessary to
assure that the Contracts qualify as annuity contracts for tax purposes. Any
such changes will apply uniformly to affected Participants and will be made with
such notice to affected Participants as is feasible under the circumstances.
TAX-QUALIFIED RETIREMENT ARRANGEMENTS USING THE CONTRACTS
The Contracts may be used with qualified pension and profit sharing plans, plans
established by self-employed persons ("Keogh plans"), simplified employee
pension plans ("SEPs"), individual retirement plan accounts ("IRAs"), Roth IRAs,
and tax-deferred annuities ("TDAs"). The provisions of the tax law that apply to
these retirement arrangements that may be funded by the Contracts are complex,
and Participants are advised to consult a qualified tax adviser.
The Contracts may also be used with certain deferred compensation plans of a
state or local government or a tax-exempt organization (called "Section 457
Plans" after the Internal Revenue Code section that governs their structure).
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 these specific requirements. Please refer to the
discussion of ENTITY OWNERS on page 36, which may be applicable in certain
circumstances.
CONTRIBUTIONS
In general, assuming that the requirements and limitations of tax law 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.
Contributions to a Roth IRA are subject to certain limits, and are not
deductible for federal income tax purposes.
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EARNINGS
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 Subaccounts in which the contributions have been invested
until a distribution or withdrawal is received.
DISTRIBUTION OR WITHDRAWAL
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 tax law
applicable to the particular type of plan is necessary.
Furthermore, premature distributions or withdrawals may be restricted or subject
to a penalty tax. Participants contemplating a withdrawal should consult a
qualified tax adviser.
Under a Roth IRA, distributions are generally not taxable for federal income tax
purposes if they are 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.
MINIMUM DISTRIBUTION RULES
In general, distributions from qualified retirement arrangements and Section 457
Plans must begin by the "Required Beginning Date" which is April 1 of the
calendar year following the later of (1) the year in which the Participant
attains age 70-1/2 or (2) the Participant retires. The following exceptions
apply:
o For a TDA, only benefits accruing after December 31, 1986 must begin
distribution by the Required Beginning Date.
o Roth IRAs are not subject to these pre-death minimum distribution
rules.
Distributions that are made after the Required Beginning Date must generally 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.
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 Participant's 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.
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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
Section 457 Plan, such period cannot exceed 15 years). Special rules apply where
the deceased Participant's spouse is his designated beneficiary.
In addition to the above rules, with respect to a Section 457 Plan, 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 take the
minimum distribution in any calendar year.
NON-QUALIFIED ARRANGEMENTS USING THE CONTRACTS
TAXES PAYABLE BY PARTICIPANT
Prudential believes the Contracts are annuity contracts for tax purposes.
Accordingly, as a general rule, Participants should not pay any tax until money
is received under the Contracts. Generally, annuity contracts issued by the same
company (and affiliates) to a Participant during the same calendar year must be
treated as one annuity contract for purposes of determining the amount subject
to tax under the rules described below.
TAXES ON WITHDRAWALS AND SURRENDER
If a Participant makes a withdrawal from the Contract or surrenders it before
annuity payments begin, the amount received will be taxed as ordinary income,
rather than as return of purchase payments, until all gain has been withdrawn.
If a Participant assigns all or part of the Contract as collateral for a loan,
the part assigned will be treated as a withdrawal. Also, if a Participant elects
the interest payment option, this will be treated, for tax purposes, as a
surrender of the Contract.
If a Participant transfers the Contract for less than full consideration, such
as by gift, tax will be triggered on the gain in the Contract. This rule does
not apply to transfers to a spouse or incident to divorce.
TAXES ON ANNUITY PAYMENTS
A portion of each annuity payment a Participant receives will be treated as a
partial return of purchase payments and will not be taxed. The remaining portion
will be taxed as ordinary income. Generally, the nontaxable portion is
determined by multiplying the annuity payment received by a fraction, the
numerator of which is the purchase payments (less any amounts previously
received tax-free) and the denominator of which is the total expected payments
under the Contract.
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After the full amount of the purchase payments have been recovered tax-free, the
full amount of the annuity payments will be taxable. If annuity payments stop
due to the death of the annuitant before the full amount of the purchase
payments have been recovered, a tax deduction is allowed for the unrecovered
amount.
PENALTY TAXES ON WITHDRAWALS AND ANNUITY PAYMENTS
Any taxable amount received under the Contract may be subject to a 10 percent
penalty tax. Amounts are not subject to this penalty tax if:
o the amount is paid on or after age 59-1/2 or the death of the
Participant;
o the amount received is attributable to the Participant becoming
disabled;
o the amount paid or received is in the form of level annuity payments
not less frequently than annually under a lifetime annuity; or
o the amount received is paid under an immediate annuity contract (in
which annuity payments begin within one year of purchase).
If the lifetime annuity payment stream is modified (other than as a result of
death or disability) before age 59-1/2 (or before the end of the five year
period beginning with the first payment and ending after age 59-1/2), the tax
for the year of modification will be increased by the penalty tax that would
have been imposed without the exception, plus interest for the deferral.
TAXES PAYABLE BY BENEFICIARIES
Generally, the same tax rules apply to amounts received by a beneficiary as
those set forth above with respect to a Participant. The election of an annuity
payment option instead of a lump sum death benefit may defer taxes. Certain
minimum distribution requirements apply upon the death of a Participant, as
discussed further below.
REQUIRED DISTRIBUTIONS UPON DEATH OF PARTICIPANT
Certain distributions must be made under the Contract upon the death of a
Participant. The required distributions depend on whether the Participant dies
on or before the start of annuity payments under the Contract or after annuity
payments are started under the Contract.
If the Participant dies on or after the annuity date, the remaining portion of
the interest in the Contract 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 the annuity date, the entire interest in the
Contract must be distributed within 5 years after the date of death. However, if
an annuity payment option is selected by the designated beneficiary and if
annuity payments begin within 1 year of the death of the Participant, the value
of the Contract may be distributed over the beneficiary's life or a period not
exceeding the beneficiary's life expectancy. The designated beneficiary is the
person to whom ownership of the Contract passes by reason of death, and must be
a natural person.
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If any portion of the Contract is payable to (or for the benefit of) a
Participant's surviving spouse, such portion of the Contract may be continued
with the spouse as the owner.
ENTITY OWNERS
When a Contract is held by a non-natural person (for example, a corporation),
the Contract generally will not be taxed as an annuity and increases in the
value of the Contract will be subject to tax. Exceptions include contracts held
by an entity as an agent for a natural person, contracts held under a qualified
pension or profit sharing plan, a TDA or individual retirement plan (see
discussion above) or contracts that provide for immediate annuities.
WITHHOLDING
Taxable amounts distributed from annuity contracts in nonqualified annuity
arrangements are subject to tax withholding. Participants may generally elect
not to have tax withheld from payments. The rate of withholding on annuity
payments will be determined on the basis of the withholding certificate filed
with Prudential. Absent these elections, Prudential will withhold the tax
amounts required by the applicable tax regulations. Participants may be subject
to penalties under the estimated tax payment rules if withholding and estimated
tax payments are not sufficient. Participants who fail to provide a social
security number or other taxpayer identification number will not be permitted to
elect out of withholding.
In addition, certain distributions from qualified plans, 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: (1) distributions for the life or life expectancy
of the Participant, or joint and last survivor expectancy of the Participant and
a designated beneficiary; or (2) distributions for a specified period of 10
years or more; or (3) distributions required as minimum distributions. Amounts
that are received under a Contract used in connection with a Section 457 Plan
are treated as wages for federal income tax purposes and are, thus, subject to
general withholding requirements.
TAXES ON PRUDENTIAL
Although the Account is registered as an investment company, it is not a
separate taxpayer for purposes of the Code. The earnings of the Subaccounts
invested in the Funds are taxed as part of the operations of Prudential. No
charge is being made currently against those Subaccounts for company federal
income taxes. Prudential will review the question of a charge to the Subaccounts
invested in the Funds for company federal income taxes periodically. Such a
charge may be made in future years for any federal income taxes that would be
attributable to the Contracts.
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.
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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. Prudential generally will make the first monthly annuity payment
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.
We make the following forms of annuity available to Participants.
LIFE ANNUITY WITH PAYMENTS CERTAIN
This is an immediate annuity payable monthly during the lifetime of the
annuitant. Prudential guarantees 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, we will continue payments in the same amount the
annuitant was receiving to his or her beneficiary. We make no further payments
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), we will continue payments during the
remainder of the period certain to the properly designated beneficiary.
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We may make other forms of annuity 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
Prudential does not deduct a withdrawal charge 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, Prudential deducts the full annual
account charge, unless the annuity becomes effective on January 1 of any year.
Prudential applies the resulting amount, less any applicable taxes, 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.
Prudential guarantees the schedule of annuity purchase rates in a Contract for
ten years from the date the Contract is issued. If at any time after a Contract
has been in effect for ten years, we modify the schedule of annuity purchase
rates, the modification is also guaranteed for ten years. A change in the
schedule of annuity purchase rates used for an 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, 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.
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 we will pay 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.
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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. As such, Prudential 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, as required by applicable securities laws.
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 to 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, we would have to obtain
the approval of the SEC, and possibly one or more state insurance departments.
We would notify Contractholders and Participants of any such substitution.
PERFORMANCE INFORMATION
We may depict performance information for the Subaccounts in advertising and
reports to current and prospective Contractholders and Participants. Performance
information is based on the historical investment experience of the
39
<PAGE>
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:
o comparisons to market indices,
o comparisons to other investments,
o performance rankings,
o personalized illustrations of historical performance, and
o data presented by analysts or included in publications.
See Performance Information in the Statement of Additional Information for
recent performance information.
REPORTS TO PARTICIPANTS
Prudential will send Participants, at least annually, reports showing as of a
specified date the number of units credited to them in the Subaccounts of the
Discovery Account. We also will send each Participant 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.
40
<PAGE>
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.
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." New Jersey also can withhold or withdraw approval 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.
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 now no further appeal has been taken.
Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance Contracts. As of December 31, 1997, based on a reasonable estimate of
losses associated with ADR claims, management estimated the cost, before taxes,
of remedying policyholder claims in the ADR process to be approximately $2.05
billion. While management believed these to be reasonable estimates based on
information then available, further estimates are currently being developed in
connection with the availability of more recent data. The ultimate amount of the
total cost of remedied policyholder claims is dependent on complex and varying
factors, including actual claims by eligible policyholders, the relief options
chosen and the dollar value of those options. There are also additional elements
of the ADR process which cannot be fully evaluated at this time (e.g., claims
which may be successfully appealed) which could increase this estimate.
In addition, a number of actions have been filed against Prudential by
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.
41
<PAGE>
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 services provided to the Contractholders by Prudential depend on the smooth
functioning of its computer systems. The year 2000, however, holds the potential
for significant disruption in the operation of these systems. Many computer
systems are programmed to recognize only the last two digits in a date. As a
result, any computer system that has date-sensititve programming may recognize a
date using "00" as the year 1900 rather than the year 2000. This problem can
affect non-information technology systems that include embedded technology, such
as microprocessors included in "infrastructure" equipment used for
telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly, which could in turn affect the
accuracy and compromise the integrity of business records. Business operations
could be interrupted when companies are unable to process transactions, send
invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide progress of each component of Prudential's
program for conversion and upgrading of systems for Year 2000 compliance.
BUSINESS APPLICATIONS
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace or
retire). Rigorous testing standards have been employed for all applications that
will not be retired, including those that are newly developed or purchased.
Application replacement and renovation projects follow a similar path toward
Year 2000 compliance. The key project phases include Year 2000 analysis and
design, programming activities, testing, and implementation. Replacement
projects are also tracked until the existing applications are removed from
production. Of Prudential's total application portfolio, approximately 70% of
the applications are being renovated, 13% are being replaced by Year 2000
compliant systems, and the remaining 17% are being retired from production. At
December 31, 1998, the percentage of business applications (based on application
count) in the implementation phase for Year 2000 compliance for renovation,
replacement and retirement are 99%, 96% and 99%, respectively. The interim
target date for completing renovations and retirements is March 1999, with an
overall completion date for Business Applications of June 1999.
42
<PAGE>
INFRASTRUCTURE
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The interim target date for
completion of certain Infrastructure components is March 1999 with an overall
completion date for Infrastructure of June 1999.
BUSINESS PARTNERS
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of our business
partners have been identified as highly critical and the remaining 70% as less
critical. Project phases include inventory, risk assessment, and contingency
planning activities. All project phases for highly critical business partner
readiness were achieved in December 1998; we have an overall completion date for
less critical business partner readiness of June 1999.
THE COST OF YEAR 2000 READINESS
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiares, including those businesses not engaged in
providing services to Contractowners. Accordingly, while the expense is
substantial in the aggregate, it is not expected to have a material impact on
Prudential's ability to meet its contractual commitments to Contractholders.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
The major portion of Prudential's transactions are of such volume that they can
only be effectively processed through the use of automated systems. Therefore,
substantially all of Prudential's contingency plans include the ultimate
resolution of any causative technology failures that may be encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by September 1999 so that any delays, if experienced, would not have a
significant impact on the timing of the project as a whole. During the course of
the Year 2000 program, some discretionary technology projects have been delayed
in favor of the completion of Year 2000 projects. However, this impact has been
minimized by Prudential's strategic decision to outsource most of the Year 2000
renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, Prudential is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the results of operations, liquidity or financial condition. In the worst
43
<PAGE>
case, it is possible that any technology failure, including an internal or
external Year 2000 failure, could have a material impact on Prudential's results
of operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature.
SUBSEQUENT EVENTS
On December 10, 1998, the Company announced that it had entered into definitive
agreements for Aetna to acquire, subject to regulatory approval and certain
other conditions, Prudential's healthcare business for $1 billion. The
transaction is expected to be completed in the second quarter of 1999. Included
in this transaction are the Prudential HealthCare Health Maintenance
Organization (HMO), Point of Service (POS), Preferred Provider Organization
(PPO), and indemnity health lines as well as its dental business.
STATEMENT OF ADDITIONAL INFORMATION
Page
----
The contents of the Statement of Additional Information include:
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 Account................................A-1
Consolidated financial statements of The Prudential Insurance
Company of America and subsidiaries .......................................B-1
ADDITIONAL INFORMATION
Prudential has filed a registration statement 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. You may obtain the omitted information, however, from
the SEC's principal office in Washington, D.C., upon payment of a prescribed
fee.
You may obtain further information, including the Statement of Additional
Information, from Prudential without charge. The addresses and telephone numbers
are set forth on the cover page of this Prospectus.
44
<PAGE>
<TABLE>
<CAPTION>
APPENDIX
ACCUMULATION UNIT VALUES
CONTRACTS OTHER THAN SMALL PLAN CONTRACT
THE PRUDENTIAL DISCOVERY SELECT GROUP VARIABLE CONTRACT ACCOUNT
(CONDENSED FINANCIAL INFORMATION)
SUBACCOUNTS
-----------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
SERIES FUND SERIES FUND SERIES FUND
MONEY MARKET DIVERSIFIED BOND GOVERNMENT INCOME
-----------------------------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $ $ $
2. End of period (rounded)..................$ $ $ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-----------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
SERIES FUND SERIES FUND SERIES FUND
CONSERVATIVE BALANCED FLEXIBLE MANAGED HIGH YIELD BOND
-----------------------------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $ $ $
2. End of period (rounded)..................$ $ $ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-----------------------------------------------------------------------
<CAPTION>
-------------------------------------------------
PRUDENTIAL PRUDENTIAL
SERIES FUND SERIES FUND
STOCK INDEX EQUITY INCOME
-------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97
-------------------------------------------------
<S> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $
2. End of period (rounded)..................$ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-------------------------------------------------
SUBACCOUNTS
----------------------------------------------------------------------
PRUDENTIAL PRUDENTIAL PRUDENTIAL
SERIES FUND SERIES FUND SERIES FUND
EQUITY JENNISON GLOBAL
----------------------------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $ $ $
2. End of period (rounded)..................$ $ $ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
----------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------
JANUS
AIM V.I. AIM V.I. ASPEN
GROWTH AND INCOME VALUE GROWTH
-----------------------------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $ $ $
2. End of period (rounded)..................$ $ $ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-----------------------------------------------------------------------
<CAPTION>
-------------------------------------------------
JANUS
ASPEN
INTERNATIONAL MFS
GROWTH EMERGING GROWTH
-------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97
-------------------------------------------------
<S> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $
2. End of period (rounded)..................$ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-------------------------------------------------
SUBACCOUNTS
-----------------------------------------------------------------------
OCC
OCC ACCUMULATION
MFS ACCUMULATION TRUST
RESEARCH TRUST MANAGED SMALL CAP
-----------------------------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $ $ $
2. End of period (rounded)..................$ $ $ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-----------------------------------------------------------------------
<CAPTION>
-------------------------------------------------------------------------
T. ROWE PRICE T. ROWE PRICE WARBURG PINCUS
EQUITY INCOME INTERNATIONAL STOCK POST-VENTURE CAPITAL
-------------------------------------------------------------------------
01/01/98 7/31/97* 01/01/98 7/31/97* 01/01/98 7/31/97*
TO TO TO TO TO TO
12/31/98 12/31/97 12/31/98 12/31/97 12/31/98 12/31/97
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Beginning of period (rounded)............$ $ $ $ $ $
2. End of period (rounded)..................$ $ $ $ $ $
3. Accumulation Units Outstanding at end of
period...................................
-------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
<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 07102-4077
PRUDENTIAL INVESTMENTS
3 Gateway Center, 12th Floor
Newark, NJ 07102-4077
[PRUDENTIAL INVESTMENT LOGO]
DISCOVERY SELECT (SM) is a service mark of Prudential.
RS802B
CAT 62M093P B
DS.PR.001.0599
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
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
SELECTSM 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 May 1, 1999. Certain portions of that
May 1, 1999 prospectus are incorporated by reference into this Statement of
Additional Information.
<PAGE>
TABLE OF CONTENTS
PAGE
----
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................................................ 3
PERFORMANCE INFORMATION.................................................. 4
DIRECTORS OF PRUDENTIAL................................................... 8
OFFICERS OF PRUDENTIAL.................................................... 11
SALE OF CONTRACTS......................................................... 13
LEGAL MATTERS............................................................. 13
EXPERTS................................................................... 13
FINANCIAL STATEMENTS OF THE DISCOVERY ACCOUNT.............................A-1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES............................B-1
The Prudential Insurance Company of America
3 Gateway Center, 12th Floor
Newark, NJ 07102-4077
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 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.
2
<PAGE>
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 1998, Prudential received $18,262 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 1998, Prudential collected $6,379
in annual account charges.
A withdrawal charge is also imposed on certain withdrawals from the Subaccounts
and the Guaranteed Interest Account. During 1998, Prudential collected $0 in
withdrawal charges.
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.
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 may assume that
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.
3
<PAGE>
The Discovery Account may also present 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 December 31, 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.
4
<PAGE>
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 12/31/98. 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>
ONE
YEAR
FUND DATE ENDED 7/31/97-
PORTFOLIO ESTABLISHED 12/31/98 12/31/98
--------- ----------- -------- --------
<S> <C> <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
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>
5
<PAGE>
Tables 2 and 3 below show average annual 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 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
--------- ----------- -------- -------- -------- -------- --------
<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
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>
6
<PAGE>
TABLE 3
SUBACCOUNT "HYPOTHETICAL"
CUMULATIVE 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 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98
--------- ----------- -------- -------- -------- -------- --------
<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
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>
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 December 31, 1998 were ___% and ___%, 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) 365/7 -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 Finance & Dividends; Member Corporate Governance Committee.
Business consultant since 1986. Senior Vice President, H.J. Heinz from 1971 to
1986. Mr. Agnew is also a director of Bausch & Lomb, Inc. and Erie Plastics
Corporation. Age 64. Address: 600 Grant Street, Suite 660, Pittsburgh, PA 15219.
FREDERICK K. BECKER--Director since 1994 (current term expires April, 1999).
Member, Auditing Committee; Member, Corporate Governance Committee. President,
Wilentz Goldman and Spitzer, P.A. (law firm) since 1989, with firm since 1960.
Age 63. Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
GILBERT F. CASELLAS--Director since 1998 (current term expires April, 1999).
President, The Swarthmore Group, Inc. since 1999. Partner, McConnell Valdes, LLP
in 1998. Chairman, U.S. Equal Employment Opportunity Commission from 1994 to
1998. General Counsel, Department of Air Force from 1993 to 1994. Age 46.
Address: 1646 West Chester Pike, Suite 3, West Chester, PA 19382.
JAMES G. CULLEN--Director since 1994 (current term expires April, 2001). Member,
Compensation Committee; Member, Committee on Business Ethics. President & Chief
Operating Officer, Bell Atlantic Corporation, since 1998. President & Chief
Executive Officer, Telecom Group, Bell Atlantic Corporation, from 1997 to 1998.
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 56. Address: 1310 North Court
House Road, 11th Floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS--Director since 1989 (current term expires April, 2001).
Member, Committee on Business Ethics; Member, Compensation Committee.
Independent Health Care Advisor since 1997. National and International Health
Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr. Davis is also a director
of Beckman Coulter Instruments, Inc., Merck & Co., Inc., Minimed Incorporated,
and Beverley Enterprises. Age 67. 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. Mr.
Enrico originally joined PepsiCo, Inc. in 1971. Mr. Enrico is also a director of
A.H. Belo Corporation and Dayton Hudson Corporation. Age 54. Address: 700
Anderson Hill Road, Purchase, NY 10577.
ALLAN D. GILMOUR--Director since 1995 (current term expires April, 1999).
Member, Investment Committee; Member, Committee on Finance & 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, MeidiaOne Group, Inc., AP Automotive Systems, Inc., The Dow
Chemical Company and DTE Energy Company. Age 64. 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, Committee on Business Ethics; 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, Municipal
Bond Investors Assurance Corporation, Rockwell International Corporation,
Union-Pacific Corporation, Warner-Lambert Company, CBS Corporation, and
Electronic Data Systems. Age 57. Address: 8260 Willow Oaks Corp. Drive, Fairfax,
VA 22031-4511.
JON F. HANSON--Director since 1991 (current term expires April, 2003). Member,
Investment Committee; Member, Committee on Business Ethics. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of James E. Hanson
Management Company, Neumann Distributors, Inc., Fleet Trust and Investment
Services Company, N.A., United Water Resources, Orange & Rockland
9
<PAGE>
Utilities, Inc., and Consolidated Delivery and Logistics. Age 62. 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 and Owens Corning. 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 Company, and
Pfizer, Inc. Age 56. 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. Chairman and Chief Executive
Officer, The Perkin Elmer Corporation from 1990 to 1996. Mr. Kelley is also a
director of Hercules Incorporated, and Alliant Techsystems. Age 67. Address: 751
Broad Street, 23rd Floor, Newark, NJ 07102-3777.
BURTON G. MALKIEL--Director since 1978 (current term expires April, 2002).
Chairman, Investment Committee; Member, Executive Committee; Member, Committee
on Finance & 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 66. 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
Bank from 1990 to 1994, with Chase since 1972. Age 56. Address: 751 Broad
Street, Newark, NJ 07102.
IDA F.S. SCHMERTZ--Director since 1997 (current term expires April, 2004).
Member, Audit Committee. Principal, Investment Strategies International since
1994. Age 64. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
CHARLES R. SITTER--Director since 1995 (current term expires April, 1999).
Member, Committee on Finance & Dividend; Member, Investment Committee. Retired
since 1996. President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his
career with Exxon in 1957. Age 68. 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 1996.
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, Conti-Financial
Corporation and Continental Grain Company. Age 67 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. Retired since
1998. Chairman of the Board, The Toronto-Dominion Bank from 1997 to 1998.
Chairman and Chief Executive Officer from 1978 to 1997. Mr. Thomson is also a
director of CGC, Inc., INCO, Limited, S.C. Johnson & Son, Inc., The Thomson
Corporation, Canadian Occidental Petroleum, Ltd., The Toronto-Dominion Bank and
Ontario Hydro. 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,
Committees on Nominations & Corporate Governance; Member, Investment Committee.
Retired since 1997. Chairman and Chief Executive Officer, Unisys Corporation,
from 1990 to 1997. Mr. Unruh is also a director of Ameritech Corporation and
Moss Micro. Age 57. Address: 751 Broad Street, Newark, NJ 07102-3777.
10
<PAGE>
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, Advanced Medicines, Inc. since 1997. Chairman, Chief Executive
Officer and President, Merck & Co., Inc. from 1986 to 1995, Dr. Vagelos
originally joined Merck in 1975 Dr. Vagelos is also a director of The Estee
Lauder Companies, Inc. and PepsiCo., Inc. Age 69. 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. Partner, Herbert, Van Ness, Cayci & Goodell (law firm) since
1998. Counselor at Law, Picco Herbert Kennedy (law firm) from 1990 to 1998. Mr.
Van Ness is also a director of Jersey Central Power & Light Company. Age 64.
Address: 22 Chambers Street, Princeton, NJ 08542.
PAUL A. VOLCKER--Director since 1988 (current term expires April, 2000).
Chairman, Committee on Finance & Dividends; Member, Executive Committee; Member,
Committee on Nominations & Corporate Governance. Consultant since 1997.
Chairman, Wolfensohn & Co., Inc. 1988 to 1996 Chairman, James D. Wolfensohn,
Inc. 1988 to 1996. Chief Executive Officer, James D. Wolfensohn, Inc. from 1995
to 1996. Mr. Volcker is also a director Nestle, S.A., and Bankers Trust New York
Corporation as well as a Director of the Board of Overseers of TIAA-CREF. Age
71, Address: 610 Fifth Avenue, Suite 420, New York, NY 10020.
JOSEPH H. WILLIAMS--Director since 1994 (current term expires April, 2002).
Member, Committee on Finance & Dividends; Member, Investment Committee.
Director, The Williams Companies since 1979. Chairman & Chief Executive Officer,
The Williams Companies from 1979 to 1993. Mr. Williams is also a director of The
Orvis Company, MTC Investors, LLC., and AEA Investors, Inc. Age 65. Address: One
Williams Center, Tulsa, OK 74102.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
ARTHUR F. RYAN--Chairman of the Board, President and Chief Executive Officer
since 1994; prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation, New York, NY. Age 56.
E. MICHAEL CAULFIELD--Executive Vice President, Financial Management since 1998;
Chief Executive Officer, Prudential Investments from 1995 to 1998; Chief
Executive Officer, Money Management Group in 1995; prior to 1995, President,
Prudential Preferred Financial Services. Age 52.
MICHELE S. DARLING--Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 45.
ROBERT C. GOLDEN--Executive Vice President Operations and Systems since 1997;
prior to 1997, Executive Vice President, Prudential Securities, New York, NY.
Age 53.
MARK B. GRIER--Executive Vice President, Corporate Governance since 1998;
Executive Vice President, Financial Management from 1997 to 1998; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 46.
JEAN D. HAMILTON--Executive Vice President, Prudential Institutional since 1998;
President, Diversified Group since 1995 to 1998; prior to 1995, President,
Prudential Capital Group. Age 52.
RODGER A. LAWSON--Executive Vice President, International Investments & Global
Marketing Communications since 1998; Executive Vice President, Marketing and
Planning from 1996 to 1998; 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 52.
11
<PAGE>
KIYOFUMI SAKAGUCHI--Executive Vice President, International Insurance since
1998; President, International Insurance Group from 1995 to 1998; prior to 1995,
Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age 56.
JOHN V. SCICUTELLA--Executive Vice President, Individual Financial Services
since 1998; Chief Executive Officer, Individual Insurance Group from 1997 to
1998; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 49.
JOHN R. STRANGFELD--Executive Vice President, Global Asset Management since
1998; Chief Executive Officer, Private Asset Management Group (PAMG) from 1996
to 1998; President, PAMG, from 1994 to 1996; prior to 1994, Senior Managing
Director. Age 45.
JAMES J. AVERY, JR.--Senior Vice President & Chief Actuary, Individual Insurance
Group since 1997; President Prudential Select from 1996 to 1997; prior to 1995,
Executive Vice President and Chief Operating Officer, Prudential Select. Age 47.
MARTIN A. BERKOWITZ--Senior Vice President, Financial Management since 1998;
Senior Vice President and Comptroller from 1995 to 1998; prior to 1995,
Senior Vice President and CFO, Prudential Investment Corporation. Age 50.
WILLIAM M. BETHKE--Senior Vice President and Chief Investment Officer since
1997; prior to 1997, President, Capital Management Group. Age 51.
ANNE E. BOSSI--Senior Vice President, Institutional since 1998; President, Group
Life & Disability 1997 to 1998; President, Group Life Insurance 1995 to 1997;
prior to 1995, President, Northeastern Group Operations. Age 47.
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 51.
THOMAS W. CRAWFORD--Senior Vice President, Individual Financial Services, since
1998; President and Chief Executive Officer, Prudential Property & Casualty
Company from 1996 to 1998; Vice President, Prudential Property & Casualty
Company in 1996; prior to 1996, President & CEO, Southern Heritage Insurance
Company. Age 55.
MARK R. FETTING--Senior Vice President, Retirement Services, Institutional since
1996; President, Prudential Retirement Services from 1992 to 1996; prior to
1992, Partner, Greenwich Associates. Age 44.
WILLIAM D. FRIEL--Senior Vice President and Chief Information Officer since
1996; prior to 1996, Chief Executive Officer, Prudential Service Company. Age
60.
MICHAEL J. HINES--Senior Vice President, Marketing and Communications since
1999; 1996 to 1998 Vice President, Marketing and Communications. Age 47.
RONALD P. JOELSON--Senior Vice President, Guaranteed Products, Global Asset
Management since 1997; Senior Vice President, Guaranteed Products, Guaranteed
Investments from 1996 to 1997; Vice President, Guaranteed Investments,
Guaranteed Products from 1996 to 1996; prior to 1996, Managing Director,
Retirement Services. Age 40.
IRA J. KLEINMAN--Senior Vice President, International Insurance Group, since
1997; prior to 1997, Chief Marketing & Product Development Officer. Age 51.
KATHLEEN KRALL--Senior Vice President, Individual Financial Services since 1999;
Vice President, Individual Financial Services from 1996 to 1999; Vice President,
Operations and Systems from 1995 to 1996; prior to 1995 Vice President, Chase
Manhattan Bank. Age 41.
JOYCE R. LEIBOWITZ--Senior Vice President, Management Internal Controls since
1999; Vice President, Management Internal Controls from 1995 to 1999; prior to
1995 Integrated Control Officer. Age 51.
12
<PAGE>
JOHN M. LIFTIN--Senior Vice President and General Counsel since 1998;
Self-employed from 1997 to 1998; prior to 1997 Senior Vice President and General
Counsel, Kidder & Peabody Group, Inc. Age 55.
NEIL A. MCGUINNESS--Senior Vice President, Marketing, Prudential Investments,
since 1996; Director, Putnam Investments, in 1996; prior to 1996, President,
Fidelity Investment Employer Services Company. Age 52.
PRISCILLA A. MYERS--Senior Vice President and Auditor, Audit, Compliance and
Investigation since 1995; prior to 1995, Vice President and Auditor. Age 48.
I. EDWARD PRICE--Senior Vice President since 1996; Senior Vice President and
Actuary from 1995 to 1996; prior to 1995, Chief Executive Officer, Prudential
International Insurance. Age 56.
BRIAN M. STORMS--President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
44.
ROBERT J. SULLIVAN--Senior Vice President, Mutual Funds Sales, Individual
Financial Services since 1997; prior to 1997, Managing Director, Fidelity
Investments, Boston. Age 60.
SUSAN J. BLOUNT--Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 41.
C. EDWARD CHAPLIN--Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
ANTHONY S. PISZEL--Vice President and Controller since 1998; Vice President,
Enterprise Financial Management from 1997 to 1998; prior to 1997, Chief
Financial Officer, Individual Insurance Group. Age 44.
13
<PAGE>
SALE OF THE CONTRACTS
Prudential Investment Management Services LLC ("PIMS"), a subsidiary of
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, 1997 and 1996, the aggregate dollar amount of underwriting commissions
paid to and the amounts retained by PIMS were $__, $0, and $0 respectively.
During 1998, 1997 and 1996 PIMS paid $____, $4,710, and $0 respectively to cover
individual representatives' commissions and other distribution expenses.
Prudential may pay trail commissions to registered representatives who maintain
an ongoing relationship with a Contractholder. Typically, a trail commission is
compensation that is paid periodically to a representative, the amount of which
is linked to the value of the Contract and the amount of time that the Contract
has been in effect.
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 C. Christopher Sprague, 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, 1998, and December 31, 1997 and December 31, 1996 have been audited
by_________________ independent accountants, as stated in their reports
appearing herein. Prudential is relying on _______________ reports which are
given on their authority as accounting and auditing experts.
FINANCIAL STATEMENTS
The consolidated financial statements for Prudential and subsidiaries included
herein should be distinguished from the financial statements of the Discovery
Account, and should be considered only as bearing upon the ability of Prudential
to meet its obligations under the Contracts. Also included herein are certain
financial statements of the Discovery Account.
14
<PAGE>
PART C
OTHER INFORMATION
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").
(Note 2)
2. Not applicable.
3(a). Distribution Agreement. (Note 1)
3(b). Broker-dealer sales agreement. (Note 2)
4(a). Form of Group Annuity Contract offered by The Prudential
Insurance Company of America (PA). (Note 2)
4(b). Form of Group Annuity Contract offered to small 401
plans by The Prudential Insurance Company of America.
(Note 4)
4(c) Form of Group Annuity Contract offered by the Prudential
Insurance Company of America (NJ). (Note 1)
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)). (Note 2)
6(a). Charter of The Prudential Insurance Company of America,
as amended November 14, 1995. (Note 5)
6(b). By-Laws of The Prudential Insurance Company of America,
as amended May 12, 1998. (Note 7)
7. Not applicable.
8(a). Participation Agreement between The Prudential Insurance
Company of America and AIM Variable Insurance Funds,
Inc. (Note 2)
8(b). Participation Agreement between The Prudential Insurance
Company of America and T. Rowe Price Equity Series, Inc.
(Note 2)
8(c). Participation Agreement between The Prudential Insurance
Company of America and Janus Aspen Series. (Note 2)
8(c)(i). Form of Amendment to Participation Agreement between
The Prudential Insurance Company of America and Janus
Aspen Series. (Note 1)
8(d). Participation Agreement between The Prudential Insurance
Company of America and MFS Variable Insurance Trust.
(Note 2)
C-1
<PAGE>
8(e). Participation Agreement between The Prudential Insurance
Company of America and OCC Accumulation Trust. (Note 2)
8(f). Participation Agreement between The Prudential Insurance
Company of America and Warburg Pincus Trust. (Note 2)
8(g). Retirement Plan Services Outsourcing Agreement between
The Prudential Insurance Company of America and BISYS
Plan Services, L.P. (Note 4)
9. Consent and opinion of C. Christopher Sprague, Assistant
General Counsel, The Prudential Insurance Company of
America, as to the legality of the securities being
registered.
10(a). Consent of _______, Independent Accountants.
10(b). Consent of Shea & Gardner.
10(c).Powers of Attorney for Franklin Agnew, Frederick
Becker, Martin Berkowitz, 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. (Note 5)
Richard Carbone. (Note 3)
Gilbert F. Casellas, (Note 8)
Anthony S. Piszel (Note 1)
11. Not applicable.
12. Not applicable.
13. Schedule for Computation of Performance Calculations.
- ----------
(Note 1) Filed herewith.
(Note 2) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement, filed June 17, 1997.
(Note 3) Incorporated by reference to Post-Effective Amendment No. 1 to this
Registration Statement, filed April 27, 1998.
(Note 4) Incorporated by reference to Post-Effective Amendment No. 2 to this
Registration Statement, filed August 19, 1998.
(Note 5) Incorporated by reference to Post-Effective Amendment No. 9 to Form
S-1, Registration No. 33-20083, filed April 9, 1998 on behalf of The
Prudential Variable Contract Real Property Account.
(Note 6) Incorporated by reference to Post-Effective Amendment No. 10 to Form
S-1, Registration No. 33-20083, filed April 9, 1997 on behalf of The
Prudential Variable Contract Real Property Account.
(Note 7) Incorporated by reference to Form S-6, Registration No. 333-64957,
filed September 30, 1998 on behalf of The Prudential Variable
Appreciable Account.
(Note 8) Incorporated by reference to Form S-6, Registration No. 333-64957,
filed September 30, 1998 on behalf of The Prudential Variable
Appreciable Account.
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).
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.
C-2
<PAGE>
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 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 February 28, 1999 there were_____ Contractholders of qualified Contracts
offered by the Registrant, and ____ 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
(a) Prudential Investment Management Services LLC ("PIMS"), a direct
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 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:
C-3
<PAGE>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
----------------------- -----------------------
Storms, Brian M. President
Chaplin, C. Edward Treasurer
Fetting, Mark R. Executive Vice President
Hamilton, Jean D. Executive Vice President
Joelson, Ronald P. Executive Vice President
Melzer, Mendel A. Vice President
McGuire, Carl L. Chief Operating
Henderson, Brian Officer
Strangfeld, John R. Executive Vice President
Healey, William V. Chief Legal Officer/
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
(c)
NET
NAME OF UNDERWRITING
PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE
UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS
----------------- ---------------- ---------------- ------------
Prudential
Investment
Management
Services, LLC $-0- $-0- $_____
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
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
C-4
<PAGE>
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).
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.
C-5
<PAGE>
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.
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 23 day of February, 1999.
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 23 day
of February, 1999.
SIGNATURE AND
TITLE
---------------
/s/ * /s/ *
- ------------------------------------- --------------------------------
ARTHUR F. RYAN CAROLYNE K. DAVIS
CHAIRMAN OF THE BOARD, DIRECTOR
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
/s/ * /s/ *
- ------------------------------------- --------------------------------
MARTIN A. BERKOWITZ ROGER A. ENRICO
SENIOR VICE PRESIDENT AND DIRECTOR
COMPTROLLER
/s/ * /s/ *
- ------------------------------------- --------------------------------
RICHARD J. CARBONE ALLAN D. GILMOUR
SENIOR VICE PRESIDENT AND DIRECTOR
PRINCIPAL FINANCIAL OFFICER
/s/ * /s/ *
- ------------------------------------- --------------------------------
FRANKLIN E. AGNEW WILLIAM H. GRAY, III
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
FREDERIC K. BECKER JON F. HANSON
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
GILBERT F. CASELLAS GLEN H. HINER
DIRECTOR DIRECTOR
/s/ * *By: C. CHRISTOPHER SPRAGUE
- ------------------------------------- ----------------------------
JAMES G. CULLEN C. CHRISTOPHER SPRAGUE
DIRECTOR (ATTORNEY-IN-FACT)
February 23, 1999
C-8
<PAGE>
SIGNATURE AND
TITLE
---------------
/s/ * /s/ *
- ------------------------------------- --------------------------------
CONSTANCE J. HORNER RICHARD M. THOMSON
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
ALLEN F. JACOBSON JAMES A. UNRUH
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
GAYNOR N. KELLEY P. ROY VAGELOS, M.D.
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
BURTON G. MALKIEL STANLEY C. VAN NESS
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
IDA F.S. SCHMERTZ PAUL A. VOLCKER
DIRECTOR DIRECTOR
/s/ * /s/ *
- ------------------------------------- --------------------------------
CHARLES R. SITTER JOSEPH H. WILLIAMS
DIRECTOR DIRECTOR
/s/ * *By: C. CHRISTOPHER SPRAGUE
- ------------------------------------- ----------------------------
DONALD L. STAHELI C. CHRISTOPHER SPRAGUE
DIRECTOR (ATTORNEY-IN-FACT)
February 23, 1999
C-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
4(c) Form of Group Annuity Contract offered by The Prudential
Insurance Company of America.
10(c) Power of Attorney (Anthony S. Piszel)
C-10
[LOGO] 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 Pension Plan
Effective Date: September 1, 19XX
Jurisdiction: New Jersey
Contract Number: GA-XXXX]
[ABC COMPANY ANY TOWN, THE PRUDENTIAL INSURANCE COMPANY
NEW JERSEY] OF AMERICA
[John Doe] [Arthur F. Ryan]
- --------------------------- --------------------------
Title: [President] [Chairman of the Board and
Chief Executive Officer]
Date: [September 1, 19XX] [Susan L. Blount]
- --------------------------- --------------------------
Secretary
Attest: [Jane Smith]
------------------
Date: [September 1, 19XX]
--------------------
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 [OR
UPWARD] 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,
MAY INCREASE OR DECREASE, AND ARE NOT GUARANTEED AS TO A FIXED AMOUNT.
DC-401-98
<PAGE>
[DEFINITIONS PAGE
- ------------
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 .......1
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 ............................2
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 .......................3
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 ..........4
3.3 Contractholder Fixed Account
Interest Rates .......................5
3.4 Contributions from Prior
Prudential Fixed Account Contracts ...5
3.5 Contractholder Variable Account .......5
3.6 Reports ...............................5
VARIABLE INVESTMENT OPTIONS
- ---------------------------
4.1 Separate Accounts .....................6
4.2 Subaccounts ...........................6
4.3 Voting Rights .........................6
4.4 Modification of Separate
Accounts and Subaccounts .............6
TRANSFER PAYMENTS
- -----------------
5.1 Transfer Payments to Plan
Investment Funds .....................7
5.2 Transfer Payment Terms ................8
WITHDRAWALS PAGE
- ----------
6.1 Withdrawals ...........................8
6.2 Withdrawals for Benefit Payments ......9
6.3 Withdrawals at Termination
of Contract ..........................9
6.4 Withdrawals Subject to a
Market Value Adjustment .............10
6.5 Market Value Adjustment Formula ......10
FORMS OF BENEFITS
- -----------------
7.1 General ...............................11
7.2 Terms of Payment of Annuities .........11
7.3 Certificates ..........................11
7.4 Minimum Death Benefit .................11
TERMINATION OF CONTRACT
- -----------------------
8.1 Sixty Day Termination .................11
8.2 Termination for Cause .................12
8.3 Effect of Termination .................12
8.4 Partial Contract Termination ..........12
CHANGES
- -------
9.1 Changes by Agreement ..................13
9.2 Changes by Prudential .................13
9.3 Persons Empowered to Act for Us .......13
GENERAL TERMS
- -------------
10.1 Communications ........................13
10.2 Place of Payment ......................13
10.3 Information - Records .................14
10.4 Misstatements .........................14
10.5 Beneficiary ...........................14
10.6 Small Annuities and Amounts;
Natural Persons ......................14
10.7 Divisible Surplus .....................14
10.8 Limit on Assignment ...................15
10.9 Plan Changes ..........................15
10.10 Entire Contract .......................15
10.11 Governing Law .........................15
10.12 Interest on Benefit Payments ..........15
10.13 Contractholder ........................15
10.14 Exclusive Benefit .....................16
DEFERRED SALES CHARGES
- ----------------------
11.1 Deferred Sales Charge .................16
APPENDIX A Separate Investment Account
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]
<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 [ ].
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.
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
<PAGE>
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.
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.
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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.
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.
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1.27 WITHDRAWAL VALUE
The dollar value of any Withdrawal less any charges or fees incurred,
including any applicable market value adjustment.
- --------------------------------------------------------------------------------
SECTION 2 - RELATIONSHIP BETWEEN PLAN AND CONTRACT
================================================================================
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.
- --------------------------------------------------------------------------------
SECTION 3 - CONTRIBUTIONS AND CONTRACTHOLDER ACCOUNT
================================================================================
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.
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.
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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.
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
================================================================================
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.
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.
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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.
- --------------------------------------------------------------------------------
SECTION 5 - TRANSFER PAYMENTS
================================================================================
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.
(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(b) for all Contractholders within this
class of contracts. The 90-day provision may be prospectively
reinstated by Prudential upon written notice to the Contractholder.
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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].
- --------------------------------------------------------------------------------
SECTION 6 - WITHDRAWALS
================================================================================
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.
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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) 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.]
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 [two-year] period, less applicable Deferred Sales Charges described
in Section 11. During the [two-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-third] of the balance of the Contractholder Fixed Account
within 90 days of the Withdrawal Date. We will pay [one-half] 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 [second] 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
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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.
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 [increased or] 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
================================================================================
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.
- --------------------------------------------------------------------------------
SECTION 8 - TERMINATION OF CONTRACT
================================================================================
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.
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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 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
================================================================================
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]
- --------------------------------------------------------------------------------
SECTION 10 - GENERAL TERMS
================================================================================
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.
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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.
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.
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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.
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.
15
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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.
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[SECTION 11 - DEFERRED SALES CHARGES
================================================================================
11.1 DEFERRED SALES CHARGES
Contractholder 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.
If the Contractholder requests 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 effective date
of this Contract, will have the following Deferred Sales Charge, measured
as a percentage of Contributions withdrawn:
[0 - 1 year 5%
1 - 2 years 4%
2 - 3 years 3%
3 - 4 years 2%
4 - 5 years 1%
After 5 years 0%]
Deferred sales charges do not apply to amounts withdrawn in excess of
Contributions to 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.]
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[APPENDIX A - SEPARATE INVESTMENT ACCOUNT
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). 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.]
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SCHEDULE A - FORMS OF ANNUITY WHICH MAY BE PURCHASED
Form of Payment Payable Applicable Schedule
----------------------- -------------------
1. Life - Payment Certain Annuity. Use Schedule B
2. Life - Contingent Annuity. Use Schedule C
3. Payment Certain Annuity. Use Schedule D
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.
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<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.
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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:
AGE 1998 1999 2000 2005
--- ---- ---- ---- ----
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
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:
AGE 1998 1999 2000 2005
--- ---- ---- ---- ----
If specified percentage to Contingent Annuitant is 100%:
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]
- --------------------------------------------------------------------------------
20
<PAGE>
- --------------------------------------------------------------------------------
[SCHEDULE D - PAYMENT CERTAIN ANNUITY
--------------------------------------
Monthly Amount
--------------
If the date the annuity is purchased is in:
NUMBER OF
PAYMENTS
CERTAIN 1998 1999 2000 2005
--------- ---- ---- ---- ----
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]
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21
POWER OF ATTORNEY
-----------------
Know all men by these presents:
That I, Anthony S. Piszel, of Cedar Grove, New Jersey, Vice President and
Controller of The Prudential Insurance Company of America, do hereby make,
constitute and appoint as my true and lawful attorneys in fact LEE D. AUGSBUGER,
SUSAN L. BLOUNT, THOMAS C. CASTANO, CAREN A. CUNNINGHAM, TIMOTHY P. HARRIS,
DODIE KENT, CLIFFORD E. KIRSCH, THOMAS J. LOFTUS, KIRK A. MONTGOMERY, BERNARD V.
PETERSON, PETER T. SCOTT, C. CHRISTOPHER SPRAGUE and ARTHUR D. WOODS III or any
of them severally for me and in my name, place and stead to sign, where
applicable: Annual Reports of Form 10-K, registration statements on the
appropriate forms prescribed by the Securities and Exchange Commission, and any
other periodic documents and reports required under the Investment Company Act
of 1940, the Securities Act of 1933 and all amendments thereto executed on
behalf of The Prudential Insurance Company of America and filed with the
Securities and Exchange Commission for the following:
The Prudential Variable Contract Account-2 and group variable annuity contracts,
to the extent they represent participating interests in said Account:
The Prudential Variable Contract Account-10 and group annuity contracts, to the
extent they represent participating interests in said Account;
The Prudential Variable Contract Account-11 and group annuity contracts, to the
extent they represent participating interests in said Account;
The Prudential Variable Contract Account-24 and group annuity contracts, to the
extent they represent participating interests in said Account;
The Prudential Variable Contract Real Property Account and individual variable
life insurance and annuity contracts, to the extent they represent participating
interests in said Account;
Prudential's Investment Plan Account and Systematic Investment Plan Contracts,
to the extent they represent participating interests in said Account, and shares
of the Common Stock of Prudential's Gibraltar Fund;
Prudential's Annuity Plan Account and Variable Annuity Contracts, to the extent
they represent participating interests in said Account, and shares of the Common
Stock of Prudential's Gibraltar Fund;
Prudential's Annuity Plan Account-2 and Variable Annuity Contracts, to the
extent they represent participating interests in said Account, and shares of the
Common Stock of Prudential's Gibraltar Fund;
<PAGE>
The Prudential Individual Variable Contract Account and Individual Variable
Annuity Contracts, to the extent they represent participating interests in said
Account;
The Prudential Qualified Individual Variable Contract Account and Individual
Variable Annuity Contracts, to the extent they represent participating interests
in said Account;
The Prudential Variable Appreciable Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said Account;
The Prudential Variable Life Insurance Account and Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account;
The Prudential Variable Contract Account GI-2 and Group Variable Life Insurance
Contracts, to the extent they represent participating interests in said
Account; and
The Prudential Discovery Select Group Variable Contract Account and group
annuity contracts, to the extent they represent participating interests in said
Account.
IN WITNESS WHEREOF, I have hereunto set my hand this 22nd day of February, 1999.
/s/ ANTHONY S. PISZEL
---------------------
Signature
State of New Jersey )
)SS
County of Essex )
On this 22nd day of February, 1999, before me personally appeared Anthony
S. Piszel, to me known to me to be the person mentioned and described in and who
executed the foregoing instrument and duly acknowledged to me that (s)he
executed the same.
My commission expires: /s/ ANN L. WELLBROCK
ANN L. WELLBROCK ---------------------
NOTARY PUBLIC OF NEW JERSEY Notary Public
MY COMMISSION EXPIRES JULY 26, 1999
