AS FILED WITH THE SEC ON APRIL 27, 2000. REGISTRATION NO. 2-80896
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
PRE-EFFECTIVE AMENDMENT NO. |_|
POST-EFFECTIVE AMENDMENT NO. 37 |X|
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
AMENDMENT NO. 40 |X|
(Check appropriate box or boxes)
----------------
THE PRUDENTIAL SERIES FUND, INC.
(Exact Name of Registrant)
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(800) 778-2255
(Address and telephone number of principal executive offices)
----------------
LEE D. AUGSBURGER
SECRETARY
THE PRUDENTIAL SERIES FUND, INC.
751 BROAD STREET
NEWARK, NEW JERSEY 07102-3777
(Name and address of agent for service)
Copy to:
CHRISTOPHER E. PALMER
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
----------------
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
|_| immediately upon filing pursuant to paragraph (b)
|X| on April 30, 2000 pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
THE PRUDENTIAL SERIES FUND, INC.
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CONSERVATIVE BALANCED PORTFOLIO PROSPECTUS
DIVERSIFIED BOND PORTFOLIO
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO April 30, 2000
EQUITY PORTFOLIO
EQUITY INCOME PORTFOLIO
FLEXIBLE MANAGED PORTFOLIO
GLOBAL PORTFOLIO
GOVERNMENT INCOME PORTFOLIO
HIGH YIELD BOND PORTFOLIO
MONEY MARKET PORTFOLIO
NATURAL RESOURCES PORTFOLIO
PRUDENTIAL JENNISON PORTFOLIO
SMALL CAPITALIZATION STOCK PORTFOLIO
STOCK INDEX PORTFOLIO
20/20 FOCUS PORTFOLIO
ZERO COUPON BOND PORTFOLIO 2000
ZERO COUPON BOND PORTFOLIO 2005
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE
COMMISSION HAS NOT APPROVED OR DISAPPROVED THE FUND'S SHARES
NOR HAS THE SEC DETERMINED THAT THIS PROSPECTUS IS COMPLETE
OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
[LOGO] PRUDENTIAL
INVESTMENTS
A particular Portfolio may not be available under the
variable life insurance or variable annuity contract which
you have chosen. The prospectus of the specific contract
which you have chosen will indicate which Portfolios are
available and should be read in conjunction with this
prospectus.
<PAGE>
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TABLE OF CONTENTS
1 RISK/RETURN SUMMARY
1 Investment Objectives and Principal Strategies
5 Principal Risks
7 Evaluating Performance
24 HOW THE PORTFOLIOS INVEST
24 Investment Objectives and Policies
24 Conservative Balanced Portfolio
25 Diversified Bond Portfolio
27 Diversified Conservative Growth Portfolio
28 Equity Portfolio
29 Equity Income Portfolio
30 Flexible Managed Portfolio
31 Global Portfolio
31 Government Income Portfolio
32 High Yield Bond Portfolio
33 Money Market Portfolio
34 Natural Resources Portfolio
35 Prudential Jennison Portfolio
36 Small Capitalization
37 Stock Index Portfolio
37 20/20 Focus Portfolio
38 Zero Coupon Bond Portfolios--2000 and 2005
39 OTHER INVESTMENTS AND STRATEGIES
39 ADRs
39 Convertible Debt and Convertible Preferred Stock
39 Derivatives
39 Dollar Rolls
39 Forward Foreign Currency Exchange Contracts
40 Futures
40 Interest Rate Swaps
40 Joint Repurchase Account
40 Loan Participations
40 Mortgage-related Securities
41 Options
41 Real Estate Investment Trusts
41 Repurchase Agreements
41 Reverse Repurchase Agreements
41 Short Sales
41 Short Sales Against-the-Box
41 When-issued and Delayed Delivery Securities
43 INVESTMENT RISKS
48 HOW THE FUND IS MANAGED
48 Board of Directors
48 Investment Adviser
48 Investment Sub-Advisers
49 Portfolio Managers
<PAGE>
53 HOW TO BUY AND SELL SHARES OF THE FUND
53 Net Asset Value
54 Distributor
55 OTHER INFORMATION
55 Federal Income Taxes
55 European Monetary Union
55 Monitoring for Possible Conflicts
F-1 FINANCIAL HIGHLIGHTS
(For more information -- see back cover)
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RISK/RETURN SUMMARY
This prospectus provides information about THE PRUDENTIAL SERIES FUND, INC. (the
Fund), which consists of seventeen separate portfolios (each, a Portfolio).
The Fund offers two classes of shares in each Portfolio: Class I and Class II.
Class I shares are sold only to separate accounts of The Prudential Insurance
Company of America (Prudential) as investment options under variable life
insurance and variable annuity contracts (the Contracts). (A separate account
keeps the assets supporting certain insurance contracts separate from the
general assets and liabilities of the insurance company.) Class II shares are
offered only to separate accounts of non-Prudential insurance companies for the
same types of Contracts. NOT EVERY PORTFOLIO IS AVAILABLE UNDER EVERY CONTRACT.
The prospectus for each Contract lists the Portfolios currently available
through that Contract.
This section highlights key information about each Portfolio. Additional
information follows this summary and is also provided in the Fund's Statement of
Additional Information (SAI).
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
The following summarizes the investment objectives, principal strategies and
principal risks for each of the Portfolios. We describe the terms "company
risk," "credit risk," "foreign investment risk," "interest rate risk," and
"market risk" in the section on Principal Risks, on page 5. While we make every
effort to achieve the investment objective for each Portfolio, we can't
guarantee success.
CONSERVATIVE BALANCED PORTFOLIO
The Portfolio's investment objective is TOTAL INVESTMENT RETURN CONSISTENT WITH
A CONSERVATIVELY MANAGED DIVERSIFIED PORTFOLIO. This Portfolio may be
appropriate for an investor who wants diversification with a relatively lower
risk of loss than that associated with the Flexible Managed Portfolio (see
below). To achieve our objective, we invest in a mix of equity securities, debt
obligations and money market instruments. Up to 30% of the Portfolio's total
assets may be invested in foreign securities. In addition, we may invest a
portion of the Portfolio's assets in high-yield/high-risk debt securities. While
we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
DIVERSIFIED BOND PORTFOLIO
The Portfolio's investment objective is a HIGH LEVEL OF INCOME OVER A LONGER
TERM WHILE PROVIDING REASONABLE SAFETY OF CAPITAL. This means we look for
investments that we think will provide a high level of current income, but which
are not expected to involve a substantial risk of loss of capital through
default. To achieve our objective, we invest primarily in higher-grade debt
obligations and high-quality money market investments. We may also purchase U.S.
dollar denominated securities that are issued outside the U.S. by foreign or
U.S. issuers. In addition, we may invest a portion of the Portfolio's assets in
high-yield/high-risk debt securities. While we make every effort to achieve our
objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
The Portfolio's investment objective is to provide CURRENT INCOME AND A
REASONABLE LEVEL OF CAPITAL APPRECIATION. To achieve our investment objective,
we will invest in a diversified portfolio of debt and equity securities. Up to
35%
<PAGE>
of the Portfolio's total assets may be invested in high-yield/high-risk debt
securities which have speculative characteristics and generally are riskier than
higher-rated securities. The Portfolio may also invest in foreign securities
including debt obligations of issuers in emerging markets. While we make every
effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
EQUITY PORTFOLIO
The Portfolio's investment objective is CAPITAL APPRECIATION. To achieve our
objective, we invest primarily in common stocks of major established
corporations as well as smaller companies that we believe offer attractive
prospects of appreciation. In addition, the Portfolio may invest up to 30% of
its total assets in foreign securities. While we make every effort to achieve
our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
EQUITY INCOME PORTFOLIO
The Portfolio's investment objective is both CURRENT INCOME AND CAPITAL
APPRECIATION. To achieve our objective, we invest primarily in common stocks and
convertible securities that we believe provide good prospects for returns above
those of the Standard & Poor's 500 Index (S&P 500) or the NYSE Composite Index.
In addition, the Portfolio may invest up to 30% of its total assets in foreign
securities. While we make every effort to achieve our objective, we can't
guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
FLEXIBLE MANAGED PORTFOLIO
The Portfolio's investment objective is a HIGH TOTAL RETURN CONSISTENT WITH AN
AGGRESSIVELY MANAGED DIVERSIFIED PORTFOLIO. This Portfolio may be appropriate
for an investor who wants diversification and is willing to accept a relatively
high level of loss in an effort to achieve greater appreciation. To achieve our
objective, we invest in a mix of equity securities, debt obligations and money
market instruments. The Portfolio may also invest in foreign securities. A
portion of the debt portion of the Portfolio may be invested in
high-yield/high-risk debt securities which have speculative characteristics and
generally are riskier than higher-rated securities. While we make every effort
to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
GLOBAL PORTFOLIO
The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. To achieve
this objective, we invest primarily in common stocks (and their equivalents) of
foreign and U.S. companies. Generally, we invest in at least three
2
<PAGE>
countries, including the U.S., but we may invest up to 35% of the Portfolio's
assets in companies located in any one country other than the U.S. While we make
every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
GOVERNMENT INCOME PORTFOLIO
The Portfolio's investment objective is A HIGH LEVEL OF INCOME OVER THE LONG
TERM CONSISTENT WITH THE PRESERVATION OF CAPITAL. To achieve our objective, we
invest 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. The Portfolio may also
invest in mortgage-related securities, collateralized mortgage obligations and
corporate debt securities. While we make every effort to achieve our objective,
we can't guarantee success.
PRINCIPAL RISKS:
o CREDIT RISK
o INTEREST RATE RISK
o MARKET RISK
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An investment in the Government Income Portfolio is not a bank deposit and is
not insured or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.
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HIGH YIELD BOND PORTFOLIO
The Portfolio's investment objective is A HIGH TOTAL RETURN. In pursuing our
objective, we invest primarily in high-yield/high-risk debt securities. Such
securities have speculative characteristics and generally are riskier than
higher-rated securities. In addition, the Portfolio may invest up to 20% of its
total assets in foreign debt obligations. While we make every effort to achieve
our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o INTEREST RATE RISK
o MARKET RISK
MONEY MARKET PORTFOLIO
The Portfolio's investment objective is MAXIMUM CURRENT INCOME CONSISTENT WITH
THE STABILITY OF CAPITAL AND THE MAINTENANCE OF LIQUIDITY. To achieve our
objective, we invest in high-quality short-term money market instruments issued
by the U.S. government or its agencies, as well as by corporations and banks,
both domestic and foreign. The Portfolio will invest only in instruments that
mature in thirteen months or less, and which are denominated in U.S. dollars.
While we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o CREDIT RISK
o INTEREST RATE RISK
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An investment in the Money Market Portfolio is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to maintain a net asset value of
$10 per share, it is possible to lose money by investing in the Portfolio.
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3
<PAGE>
NATURAL RESOURCES PORTFOLIO
The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. To achieve
this goal, we invest primarily in common stocks and convertible securities of
natural resource companies and securities that are related to the market value
of some natural resource. Up to 30% of the Portfolio's total assets may be
invested in foreign securities. While we make every effort to achieve our
objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
PRUDENTIAL JENNISON PORTFOLIO
The Portfolio's investment objective is to achieve LONG-TERM GROWTH OF CAPITAL.
To achieve this objective, we invest primarily in equity securities of major,
established corporations that we believe offer above-average growth prospects.
In addition, the Portfolio may invest up to 30% of its total assets in foreign
securities. While we make every effort to achieve our objective, we can't
guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
SMALL CAPITALIZATION STOCK PORTFOLIO
The Portfolio's investment objective is to achieve LONG-TERM GROWTH OF CAPITAL.
To achieve this objective, we invest primarily in equity securities of
publicly-traded companies with small market capitalization. WE ATTEMPT TO
DUPLICATE THE PRICE AND YIELD PERFORMANCE OF THE STANDARD & POOR'S SMALL
CAPITALIZATION STOCK INDEX (THE S&P SMALLCAP INDEX). The market capitalization
of the companies that make up the S&P SmallCap Index may change from time to
time. As of February 28, 2000, the S&P SmallCap stocks had market
capitalizations of between $33 million and $7.8 billion.
The Portfolio is not "managed" in the traditional sense of using market and
economic analyses to select stocks. Rather, the portfolio manager purchases
stocks to duplicate the stocks and their weighting in the S&P SmallCap Index.
While we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o MARKET RISK
STOCK INDEX PORTFOLIO
The Portfolio's investment objective is INVESTMENT RESULTS THAT GENERALLY
CORRESPOND TO THE PERFORMANCE OF PUBLICLY-TRADED COMMON STOCKS. To achieve our
objective, we attempt to duplicate the price and yield of the S&P 500. The S&P
500 represents more than 70% of the total market value of all publicly-traded
common stocks and is widely viewed as representative of publicly-traded common
stocks as a whole. The Portfolio is not "managed" in the traditional sense of
using market and economic analyses to select stocks. Rather, the portfolio
manager purchases stocks in proportion to their weighting in the S&P 500. While
we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o MARKET RISK
20/20 FOCUS PORTFOLIO
The Portfolio's investment objective is LONG-TERM GROWTH OF CAPITAL. We seek to
achieve this goal by investing primarily in up to 40 equity securities of U.S.
companies that are selected by the Portfolio's two portfolio managers
4
<PAGE>
(up to 20 by each) as having strong capital appreciation potential. One manager
will use a "value" approach which means he or she will attempt to identify
strong companies selling at a discount from their perceived true value. The
other manager will use a "growth" approach, which means he or she seeks
companies that exhibit higher-than- average earnings growth. Up to 20% of the
Portfolio's total assets may be invested in foreign securities. While we make
every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o COMPANY RISK
o CREDIT RISK
o FOREIGN INVESTMENT RISK
o INTEREST RATE RISK
o MARKET RISK
ZERO COUPON BOND PORTFOLIOS--2000 AND 2005
The Portfolios' investment objective is the HIGHEST PREDICTABLE COMPOUND
INVESTMENT FOR A SPECIFIC PERIOD OF TIME, CONSISTENT WITH SAFETY OF INVESTED
CAPITAL. We seek to achieve this objective by investing primarily in debt
obligations of the United States Treasury and corporations that have been issued
without interest coupons or have been stripped of their interest coupons, or
have interest coupons that have been stripped from the debt obligation. The two
Portfolios differ only in their liquidation dates which are November 15, 2000
for the Zero Coupon Bond Portfolio 2000 and November 15, 2005 for the Zero
Coupon Bond Portfolio 2005. On each Portfolio's liquidation date, the Portfolio
will redeem all investments. Please refer to your Contract prospectus for
information on your reallocation options and the Portfolio to which your
investment will be transferred if you do not provide other instructions. While
we make every effort to achieve our objective, we can't guarantee success.
PRINCIPAL RISKS:
o CREDIT RISK
o INTEREST RATE RISK
o MARKET RISK
PRINCIPAL RISKS
Although we try to invest wisely, all investments involve risk. Like any mutual
fund, an investment in a Portfolio could lose value, and you could lose money.
The following summarizes the principal risks of investing in the Portfolios.
COMPANY RISK. The price of the stock of a particular company can vary based
on a variety of factors, such as the company's financial performance, changes in
management and product trends, and the potential for takeover and acquisition.
CREDIT RISK. Debt obligations are generally subject to the risk that the
issuer may be unable to make principal and interest payments when they are due.
There is also the risk that the securities could lose value because of a loss of
confidence in the ability of the borrower to pay back debt. Non-investment grade
debt--also known as "junk bonds"--have a higher risk of default and tend to be
less liquid than higher-rated securities.
FOREIGN INVESTMENT RISK. Investing in foreign securities generally involves
more risk than investing in securities of U.S. issuers. Foreign investment risk
is comprised of the specific risks described below.
FOREIGN MARKET RISK. Foreign markets, especially those in developing
countries, tend to be more volatile than U.S. markets and are generally not
subject to regulatory requirements comparable to those in the U.S. Because of
differences in accounting standards and custody and settlement practices,
investing in foreign securities generally involves more risk than investing in
securities of U.S. issuers.
CURRENCY RISK. Changes in currency exchange rates may affect the value of
foreign securities held by a Portfolio and the amount of income available for
distribution. If a foreign currency grows weaker relative to the U.S. dollar,
the value of securities denominated in that foreign currency generally decreases
in terms of U.S. dollars. If a Portfolio does not correctly anticipate changes
in exchange rates, its share price could decline as a result. In addition,
certain hedging activities may cause the Portfolio to lose money and could
reduce the amount of income available for distribution.
5
<PAGE>
POLITICAL DEVELOPMENTS. Political developments may adversely affect the
value of a Portfolio's foreign securities.
INTEREST RATE RISK. The risk that the securities could lose value because
of interest rate changes. For example, bonds tend to decrease in value if
interest rates rise. Debt obligations with longer maturities typically offer
higher yields, but are subject to greater price shifts as a result of interest
rate changes than debt obligations with shorter maturities.
MARKET RISK. Common stocks are subject to market risk stemming from factors
independent of any particular security. Investment markets fluctuate. All
markets go through cycles and market risk involves being on the wrong side of a
cycle. Factors affecting market risk include political events, broad economic
and social changes, and the mood of the investing public. You can see market
risk in action during large drops in the stock market. If investor sentiment
turns gloomy, the price of all stocks may decline. It may not matter that a
particular company has great profits and its stock is selling at a relatively
low price. If the overall market is dropping, the values of all stocks are
likely to drop. Generally, the stock prices of large companies are more stable
than the stock prices of smaller companies, but this is not always the case.
Smaller companies often offer a smaller range of products and services than
large companies. They may also have limited financial resources and may lack
management depth. As a result, stocks issued by smaller companies may fluctuate
in value more than the stocks of larger, more established companies.
* * *
For more information about the risks associated with the Portfolios, see
"How the Portfolios Invest--Investment Risks."
* * *
6
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EVALUATING PERFORMANCE
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CONSERVATIVE BALANCED PORTFOLIO
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A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 5.27%
1991 19.07%
1992 6.95%
1993 12.20%
1994 -0.97%
1995 17.27%
1996 12.63%
1997 13.45%
1998 11.74%
1999 6.69%
Best Quarter: 7.62% (2nd quarter of 1997) Worst Quarter: (3.17)% (3rd quarter of
1998)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
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SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ------------
Class I shares 6.69% 12.30% 10.28% 10.60%
S&P 500** 21.03% 28.54% 18.19% 17.52%
Lipper Average*** 8.58% 15.99% 11.65% 11.79%
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*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500 )--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIEs--GIVES A BROAD LOok AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.
*** THE LIPPER/VARIABLE INSURANCE PRODUCTS (VIP) BALANCED AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS
ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/83).
SOURCE: LIPPER, INC.
7
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DIVERSIFIED BOND PORTFOLIO
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A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 8.32%
1991 16.44%
1992 7.19%
1993 10.13%
1994 -3.23%
1995 20.73%
1996 4.40%
1997 8.57%
1998 7.15%
1999 -0.74%
Best Quarter: 7.32% (2nd quarter of 1995) Worst Quarter: (2.83)% (1st quarter of
1994)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
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SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares (0.74)% 7.80% 7.69% 8.62%
Lehman Aggregate Index** (0.82)% 7.73% 7.70% 9.31%
Lipper Average*** (1.62)% 7.83% 7.62% 7.59%
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*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE LEHMAN AGGREGATE INDEX (LAI) IS COMPRISED OF MORE THAN 5,000 GOVERNMENT
AND CORPORATE BONDS. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY SALES
CHARGES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF SALES
CHARGES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) CORPORATE DEBT AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/83). SOURCE: LIPPER, INC.
8
<PAGE>
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DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
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A number of factors--including risk--can affect how the Portfolio performs. The
table below demonstrates the risk of investing in the Portfolio by showing how
the Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future. No bar chart is included because as of
12/31/99, the Portfolio did not have one full calendar year of performance.
Best Quarter: 7.79% (4th quarter of 1999) Worst Quarter: (2.16)% (3rd quarter of
1999)
Average Annual Returns* (as of 12/31/99)
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SINCE
INCEPTION
(5/3/99)
---------
Class I shares 6.10%
S&P 500** 10.99%
Lipper Average*** 1.04%
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*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES.. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) INCOME FUND AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE EXPENSES. THE
"SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/83). SOURCE: LIPPER, INC.
9
<PAGE>
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 -5.21%
1991 26.01%
1992 14.17%
1993 21.87%
1994 2.78%
1995 31.29%
1996 18.52%
1997 24.66%
1998 9.34%
1999 12.49%
Best Quarter: 19.13% (1st quarter of 1991) Worst Quarter: (15.59)% (3rd quarter
of 1990)
* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 12.49% 18.99% 15.08% 14.98%
S&P 500** 21.03% 28.54% 18.19% 17.52%
Lipper Average*** 31.48% 26.45% 17.79% 16.33%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIEs--GIVES A BROAD LOok AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH FUND AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE EXPENSES. THE
"SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/83). SOURCE: LIPPER, INC.
10
<PAGE>
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 -3.73%
1991 27.50%
1992 10.14%
1993 22.28%
1994 1.44%
1995 21.70%
1996 21.74%
1997 36.61%
1998 -2.38%
1999 12.52%
Best Quarter: 16.54% (2nd quarter of 1997) Worst Quarter: (18.14)% (3rd quarter
of 1998)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/19/88)
------ ------- -------- ---------
Class I shares 12.52% 17.33% 14.06% 14.70%
S&P 500** 21.03% 28.54% 18.19% 18.54%
Lipper Average*** 9.78% 20.59% 14.64% 14.62%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (2/29/88). SOURCE: LIPPER, INC.
*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) EQUITY INCOME AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(2/29/88). SOURCE: LIPPER, INC.
11
<PAGE>
- --------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 1.91%
1991 25.43%
1992 7.61%
1993 15.58%
1994 -3.16%
1995 24.13%
1996 13.64%
1997 17.96%
1998 10.24%
1999 7.78%
Best Quarter: 10.89% (2nd quarter of 1997) Worst Quarter: (8.50)% (3rd quarter
of 1998)
* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 7.78% 14.60% 11.77% 11.80%
S&P 500** 21.03% 28.54% 18.19% 17.52%
Lipper Average*** 12.07% 17.11% 12.94% 12.85%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) FLEXIBLE AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS
ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/83).
SOURCE: LIPPER, INC.
12
<PAGE>
- --------------------------------------------------------------------------------
GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 -12.91%
1991 11.39%
1992 -3.42%
1993 43.14%
1994 -4.89%
1995 15.88%
1996 19.97%
1997 6.98%
1998 25.08%
1999 48.27%
Best Quarter: 31.04% (4th quarter of 1999) Worst Quarter: (14.21)% (3rd quarter
of 1998)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (9/19/88)
------ ------- -------- ---------
Class I shares 48.27% 22.44% 13.38% 14.33%
Morgan Stanley World Index** 24.93% 19.76% 11.42% 12.67%
Lipper Average*** 44.18% 19.42% 11.73% 12.55%
- --------------------------------------------------------------------------------
* THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE MORGAN STANLEY WORLD INDEX (MSWI) IS A WEIGHTED INDEX COMPRISED OF
APPROXIMATELY 1,500 COMPANIES LISTED ON THE STOCK EXCHANGES OF THE U.S.A.,
EUROPE, CANADA, AUSTRALIA, NEW ZEALAND AND THE FAR EAST. THE "SINCE INCEPTION"
RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (9/30/88). SOURCE: LIPPER,
INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GLOBAL AVERAGE IS CALCULATED BY
LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF CERTAIN
PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS ARE NET OF
INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE INCEPTION"
RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (9/30/88). SOURCE: LIPPER,
INC.
13
<PAGE>
- --------------------------------------------------------------------------------
GOVERNMENT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 6.34%
1991 16.11%
1992 5.85%
1993 12.56%
1994 -5.16%
1995 19.48%
1996 2.22%
1997 9.67%
1998 9.09%
1999 -2.70%
Best Quarter: 6.95% (3rd quarter of 1991) Worst Quarter: (3.93)% (1st quarter of
1994)
* THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/1/89)
------ ------- --------- --------
Class I shares (2.70)% 7.29% 7.09% 7.73%
Lehman Govt. Index** (2.23)% 7.44% 7.48% 7.54%
Lipper Average*** (2.13)% 6.94% 7.11% 7.63%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE LEHMAN GOVERNMENT INDEX IS A WEIGHTED INDEX COMPRISED OF SECURITIES ISSUED
OR BACKED BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES WITH A
REMAINING MATURITY OF ONE TO 30 YEARS. THE "SINCE INCEPTION" RETURN REFLECTS THE
CLOSEST CALENDAR MONTH-END RETURN (4/30/89). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GENERAL U.S. GOVERNMENT AVERAGE
IS CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/89). SOURCE: LIPPER, INC.
14
<PAGE>
- --------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 -11.84%
1991 38.99%
1992 17,53%
1993 19.27%
1994 -2.72%
1995 17.56%
1996 11.39%
1997 13.78%
1998 -2.36%
1999 4.61%
Best Quarter: 15.89% (1st quarter of 1991) Worst Quarter: (9.68)% (3rd quarter
of 1990)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/23/87)
------ ------- -------- ---------
Class I shares 4.61% 8.76% 9.78% 7.97%
Lehman High Yield Index** 2.39% 9.31% 10.72% 9.22%
Lipper Average*** 3.83% 9.48% 10.15% 8.97%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE LEHMAN HIGH YIELD INDEX IS MADE UP OF OVER 700 NONINVESTMENT GRADE BONDS.
THE INDEX IS AN UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL INTEREST
BUT DOES NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY FEES
ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. THE "SINCE INCEPTION" RETURN
REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (2/28/87). SOURCE: LIPPER, INC.
*** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) HIGH CURRENT YIELD AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(2/28/87). SOURCE: LIPPER, INC.
15
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not assure that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 8.16%
1991 6.16%
1992 3.79%
1993 2.95%
1994 4.05%
1995 5.80%
1996 5.22%
1997 5.41%
1998 5.39%
1999 4.97%
Best Quarter: 2.00% (2nd quarter of 1990) Worst Quarter: 0.71% (2nd quarter of
1993)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/13/83)
------ ------- -------- ---------
Class I shares 4.97% 5.36% 5.18% 6.30%
Lipper Average** 4.75% 5.12% 4.88% 6.23%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) MONEY MARKET AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC., AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS.
THESE RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT
CHARGES.
7-DAY YIELD* (AS OF 12/31/99)
================================================================================
Money Market Portfolio 5.65%
Average Money Market Fund** 5.16%
================================================================================
* THE PORTFOLIO'S YIELD IS AFTER DEDUCTION OF EXPENSES AND DOES NOT INCLUDE
CONTRACT CHARGES.
**SOURCE: IBC FINANCIAL DATA, INC. AS OF 12/28/99, BASED ON 311 FUNDS IN THE IBC
TAXABLE GENERAL PURPOSE, FIRST AND SECOND TIER MONEY MARKET FUND. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN (4/30/83).
SOURCE: LIPPER, INC.
16
<PAGE>
- --------------------------------------------------------------------------------
NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing in the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1990 -5.76%
1991 10.30%
1992 7.30%
1993 25.15%
1994 -4.30%
1995 26.92%
1996 30.88%
1997 -11.59%
1998 -17.10%
1999 45.99%
Best Quarter: 24.94% (2nd quarter of 1999) Worst Quarter: (21.60)% (4th quarter
of 1997)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/1/88)
------ ------- -------- --------
Class I shares 45.99% 12.19% 9.03% 11.05%
S&P 500** 21.03% 28.54% 18.19% 19.04%
Lipper Average*** 24.66% 3.40% 3.04% 3.04%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/88). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) NATURAL RESOURCES AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/88). SOURCE: LIPPER, INC.
17
<PAGE>
- --------------------------------------------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing iN the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1996 14.41%
1997 31.71%
1998 37.46%
1999 41.76%
Best Quarter: 29.46% (4th quarter of 1998) Worst Quarter: (12.07)% (3rd quarter
of 1998)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (4/25/95)
------ ---------
Class I shares 41.76% 32.11%
S&P 500** 21.03% 27.48%
Lipper Average*** 31.48% 25.81%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/95). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH FUND AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/95). SOURCE: LIPPER, INC.
18
<PAGE>
- --------------------------------------------------------------------------------
SMALL CAPITALIZATION STOCK PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing iN the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Returns* (Class I shares)
[REPRESENTATION OF CHART]
1996 19.77%
1997 25.17%
1998 -0.76%
1999 12.68%
Best Quarter: 18.08% (4th quarter of 1998) Worst Quarter: (20.61)% (3rd quarter
of 1998)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR (4/25/95)
------ ---------
Class I shares 12.68% 16.08%
S&P SmallCap 600 Index** 12.41% 16.64%
Lipper Average*** 38.28% 18.96%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE S&P SMALLCAP 600 INDEX IS A CAPITAL-WEIGHTED INDEX REPRESENTING THE
AGGREGATE MARKET VALUE OF THE COMMON EQUITY OF 600 SMALL COMPANY STOCKS. THE S&P
SMALLCAP 600 INDEX IS AN UNMANAGED INDEX THAT INCLUDES THE REINVESTMENT OF ALL
DIVIDENDS BUT DOES NOT REFLECT THE PAYMENT OF TRANSACTION COSTS AND ADVISORY
FEES ASSOCIATED WITH AN INVESTMENT IN THE PORTFOLIO. THE "SINCE INCEPTION"
RETURN REFLECTS THE CLOSEST MONTH-END RETURN (4/30/95). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) SMALL CAP AVERAGE IS CALCULATED
BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT RETURN OF
CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE RETURNS
ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES. THE "SINCE
INCEPTION" RETURN REFLECTS THE CLOSEST MONTH-END RETURN (4/30/95). SOURCE:
LIPPER, INC.
19
<PAGE>
- --------------------------------------------------------------------------------
STOCK INDEX PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
bar chart and table below demonstrate the risk of investing iN the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future.
Annual Return* (Class I shares)
[REPRESENTATION OF CHART]
1990 -3.63%
1991 29.72%
1992 7.13%
1993 9.66%
1994 1.01%
1995 37.06%
1996 22.57%
1997 32.83%
1998 28.42%
1999 20.54%
Best Quarter: 21.44% (4th quarter of 1998) Worst Quarter: (13.72)% (3rd quarter
of 1990)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (10/19/87)
------ ------- -------- ----------
Class I shares 20.54% 28.14% 17.75% 18.96%
S&P 500** 21.03% 28.54% 18.19% 18.71%
Lipper Average*** 20.48% 28.07% 17.74% 18.24%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (10/31/87). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) S&P 500 INDEX AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(10/31/87). SOURCE: LIPPER, INC.
20
<PAGE>
- --------------------------------------------------------------------------------
20/20 FOCUS PORTFOLIO
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolio performs. The
table below demonstrates the risk of investing in the Portfolio by showing how
the Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolio will
achieve similar results in the future. No bar chart is included because as of
12/31/99, the Portfolio did not have one full calendar year of performance.
Best Quarter: 18.79% (4th quarter of 1999) Worst Quarter: (5.09)% (3rd quarter
of 1999)
Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
(5/3/99)
--------
Class I shares 18.95%
S&P 500** 10.99%
Lipper Average*** 21.65%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE STANDARD & POOR'S 500 STOCK INDEX (S&P 500)--AN UNMANAGED INDEX OF 500
STOCKS OF LARGE U.S. COMPANIES--GIVES A BROAD LOOK AT HOW STOCK PRICES HAVE
PERFORMED. THESE RETURNS DO NOT INCLUDE THE EFFECT OF ANY INVESTMENT MANAGEMENT
EXPENSES. THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE
EXPENSES. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/83). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) GROWTH FUND AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THESE RETURNS WOULD BE LOWER IF THEY INCLUDED THE EFFECT OF THESE EXPENSES. THE
"SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/83). SOURCE: LIPPER, INC.
21
<PAGE>
- --------------------------------------------------------------------------------
ZERO COUPON BOND PORTFOLIOS--2000 AND 2005
- --------------------------------------------------------------------------------
A number of factors--including risk--can affect how the Portfolios perform. The
bar chart and table below demonstrate the risk of investing iN the Portfolio by
showing how returns can change from year to year and by showing how the
Portfolio's average annual returns compare with a stock index and a group of
similar mutual funds. Past performance does not mean that the Portfolios will
achieve similar results in the future.
Zero Coupon Bond Portfolio 2000* Annual Returns (Class I shares)
[REPRESENTATION OF CHART]
1990 5.11%
1991 20.71%
1992 8.59%
1993 16.15%
1994 -7.18%
1995 21.56%
1996 1.53%
1997 7.17%
1998 7.57%
1999 2.18%
Best Quarter: 9.70% (4th quarter of 1990) Worst Quarter: (5.24)% (1st quarter of
1990)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
Zero Coupon Bond Portfolio 2005* Annual Returns (Class I shares)
[REPRESENTATION OF CHART]
1990 2.56%
1991 21.16%
1992 9.66%
1993 21.94%
1994 -9.61%
1995 31.85%
1996 -1.01%
1997 11.18%
1998 12.35%
1999 -5.66%
Best Quarter: 12.43% (4th quarter of 1990) Worst Quarter: (7.80)% (1st quarter
of 1990)
*THESE ANNUAL RETURNS DO NOT INCLUDE CONTRACT CHARGES. IF CONTRACT CHARGES WERE
INCLUDED, THE ANNUAL RETURNS WOULD BE LOWER THAN THOSE SHOWN. SEE THE
ACCOMPANYING CONTRACT PROSPECTUS.
22
<PAGE>
Zero Coupon Bond Portfolio 2000--Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (2/12/86)
------ ------- -------- ---------
Class I shares 2.18% 7.77% 8.00% 9.50%
Lehman Govt. Index** (2.23)% 7.44% 7.71% 8.08%
Lipper Average*** (3.89)% 8.67% 8.50% n/a
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
** THE LEHMAN GOVERNMENT INDEX (LGI) IS A WEIGHTED INDEX MADE UP OF SECURITIES
ISSUED OR BACKED BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES WITH
A REMAINING MATURITY OF ONE TO 30 YEARS. THE LGI IS AN UNMANAGED INDEX AND
INCLUDES THE REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (1/31/86). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) TARGET MATURITY AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(1/31/86). SOURCE: LIPPER, INC.
Zero Coupon Bond Portfolio 2005--Average Annual Returns* (as of 12/31/99)
- --------------------------------------------------------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS 10 YEARS (5/1/89)
------ ------- -------- --------
Class I shares (5.66)% 8.99% 8.73% 9.29%
Lehman Govt. Index** (2.23)% 7.44% 7.48% 8.02%
Lipper Average*** (3.89)% 8.67% 8.50% 9.42%
- --------------------------------------------------------------------------------
*THE PORTFOLIO'S RETURNS ARE AFTER DEDUCTION OF EXPENSES AND DO NOT INCLUDE
CONTRACT CHARGES.
**THE LEHMAN GOVERNMENT INDEX (LGI) IS A WEIGHTED INDEX MADE UP OF SECURITIES
ISSUED OR BACKED BY THE U.S. GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES WITH
A REMAINING MATURITY OF ONE TO 30 YEARS. THE LGI IS AN UNMANAGED INDEX AND
INCLUDES THE REINVESTMENT OF ALL INTEREST BUT DOES NOT REFLECT THE PAYMENT OF
TRANSACTION COSTS AND ADVISORY FEES ASSOCIATED WITH AN INVESTMENT IN THE
PORTFOLIO. THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END
RETURN (4/30/89). SOURCE: LIPPER, INC.
***THE LIPPER VARIABLE INSURANCE PRODUCTS (VIP) TARGET MATURITY AVERAGE IS
CALCULATED BY LIPPER ANALYTICAL SERVICES, INC. AND REFLECTS THE INVESTMENT
RETURN OF CERTAIN PORTFOLIOS UNDERLYING VARIABLE LIFE AND ANNUITY PRODUCTS. THE
RETURNS ARE NET OF INVESTMENT FEES AND FUND EXPENSES BUT NOT PRODUCT CHARGES.
THE "SINCE INCEPTION" RETURN REFLECTS THE CLOSEST CALENDAR MONTH-END RETURN
(4/30/89). SOURCE: LIPPER, INC.
23
<PAGE>
HOW THE PORTFOLIOS INVEST
INVESTMENT OBJECTIVES AND POLICIES
We describe each Portfolio's investment objective and policies below. We
describe certain investment instruments that appear in bold lettering below in
the section entitled Other Investments and Strategies. Although we make every
effort to achieve each Portfolio's objective, we can't guarantee success. Each
Portfolio's investment objective is a fundamental policy that cannot be changed
without shareholder approval. The Board of Directors can change investment
policies that are not fundamental.
An investment in a Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
- --------------------------------------------------------------------------------
CONSERVATIVE BALANCED PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is to seek A TOTAL INVESTMENT RETURN
CONSISTENT WITH A CONSERVATIVELY MANAGED DIVERSIFIED PORTFOLIO.
- -----------------------------------
BALANCED PORTFOLIO To achieve our objective, we invest
We invest in all three types of in a mix of equity and
securities--equity, debt and money equity-related securities, debt
market--in order to achieve obligations and money market
diversification in a single instruments. We adjust the
portfolio. We seek to maintain a percentage of Portfolio assets in
conservative blend of investments each category depending on our
that will have strong performance expectations regarding the
in a down market and solid, but not different markets. While we make
necessarily outstanding, every effort to achieve our
performance in up markets. This objective, we can't guarantee
Portfolio may be appropriate for an success.
investor looking for
diversification with less risk than We will vary how much of the
that of the Flexible Managed Portfolio's assets are invested in
Portfolio, while recognizing that a particular type of security
this reduces the chances of greater depending on how we think the
appreciation. different markets will perform.
- -----------------------------------
Under normal conditions, we will invest within the ranges shown below:
ASSET TYPE MINIMUM NORMAL MAXIMUM
---------- ------- ------ -------
Stocks 15% 35% 75%
Debt obligations and money 25% 65% 85%
market securities
DEBT SECURITIES in general are basically written promises to repay a debt. There
are numerous types of debt securities which vary as to the terms of repayment
and the commitment of other parties to honor the obligations of the issuer. Most
of the securities in the debt portion of this Portfolio will be rated
"investment grade." This means major rating services, like Standard & Poor's
Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), have rated the
securities within one of their four highest rating categories.
The Portfolio may also invest in lower-rated securities, which are riskier and
are considered speculative. These securities are sometimes referred to as "junk
bonds." We may also invest in instruments that are not rated, but which we
believe are of comparable quality to the instruments described above.
The Portfolio may also invest up to 30% of its total assets in foreign equity
and debt securities that are not denominated in the U.S. dollar. In addition, up
to 20% of the Portfolio's total assets may be invested in debt securities that
are issued outside the U.S. by foreign or U.S. issuers, provided the securities
are denominated in U.S. dollars. For these purposes, we do not consider American
Depositary Receipts (ADRS) as foreign securities.
The stock portion of the Portfolio will be invested mainly in equity and
equity-related securities of major, established corporations which we believe
are in sound financial condition and offer better total returns than broad based
market indexes.
24
<PAGE>
The money market portion of the Portfolio will be invested in high-quality money
market instruments. We manage this portion of the Portfolio to comply with
specific rules designed for money market mutual funds. We will not acquire any
security with a remaining maturity exceeding thirteen months, and we will
maintain a dollar-weighted average portfolio of 90 days or less. (Weighted
average maturity is calculated by adding the maturities of all the bonds in a
portfolio and dividing by the number of bonds on a weighted basis.)
In response to adverse market conditions or when restructuring the Portfolio, we
may temporarily invest up to 100% of the Portfolio's total assets in money
market instruments. Investing heavily in these securities limits our ability to
achieve our investment objective, but can help to preserve the value of the
Portfolio's assets when the markets are unstable.
We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, debt securities, stock
indexes and foreign currencies; purchase and sell stock index, interest rate and
foreign currency futures contracts and options on those contracts; enter into
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS; and purchase securities on a
WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into SHORT SALES. No more than 25% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. The Portfolio may also enter into SHORT SALES
AGAINST-THE-BOX.
We may also use INTEREST RATE SWAPS in the management of the fixed-income
portion of the Portfolio.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund and other affiliated funds
in a JOINT REPURCHASE ACCOUNT under an order obtained from the SEC.
We may also invest in REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS in the
management of the fixed-income portion of the Portfolio. The Portfolio will not
use more than 30% of its net assets in connection with reverse repurchase
transactions and dollar rolls.
- --------------------------------------------------------------------------------
DIVERSIFIED BOND PORTFOLIO
- --------------------------------------------------------------------------------
Our investment objective is A HIGH LEVEL OF INCOME OVER A LONGER TERM WHILE
PROVIDING REASONABLE SAFETY OF CAPITAL. This means we look for investments that
we think will provide a high level of current income, but which are not expected
to involve a substantial risk of loss of capital through default. To achieve our
objective, we invest primarily in intermediate and long term debt obligations
that are rated investment grade and high-quality money market investments. While
we make every effort to achieve our objective, we can't guarantee success.
- -----------------------------------
OUR STRATEGY Debt obligations, in general, are
In general, the value of debt basically written promises to repay
obligations moves in the opposite a debt. The terms of repayment vary
direction as interest rates--if a among the different types of debt
bond is purchased and then interest obligations, as do the commitments
rates go up, newer bonds will be of other parties to honor the
worth more relative to existing obligations of the issuer of the
bonds because they will have a security. The types of debt
higher rate of interest. We will obligations in which we can invest
adjust the mix of the Portfolio's include U.S. government securities,
short-term, intermediate and long MORTGAGE-RELATED SECURITIES and
term debt obligations in an attempt corporate bonds.
to benefit from price appreciation
when interest rates go down and to
incur smaller declines when rates
go up.
- -----------------------------------
Usually, at least 80% of the Portfolio's total assets will be invested in debt
securities that are investment grade. The Portfolio may continue to hold a debt
obligation if it is downgraded below investment grade after it is purchased or
if
25
<PAGE>
it is no longer rated by a major rating service. We may also invest in lower
rated securities which are riskier and considered speculative. These securities
are sometimes referred to as "junk bonds." We may also invest in instruments
that are not rated, but which we believe are of comparable quality to the
instruments described above.
The Portfolio may invest without limit in debt obligations issued or guaranteed
by the U.S. government and government-related entities. An example of a debt
security that is backed by the full faith and credit of the U.S. government is
an obligation of the Government National Mortgage Association (Ginnie Mae). In
addition, we may invest in U.S. government securities issued by other government
entities, like the Federal National Mortgage Association (Fannie Mae) and the
Student Loan Marketing Association (Sallie Mae) which are not backed by the full
faith and credit of the U.S. government. Instead, these issuers have the right
to borrow from the U.S. Treasury to meet their obligations. The Portfolio may
also invest in the debt securities of other government-related entities, like
the Farm Credit System, which depend entirely upon their own resources to repay
their debt.
We may also invest up to 20% of the Portfolio's total assets in debt securities
issued outside the U.S. by U.S. or foreign issuers provided the securities are
denominated in U.S. dollars.
The Portfolio may also invest in CONVERTIBLE DEBT SECURITIES and CONVERTIBLE AND
NON-CONVERTIBLE PREFERRED STOCKS of any rating. The Portfolio will not acquire
any common stock except by converting a convertible debt security or exercising
a warrant. No more than 10% of the Portfolio's total assets will be held in
common stocks, and those will usually be sold as soon as a favorable opportunity
arises.
We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS.
Under normal conditions, the Portfolio may invest a portion of its assets in
high-quality money market instruments. In response to adverse market conditions
or when restructuring the Portfolio, we may temporarily invest up to 100% of the
Portfolio's assets in money market instruments. Investing heavily in these
securities limits our ability to achieve our investment objective, but can help
to preserve the value of the Portfolio's assets when the markets are unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on debt securities; purchase and sell interest
rate FUTURES CONTRACTS and options on those contracts; and purchase securities
on a WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into SHORT SALES. No more than 25% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. The Portfolio may also enter into SHORT SALES
AGAINST-THE-BOX.
We may also use INTEREST RATE SWAPS in the management of the Portfolio.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
The Portfolio may also invest up to 30% of its net assets in REVERSE REPURCHASE
AGREEMENTS and DOLLAR ROLLS. The Portfolio will not use more than 30% of its net
assets in connection with reverse repurchase transactions and dollar rolls.
26
<PAGE>
- --------------------------------------------------------------------------------
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
Our investment objective is to provide CURRENT INCOME AND A REASONABLE LEVEL OF
CAPITAL APPRECIATION. We seek to achieve this objective by investing in a
diversified portfolio of debt and equity securities. While we make every effort
to achieve our objective, we can't guarantee success.
- -----------------------------------
ASSET ALLOCATION Under normal market conditions, we
This Portfolio is designed for invest approximately 60% of the
investors who want investment Portfolio's total assets in debt
professionals to make their asset securities of varying maturities
allocation decisions for them and with a dollar-weighted average
are seeking current income and low portfolio maturity of between 4 and
to moderate capital appreciation. 15 years. (The maturity of a bond
We have contracted with four highly is the number of years until the
regarded sub-advisers who each will principal is due and payable.
manage a portion of the Portfolio's Weighted average maturity is
assets. In this way, the Portfolio calculated by adding the maturities
offers diversification not only of of all of the bonds in the
asset type, but also of investment Portfolio and dividing by the
style. Investors in this Portfolio number of bonds on a
should have both sufficient time dollar-weighted basis.)
and tolerance for risk to accept
periodic declines in the value of
their investment.
- -----------------------------------
The types of debt securities in which we can invest include U.S. government
securities, corporate debt obligations, asset-backed securities,
inflation-indexed bonds of governments and corporations and commercial paper.
These debt securities will generally be investment grade. We may also invest up
to 35% of the Portfolio's total assets in lower rated securities that are
riskier and considered speculative. At the time these high-yield or "junk bonds"
are purchased they will have a minimum rating of B by Moody's, S&P or another
major rating service. We may also invest in instruments that are not rated, but
which we believe are of comparable quality to the instruments described above.
Up to 25% of the Portfolio's total assets may be invested in debt obligations
issued or guaranteed by foreign governments, their agencies and
instrumentalities, supranational organizations, and foreign corporations or
financial institutions. Up to 10% of the Portfolio's total assets may be
invested in debt obligations of issuers in emerging markets. The Portfolio will
normally invest approximately 40% of its total assets in equity and
equity-related securities issued by U.S. and foreign companies. Up to 15% of the
Portfolio's total assets may be invested in foreign equity securities, including
those of companies in emerging markets. For these purposes, we do not consider
American Depository Receipts (ADRS) as foreign securities.
Generally, the Portfolio's assets will be allocated as shown in the table below.
However, we may rebalance the Portfolio's assets at any time or add or eliminate
portfolio segments, in accordance with the Portfolio's investment objective and
policies.
<TABLE>
<CAPTION>
PERCENT OF
PORTFOLIO ASSET
ASSETS CLASS SUB-ADVISER INVESTMENT STYLE
- ----------- ----- ----------- ----------------
<S> <C> <C> <C>
40% Fixed income Pacific Investment Management Company Mostly high-quality debt instruments
20% Fixed income The Prudential Investment Corporation High-yield debt, including junk bonds and
emerging market debt
15% Equities Jennison Associates LLC Growth-oriented, focusing on
large-cap stocks
15% Equities The Prudential Investment Corporation Value-oriented, focusing on
large-cap stocks
5% Equities The Dreyfus Corporation Value-oriented, focusing on small-cap and
mid-cap stocks
5% Equities Franklin Advisers, Inc. Growth-oriented, focusing on small-cap and
mid-cap stocks.
</TABLE>
27
<PAGE>
We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS.
We may also invest in debt securities of the U.S. Treasury and corporations that
have been issued without interest coupons or that have been stripped of their
interest coupons, or have interest coupons that have been stripped from the debt
obligation (stripped securities).
In response to adverse market conditions or when we are restructuring the
Portfolio, we may temporarily invest up to 100% of the Portfolio's assets in
money market instruments. Investing heavily in these securities limits our
ability to achieve our investment objective, but can help to preserve the
Portfolio's assets when the markets are unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, debt securities,
financial indexes and U.S. government securities; engage in foreign currency
exchange contracts and related options; purchase and write put and call options
on foreign currencies; trade currency futures contracts and options on those
contracts; purchase and sell FUTURES on debt securities, U.S. government
securities, financial indexes and interest rates and related options; and invest
in DELAYED DELIVERY and WHEN-ISSUED securities.
The Portfolio may also enter into SHORT SALES. No more than 5% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. The Portfolio may also enter into SHORT SALES
AGAINST-THE-BOX.
We may also use INTEREST RATE SWAPS in the management of the Portfolio.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
The Portfolio may also invest up to 30% of its net assets in REVERSE REPURCHASE
AGREEMENTS and DOLLAR ROLLS.
- --------------------------------------------------------------------------------
EQUITY PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is CAPITAL APPRECIATION. This means
we seek investments that we believe will provide investment returns above
broadly based market indexes. While we make every effort to achieve this
objective, we can't guarantee success.
- -----------------------------------
VALUE APPROACH To achieve our investment
We use a value approach to objective, we invest primarily in
investing which means we look for common stocks of major established
companies whose stock is selling corporations as well as smaller
below the price that we believe companies.
reflects its true worth based on
earnings, book value and other A portion of the Portfolio's assets
financial measures. may be invested in short,
intermediate or long-term debt
To achieve our value investment obligations, including convertible
strategy, we usually buy securities and nonconvertible preferred stock
that are out of favor and that many and other equity-related
other investors are selling. We securities. Up to 5% of these
attempt to invest in companies and holdings may be rated below
industries before other investors investment grade. These securities
recognize their true value. are considered speculative and are
- ----------------------------------- sometimes referred to as "junk
bonds."
Up to 30% of the Portfolio's total assets may be invested in foreign securities,
including money market instruments, equity securities and debt obligations. For
these purposes, we do not consider American Depositary Receipts (ADRS) as
foreign securities.
Under normal circumstances, the Portfolio may invest a portion of its assets in
money market instruments. In addition, we may temporarily invest up to 100% of
the Portfolio's assets in money market instruments in response to adverse market
conditions or when we are restructuring the portfolio. Investing heavily in
these securities limits
28
<PAGE>
our ability to achieve our investment objective, but can help to preserve the
Portfolio's assets when the markets are unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell stock index and foreign currency FUTURES
CONTRACTS and options on these futures contracts; enter into FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS; and purchase securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
- --------------------------------------------------------------------------------
EQUITY INCOME PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is to seek BOTH CURRENT INCOME AND
CAPITAL APPRECIATION. This means we seek investments whose price will increase
as well as pay dividends and other income. To achieve this objective, we look
for securities we believe will provide investment returns above those of the
Standard & Poor's 500 Index (S&P 500) or the NYSE Composite Index. While we make
every effort to achieve this objective, we can't guarantee success.
- -----------------------------------
CONTRARIAN APPROACH We will normally invest at least
To achieve our value investment 65% of the Portfolio's total assets
strategy, we generally take a in equity and equity-related
strong contrarian approach to securities. We buy common stock of
investing. In other words, we companies of every size--small,
usually buy securities that are out medium and large capitalization.
of favor and that many other When deciding which stocks to buy,
investors are selling, and we we look at a company's earnings,
attempt to invest in companies and balance sheet and cash flow and
industries before other investors then at how these factors impact
recognize their true value. Using the stock's price and return. We
these guidelines, we focus on also buy equity-related
long-term performance, not securities--like bonds, corporate
short-term gain. notes and preferred stock--that can
- ----------------------------------- be converted into a company's
common stock or other equity
security.
Up to 35% of the Portfolio's total assets may be invested in other debt
obligations including non-convertible preferred stock. When acquiring these
types of securities, we usually invest in obligations rated A or better by
Moody's or S&P. We may also invest in obligations rated as low as CC by Moody's
or Ca by S&P. These securities are considered speculative and are sometimes
referred to as "junk bonds." We may also invest in instruments that are not
rated, but which we believe are of comparable quality to the instruments
described above.
Up to 30% of the Portfolio's total assets may be invested in foreign securities,
including money market instruments, equity securities and debt obligations. For
these purposes, we do not consider American Depositary Receipts (ADRS) as
foreign securities.
Under normal circumstances, the Portfolio may invest up to 35% of its total
assets in high-quality money market instruments. In response to adverse market
conditions or when we are restructuring the Portfolio, we may temporarily invest
up to 100% of the Portfolio's assets in money market instruments. Investing
heavily in these securities limits our ability to achieve our investment
objective, but can help to preserve the Portfolio's assets when the markets are
unstable.
We may also use alternative investment strategies--including DERIVATIVEs--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell stock index and foreign currency FUTURES
CONTRACTS and options on these futures contracts; enter into FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS; and purchase securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
29
<PAGE>
- --------------------------------------------------------------------------------
FLEXIBLE MANAGED PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is to seek A HIGH TOTAL RETURN
CONSISTENT WITH AN AGGRESSIVELY MANAGED DIVERSIFIED PORTFOLIO.
- -----------------------------------
BALANCED PORTFOLIO To achieve our objective, we invest
We invest in all three types of in a mix of equity and
securities--equity, debt and money equity-related securities, debt
market--in order to achieve obligations and money market
diversification in a single instruments. We adjust the
portfolio. We seek to maintain a percentage of Portfolio assets in
more aggressive mix of investments each category depending on our
than the Conservative Balanced expectations regarding the
Portfolio. This Portfolio may be different markets. While we make
appropriate for an investor looking every effort to achieve our
for diversification who is willing objective, we can't guarantee
to accept a relatively high level success.
of loss in an effort to achieve
greater appreciation.
- -----------------------------------
Generally, we will invest within the ranges shown below:
ASSET TYPE MINIMUM NORMAL MAXIMUM
---------- ------- ------ -------
Stocks 25% 60% 100%
Fixed income securities 0% 40% 75%
Money market securities 0% 0% 75%
The stock portion of the Portfolio will be invested in a broadly diversified
portfolio of stocks generally consisting of large and mid-size companies,
although it may also hold stocks of smaller companies. We will invest in
companies and industries that, in our judgment, will provide either attractive
long-term returns, or are desirable to hold in the Portfolio to manage risk.
Most of the securities in the fixed income portion of this Portfolio will be
investment grade, however, we may also invest up to 25% of this portion of the
Portfolio in debt securities rated as low as BB, Ba or lower by a major rating
service at the time they are purchased. These high-yield or "junk bonds" are
riskier and considered speculative. We may also invest in instruments that are
not rated, but which we believe are of comparable quality to the instruments
described above.
The fixed income portion of the Portfolio may also include LOAN PARTICIPATIONS.
The Portfolio may also invest up to 30% of its total assets in foreign equity
and debt securities that are not denominated in the U.S. dollar. In addition, up
to 20% of the Portfolio's total assets may be invested in debt securities that
are issued outside of the U.S. by foreign or U.S. issuers provided the
securities are denominated in U.S. dollars. For these purposes, we do not
consider American Depositary Receipts (ADRS) as foreign securities.
The money market portion of the Portfolio will be invested in high-quality money
market instruments. In response to adverse market conditions or when we are
restructuring the Portfolio, we may temporarily invest up to 100% of the
Portfolio's assets in money market instruments. Investing heavily in these
securities limits our ability to achieve our investment objective, but can help
to preserve the Portfolio's assets when the markets are unstable.
The Portfolio may also invest in REAL ESTATE INVESTMENT TRUSTS (REITs).
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, debt securities, stock
indexes, and foreign currencies; purchase and sell stock index, interest rate
and foreign currency FUTURES CONTRACTS and options on those contracts; enter
into FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS; and purchase securities on a
WHEN-ISSUED or DELAYED DELIVERY basis.
30
<PAGE>
The Portfolio may also enter into SHORT SALES. No more than 25% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. The Portfolio may also enter into SHORT SALES
AGAINST-THE-BOX.
We may also use INTEREST RATE SWAPS in the management of the fixed income
portion of the Portfolio.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
We may also invest in REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS in the
management of the fixed-income portion of the Portfolio. The Portfolio will not
use more than 30% of its net assets in connection with reverse repurchase
transactions and dollar rolls.
- --------------------------------------------------------------------------------
GLOBAL PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is LONG-TERM GROWTH OF CAPITAL. To
achieve this objective, we invest primarily in equity and equity-related
securities of foreign and U.S. companies. While we make every effort to achieve
this objective, we can't guarantee success.
- -----------------------------------
GLOBAL INVESTING When selecting stocks, we use a
This Portfolio is intended to growth approach which means we look
provide investors with the for companies that have
opportunity to invest in companies above-average growth prospects. In
located throughout the Although we making our stock picks, we look for
are not required to invest in a companies that have had growth in
minimum number of countries, we earnings world. and sales, high
intend generally to invest in at returns on equity and assets or
least three countries, including other strong financial
the U.S. However, in response to characteristics. Often, the
market conditions, we can invest up companies we choose have superior
to 35% of the Portfolio's total management, a unique market niche
assets in any one country other or a strong new product.
than the U.S.
- -----------------------------------
The Portfolio may invest up to 100% of its assets in money market instruments in
response to adverse market conditions or when we are restructuring the
Portfolio. Investing heavily in these securities limits our ability to achieve
our investment objective, but can help to preserve the Portfolio's assets when
the markets are unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell FUTURES contracts on stock indexes, debt
securities, interest rate indexes and foreign currencies and options on these
futures contracts; enter into FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS; and
purchase securities on a WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
- --------------------------------------------------------------------------------
GOVERNMENT INCOME PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is A HIGH LEVEL OF INCOME OVER THE
LONGER TERM CONSISTENT WITH THE PRESERVATION OF CAPITAL. In pursuing our
objective, we invest primarily in intermediate and long-term U.S. Treasury
31
<PAGE>
securities and debt obligations issued by agencies or instrumentalities
established, sponsored or guaranteed by the U.S. government. While we make every
effort to achieve this objective, we can't guarantee success.
- -----------------------------------
U.S. GOVERNMENT SECURITIES Normally, we will invest at least
U.S. government securities are 65% of the Portfolio's total assets
considered among the most in U.S. government securities,
creditworthy of debt securities. which include Treasury securities,
Because they are generally obligations issued or guaranteed by
considered less risky, their yields U.S. government agencies and
tend to be lower than the yields instrumentalities and
from corporate debt. Like all debt MORTGAGE-RELATED SECURITIES issued
securities, the values of U.S. by U.S. government
government securities will change instrumentalities or
as interest rates change. non-governmental corporations.
- -----------------------------------
The Portfolio may invest up to 35% of its total assets in money market
instruments, foreign government securities (including those issued by
supranational organizations) denominated in U.S. dollars, asset-backed
securities rated at lease single A by Moody's or S&P (or if unrated, of
comparable quality in our judgment) and securities of issuers (including foreign
governments) other than the U.S. government and related entities rated at least
single A by Moody's or S&P (or if unrated, of comparable quality in our
judgment.)
The Portfolio may invest up to 100% of its assets in money market instruments in
response to adverse market conditions or when restructuring the Portfolio.
Investing heavily in these securities limits our ability to achieve capital
appreciation, but can help to preserve the Portfolio's assets when the markets
are unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on debt securities; purchase and sell interest
rate FUTURES CONTRACTS and options on these futures contracts; and purchase
securities on a WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into SHORT SALES. No more than 25% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. The Portfolio may also enter into SHORT SALES
AGAINST-THE-BOX.
We may also use INTEREST RATE SWAPS in the management of the Portfolio.
The Portfolio may enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
The Portfolio may use up to 30% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS and DOLLAR ROLLS.
- --------------------------------------------------------------------------------
HIGH YIELD BOND PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is A HIGH TOTAL RETURN. In pursuing
our objective, we invest in high yield/high risk debt securities. While we make
every effort to achieve this objective, we can't guarantee success.
- -----------------------------------
HIGH YIELD/HIGH RISK Normally, we will invest at least
Lower rated and comparable unrated 80% of the Portfolio's total assets
securities tend to offer better in medium to lower rated debt
yields than higher rated securities securities. These high-yield or
with the same maturities because "junk bonds" are riskier than
the issuer's past financial higher rated bonds and are
condition may not have been as considered speculative.
strong as that of higher rated
issuers. Changes in the perception The Portfolio may also invest up to
of the creditworthiness of the 20% of its total assets in U.S.
issuers of lower rated securities dollar denominated DEBT SECURITIES
tend to occur more frequently and issued outside the U.S. by foreign
in a more pronounced manner than and U.S. issuers.
for issuers of higher rated
securities.
- -----------------------------------
The Portfolio may also acquire CONVERTIBLE AND NONCONVERTIBLE DEBT SECURITIES
and PREFERRED STOCK. The Portfolio will not invest in common stocks, except when
they are included as part of a debt security.
32
<PAGE>
We may also invest in loans arranged through private negotiations between a
corporation which is the borrower and one or more financial institutions that
are the lenders. Generally, these types of investments are in the form of LOAN
PARTICIPATIONS.
Under normal circumstances, the Portfolio may invest in money market instruments
and commercial paper of domestic corporations. In response to adverse market
conditions or when we are restructuring the Portfolio, we may temporarily invest
up to 100% of the Portfolio's assets in money market instruments. Investing
heavily in these securities limits our ability to achieve our investment
objective, but can help to preserve the Portfolio's assets when the markets are
unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on debt securities; purchase and sell interest
rate FUTURES CONTRACTS and options on these futures contracts; and purchase
securities on a WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into SHORT SALES. No more than 25% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. The Portfolio may also enter into SHORT SALES
AGAINST-THE-BOX.
We may also use INTEREST RATE SWAPS in the management of the Portfolio.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
The Portfolio may use up to 30% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS and DOLLAR ROLLS.
- --------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is to SEEK THE MAXIMUM CURRENT INCOME
THAT IS CONSISTENT WITH STABILITY OF CAPITAL AND MAINTENANCE OF LIQUIDITY. This
means we seek investments that we think will provide a high level of current
income. While we make every effort to achieve our objective, we can't guarantee
success.
- -----------------------------------
STEADY NET ASSET VALUE We invest in a diversified
The net asset value for the portfolio of short-term debt
Portfolio will ordinarily remain obligations by the U.S. government,
issued at $10 per share because its agencies and instrumentalities,
dividends are declared and as well as commercial paper, asset
reinvested daily. The price of each backed securities, funding
share remains the same, but you agreements, certificates of
will have more shares when deposit, floating and variable rate
dividends are declared. demand notes, notes and other
- ----------------------------------- obligations issued by banks,
corporations and other companies
(including trust structures), and
obligations issued by foreign
banks, companies or foreign
governments.
We make investments that meet the requirements of specific rules for money
market mutual funds, such as Investment Company Act Rule 2a-7. As such, we will
not acquire any security with a remaining maturity exceeding thirteen months,
and we will maintain a dollar-weighted average portfolio maturity of 90 days or
less. In addition, we will comply with the diversification, quality and other
requirements of Rule 2a-7. This means, generally, that the instruments that we
purchase present "minimal credit risk" and are of "eligible quality." "Eligible
quality" for this purpose means a security is: (i) rated in one of the two
highest short-term rating categories by at least two major rating services (or
if only one major rating service has rated the security, as rated by that
service); or (ii) if unrated, of comparable quality in our judgment. All
securities that we purchase will be denominated in U.S. dollars.
Commercial paper is short-term debt obligations of banks, corporations and other
borrowers. The obligations are usually issued by financially strong businesses
and often include a line of credit to protect purchasers of the obligations. An
asset-backed security is a loan or note that pays interest based upon the cash
flow of a pool of assets, such as mortgages, loans and credit card receivables.
Funding agreements are contracts issued by insurance companies that guarantee a
return of principal, plus some amount of interest. When purchased by money
market funds, funding agreements will typically be short-term and will provide
an adjustable rate of interest.
33
<PAGE>
Certificates of deposit, time deposits and bankers' acceptances are obligations
issued by or through a bank. These instruments depend upon the strength of the
bank involved in the borrowing to give investors comfort that the borrowing will
be repaid when promised.
We may purchase debt securities that include demand features, which allow us to
demand repayment of a debt obligation before the obligation is due or "matures."
This means that longer term securities can be purchased because of our
expectation that we can demand repayment of the obligation at a set price within
a relatively short period of time, in compliance with the rules applicable to
money market mutual funds.
The Portfolio may also purchase floating rate and variable rate securities.
These securities pay interest at rates that change periodically to reflect
changes in market interest rates. Because these securities adjust the interest
they pay, they may be beneficial when interest rates are rising because of the
additional return the Portfolio will receive, and they may be detrimental when
interest rates are falling because of the reduction in interest payments to the
Portfolio.
The securities that we may purchase may change over time as new types of money
market instruments are developed. We will purchase these new instruments,
however, only if their characteristics and features follow the rules governing
money market mutual funds.
We may also use alternative investment strategies to try to improve the
Portfolio's returns, protect its assets or for short-term cash management. There
is no guarantee that these strategies will work, that the instruments necessary
to implement these strategies will be available or that the Portfolio will not
lose money.
We may purchase securities on a WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
The Portfolio may use up to 10% of its net assets in connection with REVERSE
REPURCHASE AGREEMENTS.
- --------------------------------------------------------------------------------
An investment in the Portfolio is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Portfolio seeks to preserve the value of an investment at
$10 per share, it is possible to lose money by investing in the Portfolio.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NATURAL RESOURCES PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is LONG-TERM GROWTH OF CAPITAL. This
means we seek investments whose price will increase over several years. While we
make every effort to achieve this objective, we can't guarantee success.
- -----------------------------------
NATURAL RESOURCE COMPANIES are In pursuing our objective, we
companies that primarily own, normally invest 65% of the
explore, mine, process or otherwise Portfolio's total assets in common
develop natural resources, or stocks and convertible securities
supply goods and services to such of natural resource companies and
companies. Natural resources in securities which are related to
generally include precious metals, the market value of some natural
such as gold, silver and platinum, resource (asset-indexed
ferrous and nonferrous metals, such securities).
as iron, aluminum and copper,
strategic metals such as uranium We seek securities that are
and titanium, hydrocarbons such as attractively priced as compared to
coal and oil, timberland, the intrinsic value of the
undeveloped real property and underlying natural resource or
agricultural commodities. securities of companies in a
- ----------------------------------- position to benefit from current or
expected economic conditions.
Depending on prevailing trends, we may shift the Portfolio's focus from one
natural resource to another, however, we will not invest more than 25% of the
Portfolio's total assets in a single natural resource industry.
When acquiring asset-indexed securities, we usually will invest in obligations
rated at least BBB by Moody's or Baa by S&P (or, if unrated, of comparable
quality in our judgment). However, we may invest in asset-indexed securities
34
<PAGE>
rated as low as CC by Moody's or Ca by S&P or in unrated securities of
comparable quality. These high-risk or "junk bonds" are considered speculative.
The Portfolio may also acquire asset-indexed securities issued in the form of
commercial paper provided they are rated at least A-2 by S&P or P-2 by Moody's
(or, if unrated, of comparable quality in our judgment).
The Portfolio may invest up to 35% of its total assets in securities that are
not asset-indexed or natural resource related. These holdings may include common
stocks, convertible stock, debt securities and money market instruments. When
acquiring debt securities, we usually will invest in obligations rated A or
better by S&P or Moody's (or, if unrated, of comparable quality in our
judgment). However, we may invest in debt securities rated as low as CC by
Moody's or Ca by S&P or in unrated securities of comparable quality.
Under normal circumstances, the Portfolio may invest up to 35% of its total
assets in money market instruments. In response to adverse market conditions or
when restructuring the Portfolio, we may invest up to 100% of the Portfolio's
assets in money market instruments. Investing heavily in these securities limits
our ability to achieve our investment objective, but can help to preserve the
Portfolio's assets when the markets are unstable.
Up to 30% of the Portfolio's total assets may be invested in foreign equity and
equity-related securities. For these purposes, we do not consider American
Depositary Receipts (ADRs) as foreign securities.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell stock index and foreign currency FUTURES
CONTRACTS and options on these futures contracts; enter into FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS; and purchase securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
- --------------------------------------------------------------------------------
PRUDENTIAL JENNISON PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is to achieve LONG-TERM GROWTH OF
CAPITAL. This means we seek investments whose price will increase over several
years. While we make every effort to achieve this objective, we can't guarantee
success.
- -----------------------------------
INVESTMENT STRATEGY In pursuing our objective, we
We seek to invest in equity normally invest 65% of the
securities of established companies Portfolio's total assets in common
with above-average growth stocks and preferred stocks of
prospects. We select stocks on a companies with capitalization in
company-by-company basis using excess of $1 billion.
fundamental analysis. In making our
stock picks, we look for companies For the balance of the Portfolio,
that have had growth in earnings we may invest in common stocks,
and sales, high returns on equity preferred stocks and other
and assets or other strong equity-related securities of
financial characteristics. Often, companies that are undergoing
the companies we choose have changes in management, product
superior management, a unique and/or marketing dynamics which we
market niche or a strong new believe have not yet been reflected
product. in reported earnings or recognized
- ----------------------------------- by investors.
In addition, we may invest in debt securities and mortgage-related securities.
These securities may be rated as low as Baa by Moody's or BBB by S&P (or if
unrated, of comparable quality in our judgment).
The Portfolio may also invest in obligations issued or guaranteed by the U.S.
government, its agencies and instrumentalities. In addition, up to 30% of the
Portfolio's assets may be invested in foreign equity and equity-related
securities. For these purposes, we do not consider American Depositary Receipts
(ADRS) as foreign securities.
In response to adverse market conditions or when restructuring the Portfolio, we
may invest up to 100% of the Portfolio's assets in money market instruments.
Investing heavily in these securities limits our ability to achieve our
investment objective, but can help to preserve the Portfolio's assets when the
markets are unstable.
35
<PAGE>
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on equity securities, stock indexes and
foreign currencies; purchase and sell stock index and foreign currency FUTURES
CONTRACTS and options on those futures contracts; enter into FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS; and purchase securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
- --------------------------------------------------------------------------------
SMALL CAPITALIZATION STOCK PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is LONG-TERM GROWTH OF CAPITAL. This
means we seek investments whose price will increase over several years. While we
make every effort to achieve this objective, we can't guarantee success.
- -----------------------------------
S&P SMALLCAP INDEX To achieve this objective, we
We attempt to duplicate the attempt to duplicate the
performance of the Standard & performance of the S&P SmallCap
Poor's Small Capitalization Stock Index. Normally we do this by
Index (S&P SmallCap Index), a investing in all or a
market-weighted index which representative sample of the stocks
consists of 600 smaller in the S&P SmallCap Index. Thus,
capitalization U.S. stocks. The the Portfolio is not "managed" in
market capitalization of the the traditional sense of using
companies that make up the S&P market and economic analyses to
SmallCap Index may change from time select stocks.
to time--as of February 28, 2000,
the S&P SmallCap stocks had market The Portfolio may also hold cash or
capitalizations of between $33 cash equivalents, in which case its
million and $7.8 billion. They are performance will differ from the
selected for market size, liquidity Index's.
and industry group. The S&P
SmallCap Index has above-average
risk and may fluctuate more than
the S&P 500.
- -----------------------------------
We attempt to minimize these differences by using stock index FUTURES CONTRACTS,
OPTIONS on stock indexes and options on stock index futures contracts. The
Portfolio will not use these derivative securities for speculative purposes or
to hedge against a decline in the value of the Portfolio's holdings.
We may also use alternative investment strategies to try to improve the
Portfolio's returns or for short-term cash management. There is no guarantee
that these strategies will work, that the instruments necessary to implement
these strategies will be available or that the Portfolio will not lose money.
We may: purchase and sell OPTIONS on equity securities and stock indexes;
purchase and sell stock index FUTURES CONTRACTS and options on those futures
contracts; and purchase securities on a WHEN-ISSUED or DELAYED DELIVERY basis.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
For more information about these restrictions, see the SAI.
- --------------------------------------------------------------------------------
A STOCK'S INCLUSION IN THE S&P SMALLCAP INDEX IN NO WAY IMPLIES S&P'S OPINION AS
TO THE STOCK'S ATTRACTIVENESS AS AN INVESTMENT. THE PORTFOLIO IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY S&P. S&P MAKES NO REPRESENTATIONS REGARDING THE
ADVISABILITY OF INVESTING IN THE PORTFOLIO. "STANDARD & POOR'S," "STANDARD &
POOR'S SMALL CAPITALIZATION STOCK INDEX" AND "STANDARD & POOR'S SMALLCAP 600"
ARE TRADEMARKS OF MCGRAW HILL.
- --------------------------------------------------------------------------------
36
<PAGE>
- --------------------------------------------------------------------------------
STOCK INDEX PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is to achieve INVESTMENT RESULTS THAT
GENERALLY CORRESPOND TO THE PERFORMANCE OF PUBLICLY-TRADED COMMON STOCKS. To
achieve this goal, we attempt to duplicate the performance of the S&P 500 Index.
While we make every effort to achieve this objective, we can't guarantee
success.
- -----------------------------------
S&P 500 INDEX Under normal conditions, we attempt
We attempt to duplicate the to invest in all 500 stocks
performance of the S&P 500 Index represented in the S&P 500 Index in
500 Index), a market-weighted index proportion to their weighting in
which represents more than 70% of (the 500 Index. We will attempt to
the market value of all remain as fully invested in the S&P
publicly-traded common stocks. 500 stocks as possible in light of
- ----------------------------------- cash flow into and out of the
Portfolio.
To manage investments and redemptions in the Portfolio, we may temporarily hold
cash or invest in high-quality money market instruments. To the extent we do so,
the Portfolio's performance will differ from that of the 500 Index. We attempt
to minimize differences in the performance of the Portfolio and the 500 Index by
using stock index FUTURES CONTRACTS, options on stock indexes and OPTIONS on
stock index futures contracts. The Portfolio will not use these derivative
securities for speculative purposes or to hedge against a decline in the value
of the Portfolio's holdings.
We may also use alternative investment strategies to try to improve the
Portfolio's returns or for short-term cash management. There is no guarantee
that these strategies will work, that the instruments necessary to implement
these strategies will be available or that the Portfolio will not lose money.
We may: purchase and sell OPTIONS on stock indexes; purchase and sell stock
index FUTURES CONTRACTS and options on those futures contracts.
The Portfolio may also enter into SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
- --------------------------------------------------------------------------------
A STOCK'S INCLUSION IN THE S&P 500 INDEX IN NO WAY IMPLIES S&P'S OPINION AS TO
THE STOCK'S ATTRACTIVENESS AS AN INVESTMENT. THE PORTFOLIO IS NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY S&P. S&P MAKES NO REPRESENTATIONS REGARDING THE
ADVISABILITY OF INVESTING IN THE PORTFOLIO. "STANDARD & POOR'S," "STANDARD &
POOR'S 500" AND "500" ARE TRADEMARKS OF MCGRAW HILL.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20/20 FOCUS PORTFOLIO
- --------------------------------------------------------------------------------
The investment objective of this Portfolio is LONG-TERM GROWTH OF CAPITAL. This
means we seek investments whose price will increase over several years. While we
make every effort to achieve this objective, we can't guarantee success.
- -----------------------------------
VALUE & GROWTH APPROACHES To achieve this objective, the
Our strategy is to combine the Portfolio will invest primarily in
efforts of two outstanding up to 40 equity securities of U.S.
portfolio managers, each with a companies that are selected by the
different investment style, and to Portfolio's two portfolio managers
invest in only the favorite stock as having strong capital
picks of each manager. One manager appreciation potential. Each
will invest using a value approach, portfolio manager will manage his
which means he will attempt to own portion of the Portfolio's
identify strong companies selling assets, which will usually include
at a discount from their perceived a maximum of 20 securities. Because
true value. The other manager will the Portfolio will be investing in
use a growth approach, which means 40 or fewer securities, an
he seeks companies that exhibit investment in this Portfolio may be
higher-than-average earnings riskier than an investment in a
growth. more widely diversified fund. We
- ----------------------------------- intend to be fully invested,
holding less than 5% in cash, under
normal market conditions.
37
<PAGE>
Normally, the Portfolio will invest at least 80% of its total assets in common
stocks and equity-related securities such as preferred stocks, convertible
stocks, and equity interests in partnerships, joint ventures and other
noncorporate entities. We may also invest in warrants and similar rights that
can be exercised for equity securities, but will not invest more than 5% of the
Portfolio's total assets in unattached warrants or rights. The Portfolio may
invest up to 20% of its total assets in cash, obligations issued or guaranteed
by the U.S. government, its agencies and instrumentalities and derivatives. Up
to 20% of the Portfolio's total assets may be invested in foreign securities.
For these purposes, we do not consider American Depositary Receipts (ADRS) as
foreign securities.
The Portfolio may also invest in REAL ESTATE INVESTMENT TRUSTS (REITs).
We may invest in high quality money market instruments. In response to adverse
market conditions or when restructuring the Portfolio, we may invest up to 100%
of the Portfolio's assets in money market instruments. Investing heavily in
these securities limits our ability to achieve our investment objective, but can
help to preserve the Portfolio's assets when the markets are unstable.
We may also use alternative investment strategies--including DERIVATIVES--to try
to improve the Portfolio's returns, protect its assets or for short-term cash
management.
We may: purchase and sell OPTIONS on financial indexes that are traded on U.S or
foreign securities exchanges or in the over-the-counter market; purchase and
sell FUTURES CONTRACTS on stock indexes and foreign currencies and options on
those contracts; and purchase or sell securities on a WHEN-ISSUED or DELAYED
DELIVERY basis.
The Portfolio may also enter into SHORT SALES. No more than 25% of the
Portfolio's net assets may be used as collateral or segregated for purposes of
securing a short sale obligation. We may also use up to 25% of the Portfolio's
net assets for SHORT SALES AGAINST-THE-BOX.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
- --------------------------------------------------------------------------------
ZERO COUPON BOND PORTFOLIOS--2000 AND 2005
- --------------------------------------------------------------------------------
The investment objective of these two Portfolios is THE HIGHEST PREDICTABLE
COMPOUND INVESTMENT FOR A SPECIFIC PERIOD OF TIME, CONSISTENT WITH THE SAFETY OF
INVESTED CAPITAL. We seek to achieve this objective by investing primarily in
debt securities of the U.S. Treasury and corporations that have been issued
without interest coupons or that have been stripped of their interest coupons,
or have interest coupons that have been stripped from the debt obligation
(stripped securities). The two Portfolios differ only in their liquidation dates
which are November 15, 2000 for the Zero Coupon Bond Portfolio 2000 and November
15, 2005 for the Zero Coupon Bond Portfolio 2005. On the liquidation date of a
Portfolio, all of the securities held by the Portfolio will be sold and all
outstanding shares of the Portfolio will be redeemed. Please refer to your
variable contract prospectus for information on your reallocation options and
the Portfolio to which your investment will be transferred if you do not provide
other instructions. While we will try to achieve our objective, we can't
guarantee success.
- -----------------------------------
ACTIVE MANAGEMENT In pursuing their objective, each
Each Portfolio seeks a higher yield Portfolio invests only in debt
than would be realized by just securities that do not involve
holding the Portfolio's initial substantial risk of loss of capital
investments. We actively manage the through default and that can be
Portfolios to take advantage of readily sold. Although these
trading opportunities that may securities are not high-risk, their
arise from supply and demand value does vary because of changes
dynamics or perceived differences in interest rates.
in the quality or liquidity of
securities. In order to lessen the impact of
interest rate changes, we will keep
Of course, by pursuing this the duration of each Portfolio
strategy, the Portfolios have the within one year of the Portfolio's
risk that they will not realize the liquidation date. (Duration is a
yield of their initial investments. measure of a "length" of a bond, or
- ----------------------------------- in this case, a portfolio of bonds.
It is a mathematical calculation
that takes into account the
maturities of the bonds, coupon
rates and prevailing interest
rates.)
Generally, we try to invest at least 70% of each Portfolio's total assets in
stripped securities that are obligations of the U.S. government and which mature
within two years of the Portfolio's liquidation date. Up to 30% of the
38
<PAGE>
Portfolio's total assets may be invested in either stripped securities of
corporations or interest bearing corporate debt securities rated no lower than
Baa by a major rating service (or, if unrated, of comparable quality in our
judgment).
Under normal conditions, no more than 20% of a Portfolio's total assets may be
invested in interest-bearing securities. However, as the liquidation date of a
Portfolio draws near, we may invest more than 20% in interest bearing securities
as a defensive measure.
The Portfolio may also enter into REPURCHASE AGREEMENTS. The Portfolio may
participate with certain other Portfolios of the Fund in a JOINT REPURCHASE
ACCOUNT under an order obtained from the SEC.
Under normal circumstances, each Portfolio may invest in money market
instruments for cash management purposes. As a Portfolio's liquidation date
nears, we may increase our investment in money market instruments. In addition,
in response to adverse market conditions, we may temporarily invest up to 100%
of the Portfolio's assets in money market instruments. Investing heavily in
these securities limits our ability to achieve our investment objective, but can
help to preserve the Portfolio's assets when the markets are unstable.
* * *
The Statement of Additional Information--which we refer to as the SAI--contains
additional information about the Portfolios. To obtain a copy, see the back
cover page of this prospectus.
* * *
OTHER INVESTMENTS AND STRATEGIES
As indicated in the description of the Portfolios above, we may use the
following investment strategies to increase a Portfolio's return or protect its
assets if market conditions warrant.
ADRS are certificates representing the right to receive foreign securities that
have been deposited with a U.S. bank or a foreign branch of a U.S. bank.
CONVERTIBLE DEBT AND CONVERTIBLE PREFERRED STOCK--A convertible security is a
security--for example, a bond or preferred stock--that may be converted into
common stock of the same or different issuer. The convertible security sets the
price, quantity of shares and time period in which it may be so converted.
Convertible stock is senior to a company's common stock but is usually
subordinated to debt obligations of the company. Convertible securities provide
a steady stream of income which is generally at a higher rate than the income on
the company's common stock but lower than the rate on the company's debt
obligations. At the same time, they offer--through their conversion
mechanism--the chance to participate in the capital appreciation of the
underlying common stock. The price of a convertible security tends to increase
and decrease with the market value of the underlying common stock.
DERIVATIVES--A derivative is an investment instrument that derives its price,
performance, value, or cash flow from one or more underlying securities or other
interests. Derivatives involve costs and can be volatile. With derivatives, the
investment adviser tries to predict whether the underlying investment--a
security, market index, currency, interest rate or some other benchmark--will go
up or down at some future date. We may use derivatives to try to reduce risk or
to increase return consistent with a Portfolio's overall investment objective.
The investment adviser will consider other factors (such as cost) in deciding
whether to employ any particular strategy, or use any particular instrument. Any
derivatives we use may not fully offset a Portfolio's underlying positions and
this could result in losses to the Portfolio that would not otherwise have
occurred.
DOLLAR ROLLS--Dollar rolls involve the sale by the Portfolio of a security for
delivery in the current month with a promise to repurchase from the buyer a
substantially similar--but not necessarily the same--security at a set price and
date in the future. During the "roll period," the Portfolio does not receive any
principal or interest on the security. Instead, it is compensated by the
difference between the current sales price and the price of the future purchase,
as well as any interest earned on the cash proceeds from the original sale.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--A foreign currency forward contract
is an obligation to buy or sell a given currency on a future date at a set
price. When a Portfolio enters into a contract for the purchase or
39
<PAGE>
sale of a security denominated in a foreign currency, or when a Portfolio
anticipates the receipt in a foreign currency of dividends or interest payments
on a security which it holds, the Portfolio may desire to "lock-in" the U.S.
dollar price of the security or the U.S. dollar equivalent of such dividend or
interest payment, as the case may be. By entering into a forward contract for a
fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received. At the maturity of a forward contract, a Portfolio may
either sell the security and make delivery of the foreign currency or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency.
FUTURES--A futures contract is an agreement to buy or sell a set quantity of an
underlying product at a future date, or to make or receive a cash payment based
on the value of a securities index. When a futures contract is entered into,
each party deposits with a futures commission merchant (or in a segregated
account) approximately 5% of the contract amount. This is known as the "initial
margin." Every day during the futures contract, either the buyer or the futures
commission merchant will make payments of "variation margin." In other words, if
the value of the underlying security, index or interest rate increases, then the
buyer will have to add to the margin account so that the account balance equals
approximately 5% of the value of the contract on that day. The next day, the
value of the underlying security, index or interest rate may decrease, in which
case the borrower would receive money from the account equal to the amount by
which the account balance exceeds 5% of the value of the contract on that day. A
stock index futures contract is an agreement between the buyer and the seller of
the contract to transfer an amount of cash equal to the daily variation margin
of the contract. No physical delivery of the underlying stocks in the index is
made.
INTEREST RATE SWAPS--In an interest rate swap, the Portfolio and another party
agree to exchange interest payments. For example, the Portfolio may wish to
exchange a floating rate of interest for a fixed rate. We would enter into that
type of a swap if we think interest rates are going down.
JOINT REPURCHASE ACCOUNT--In a joint repurchase transaction, uninvested cash
balances of various Portfolios are added together and invested in one or more
repurchase agreements. Each of the participating Portfolios receives a portion
of the income earned in the joint account based on the percentage of its
investment.
LOAN PARTICIPATIONS--In loan participations, the Portfolio will have a
contractual relationship with the lender but not with the borrower. This means
the Portfolio will only have rights to principal and interest received by the
lender. It will not be able to enforce compliance by the borrower with the terms
of the loan and may not have a right to any collateral securing the loan. If the
lender becomes insolvent, the Portfolio may be treated as a general creditor and
will not benefit from any set-off between the lender and the borrower.
MORTGAGE-RELATED SECURITIES are usually pass-through instruments that pay
investors a share of all interest and principal payments from an underlying pool
of fixed or adjustable rate mortgages. We may invest in mortgage-related
securities issued and guaranteed by the U.S. government or its agencies like the
Federal National Mortgage Association (Fannie Maes) and the Government National
Mortgage Association (Ginnie Maes) and debt securities issued (but not
guaranteed) by the Federal Home Loan Mortgage Company (Freddie Macs). Private
mortgage-related securities that are not guaranteed by U.S. governmental
entities generally have one or more types of credit enhancement to ensure timely
receipt of payments and to protect against default.
Mortgage-related securities include collateralized mortgage obligations,
multi-class pass through securities and stripped mortgage-backed securities. A
collateralized mortgage-backed obligation (CMO) is a security backed by an
underlying portfolio of mortgages or mortgage-backed securities that may be
issued or guaranteed by entities such as banks, U.S. governmental entities or
broker-dealers. A multi-class pass-through security is an equity interest in a
trust composed of underlying mortgage assets. Payments of principal and interest
on the mortgage assets and any reinvestment income provide the money to pay debt
service on the CMO or to make scheduled distributions on the multi-class
pass-through security. A stripped mortgage-backed security (MBS strip) may be
issued by U.S. governmental entities or by private institutions. MBS strips take
the pieces of a debt security (principal and interest) and break them apart. The
resulting securities may be sold separately and may perform differently. MBS
strips are highly sensitive to changes in prepayment and interest rates.
40
<PAGE>
OPTIONS--A call option on stock is a short-term contract that gives the option
purchaser or "holder" the right to acquire a particular equity security for a
specified price at any time during a specified period. For this right, the
option purchaser pays the option seller a certain amount of money or "premium"
which is set before the option contract is entered into. The seller or "writer"
of the option is obligated to deliver the particular security if the option
purchaser exercises the option. A put option on stock is a similar contract. In
a put option, the option purchaser has the right to sell a particular security
to the option seller for a specified price at any time during a specified
period. In exchange for this right, the option purchaser pays the option seller
a premium. Options on debt securities are similar to stock options except that
the option holder has the right to acquire or sell a debt security rather than
an equity security. Options on stock indexes are similar to options on stocks,
except that instead of giving the option holder the right to receive or sell a
stock, it gives the holder the right to receive an amount of cash if the closing
level of the stock index is greater than (in the case of a call) or less than
(in the case of a put) the exercise price of the option. The amount of cash the
holder will receive is determined by multiplying the difference between the
index's closing price and the option's exercise price, expressed in dollars, by
a specified "multiplier". Unlike stock options, stock index options are always
settled in cash, and gain or loss depends on price movements in the stock market
generally (or a particular market segment, depending on the index) rather than
the price movement of an individual stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)--A REIT is a company that manages a
portfolio of real estate to earn profits for its shareholders. Some REITs
acquire equity interests in real estate and then receive income from rents and
capital gains when the buildings are sold. Other REITs lend money to real estate
developers and receive interest income from the mortgages. Some REITs invest in
both types of interests.
REPURCHASE AGREEMENTS--In a repurchase transaction, the Portfolio agrees to
purchase certain securities and the seller agrees to repurchase the same
securities at an agreed upon price on a specified date. This creates a fixed
return for the Portfolio.
REVERSE REPURCHASE AGREEMENTS--In a reverse repurchase transaction, the
Portfolio sells a security it owns and agrees to buy it back at a set price and
date. During the period the security is held by the other party, the Portfolio
may continue to receive principal and interest payments on the security.
SHORT SALES--In a short sale, we sell a security we do not own to take advantage
of an anticipated decline in the stock's price. The Portfolio borrows the stock
for delivery and if it can buy the stock later at a lower price, a profit
results.
SHORT SALES AGAINST-THE-BOX--A short sale against-the-box means the Portfolio
owns securities identical to those sold short.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES--With when-issued or delayed
delivery securities, the delivery and payment can take place a month or more
after the date of the transaction. A Portfolio will make commitments for
when-issued transactions only with the intention of actually acquiring the
securities. A Portfolio's custodian will maintain in a segregated account,
liquid assets having a value equal to or greater than such commitments. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
security, incur a gain or loss.
* * *
Except for the Money Market Portfolio, Zero Coupon Bond 2000 Portfolio and the
Zero Coupon Bond 2005 Portfolios, each Portfolio also follows certain policies
when it borrows money (a Portfolio may borrow up to 5% of the value of its total
assets); lends its securities; and holds illiquid securities (a Portfolio may
hold up to 15% of its net assets in illiquid securities, including securities
with legal or contractual restrictions on resale, those without a readily
available market and repurchase agreements with maturities longer than seven
days). If the Portfolio were to exceed this limit, the investment adviser would
take prompt action to reduce a Portfolio's holdings in illiquid securities to no
more than 15% of its net assets, as required by applicable law. A Portfolio is
subject to certain investment restrictions that are fundamental policies, which
means they cannot be changed without shareholder approval. For more information
about these restrictions, see the SAI.
The Money Market Portfolio also follows certain policies when it borrows money
(the Portfolio may borrow up to 5% of the value of its total assets) and holds
illiquid securities (the Portfolio may hold up to 10% of its net assets in
41
<PAGE>
illiquid securities, including securities with legal or contractual restrictions
on resale, those without a readily available market and repurchase agreements
with maturities longer than seven days). If the Portfolio were to exceed this
limit, the investment adviser would take prompt action to reduce the Portfolio's
holdings in illiquid securities to no more than 10% of its net assets, as
required by applicable law. The Portfolio is subject to certain investment
restrictions that are fundamental policies, which means they cannot be changed
without shareholder approval. For more information about these restrictions, see
the SAI.
We will consider other factors (such as cost) in deciding whether to employ any
particular strategy or use any particular instrument. For more information about
these strategies, see the SAI, "Investment Objectives and Policies of the
Portfolios."
42
<PAGE>
<TABLE>
INVESTMENT RISKS
AS NOTED, ALL INVESTMENTS INVOLVE RISK, AND INVESTING IN THE PORTFOLIOS IS NO EXCEPTION. THIS CHART OUTLINES THE KEY RISKS AND
POTENTIAL REWARDS OF THE PRINCIPAL INVESTMENTS AND CERTAIN OTHER INVESTMENTS EACH PORTFOLIO MAY MAKE. SEE ALSO, "INVESTMENT
OBJECTIVES AND POLICIES OF THE PORTFOLIOS" IN THE SAI.
<S> <C> <C> <C>
===================================================================================================================================
INVESTMENT PORTFOLIO &
TYPE % OF ASSETS RISKS POTENTIAL REWARDS
===================================================================================================================================
MONEY MARKET ALL PORTFOLIOS o Limits potential for o May preserve the Portfolio's
INSTRUMENTS (% VARIES) capital appreciation assets
o See credit risk and market risk
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY AND EQUITY SECURITIES: o Individual stocks could o Historically, stocks have
EQUITY-RELATED ALL PORTFOLIOS EXCEPT GOVERNMENT lose value outperformed other
SECURITIES INCOME, MONEY MARKET, ZERO COUPON investments over the long
2000 & 2005 o The equity markets could go down, term
(% VARIES) resulting in a decline in value
of the Portfolio's investments o Generally, economic growth
EQUITY-RELATED SECURITIES: means higher corporate
CONSERVATIVE BALANCED, DIVERSIFIED o Changes in economic or political profits, which lead to an
BOND, DIVERSIFIED CONSERVATIVE conditions, both domestic and increase in stock prices,
GROWTH, EQUITY, EQUITY INCOME, international, may result in a known as capital
FLEXIBLE MANAGED, GLOBAL, HIGH decline in value of the appreciation
YIELD BOND, NATURAL RESOURCES, Portfolio's investments
PRUDENTIAL JENNISON, SMALL
CAPITALIZATION STOCK, 20/20 FOCUS
(% VARIES)
- ------------------------------------------------------------------------------------------------------------------------------------
FIXED INCOME ALL PORTFOLIOS EXCEPT SMALL o The Portfolio's holdings, share o Regular interest income
OBLIGATIONS CAPITALIZATION STOCK, STOCK INDEX price and total return may
(% VARIES) fluctuate in response to bond o High-quality debt
market movements obligations are generally
more secure than stocks
o Credit risk--the risk that the since companies must pay
default of an issuer would their debts before they pay
leave the Portfolio with unpaid dividends
interest and/or principal. The
lower a bond's quality, the o Most bonds will rise in
higher its potential volatility value when interest rates
fall
o Market risk--the risk that the
market value of an investment o Bonds have generally
may move up or down, sometimes outperformed money market
rapidly or unpredictably. instruments over the long
Market risk may affect an term, with less risk than
industry, a sector, or the stocks
market as a whole
o Investment grade bonds have
o Interest rate risk--the risk a lower risk of default than
that the value of most bonds junk bonds
will fall when interest rates
rise. The longer a bond's
maturity and the lower its
credit quality, the more its
value typically falls. It can
lead to price volatility
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===================================================================================================================================
INVESTMENT PORTFOLIO &
TYPE % OF ASSETS RISKS POTENTIAL REWARDS
===================================================================================================================================
HIGH-YIELD DEBT CONSERVATIVE BALANCED, DIVERSIFIED o Higher market risk o May offer higher interest
SECURITIES BOND, DIVERSIFIED CONSERVATIVE income than higher quality
GROWTH, EQUITY, EQUITY INCOME, o Higher credit risk debt securities
(JUNK BONDS) FLEXIBLE MANAGED, HIGH YIELD BOND,
NATURAL RESOURCES o May be more illiquid (harder to
value and sell), in which case
(% VARIES) valuation would depend more on
the investment adviser's
judgment than is generally the
case with higher rated
securities
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN CONSERVATIVE BALANCED, DIVERSIFIED o Foreign markets, economies and o Investors can participate in
SECURITIES BOND, DIVERSIFIED CONSERVATIVE political systems may not be as foreign markets and
GROWTH, EQUITY, EQUITY INCOME, stable as in the U.S. companies operating in those
FLEXIBLE MANAGED, GLOBAL, markets
GOVERNMENT INCOME, HIGH YIELD BOND,o Currency risk--changing values
MONEY MARKET, NATURAL RESOURCES, of foreign currencies can cause o May profit from changing
PRUDENTIAL JENNISON, 20/20 FOCUS losses values of foreign currencies
(% VARIES) o May be less liquid than U.S. o Opportunities for
stocks and bonds diversification
OPTIONS ON FOREIGN CURRENCIES:
CONSERVATIVE BALANCED, DIVERSIFIED o Differences in foreign laws,
CONSERVATIVE GROWTH, EQUITY, EQUITY accounting standards, public
INCOME, FLEXIBLE MANAGED, GLOBAL, information, custody and
NATURAL RESOURCES, PRUDENTIAL settlement practices provide
JENNISON, 20/20 FOCUS less reliable information on
foreign investments and involve
(% VARIES) more risk
FUTURES ON FOREIGN CURRENCIES:
CONSERVATIVE BALANCED, DIVERSIFIED
CONSERVATIVE GROWTH, EQUITY, EQUITY
INCOME, FLEXIBLE MANAGED, GLOBAL,
PRUDENTIAL JENNISON, NATURAL
RESOURCES, 20/20 FOCUS
(% VARIES)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===================================================================================================================================
INVESTMENT PORTFOLIO &
TYPE % OF ASSETS RISKS POTENTIAL REWARDS
===================================================================================================================================
DERIVATIVES OPTIONS ON EQUITY SECURITIES: o Derivatives, such as futures, o A Portfolio could make money
CONSERVATIVE BALANCED, DIVERSIFIED options and foreign currency and protect against losses
CONSERVATIVE GROWTH, EQUITY, EQUITY forward contracts that are used if the investment analysis
INCOME, FLEXIBLE MANAGED, GLOBAL, for hedging purposes, may not proves correct
NATURAL RESOURCES, PRUDENTIAL fully offset the underlying
JENNISON, SMALL CAPITALIZATION positions and this could result o Derivatives that involve
STOCK, STOCK INDEX, 20/20 FOCUS in losses to the Portfolio that leverage could generate
would not have otherwise substantial gains at low
(% VARIES) occurred cost
OPTIONS ON DEBT SECURITIES: o Derivatives used for risk o One way to manage a
CONSERVATIVE BALANCED, DIVERSIFIED management may not have the Portfolio's risk/return
BOND, DIVERSIFIED CONSERVATIVE intended effects and may result balance is to lock in the
GROWTH, FLEXIBLE MANAGED, in losses or missed value of an investment ahead
GOVERNMENT INCOME, HIGH YIELD BOND opportunities of time
(% VARIES) o The other party to a
derivatives contract could
OPTIONS ON STOCK INDEXES: default
CONSERVATIVE BALANCED, DIVERSIFIED
CONSERVATIVE GROWTH, EQUITY, EQUITYo Derivatives that involve
INCOME, FLEXIBLE MANAGED, GLOBAL, leverage could magnify losses
NATURAL RESOURCES, PRUDENTIAL
JENNISON, SMALL CAPITALIZATION o Certain types of derivatives
STOCK, STOCK INDEX, 20/20 FOCUS involve costs to the Portfolio
that can reduce returns
(% VARIES)
FUTURES CONTRACTS ON STOCK INDEXES:
CONSERVATIVE BALANCED, DIVERSIFIED
CONSERVATIVE GROWTH, EQUITY, EQUITY
INCOME, FLEXIBLE MANAGED, GLOBAL,
NATURAL RESOURCES, PRUDENTIAL
JENNISON, SMALL CAPITALIZATION
STOCK, STOCK INDEX, 20/20 FOCUS
(% VARIES)
FUTURES ON DEBT SECURITIES AND
INTEREST RATE INDEXES:
CONSERVATIVE BALANCED, DIVERSIFIED
BOND, DIVERSIFIED CONSERVATIVE
GROWTH, FLEXIBLE MANAGED, GLOBAL,
GOVERNMENT INCOME, HIGH YIELD BOND
(% VARIES)
INTEREST RATE SWAPS:
CONSERVATIVE BALANCED, DIVERSIFIED
BOND, DIVERSIFIED CONSERVATIVE
GROWTH, FLEXIBLE MANAGED,
GOVERNMENT INCOME, HIGH YIELD BOND
(% VARIES)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===================================================================================================================================
INVESTMENT PORTFOLIO &
TYPE % OF ASSETS RISKS POTENTIAL REWARDS
===================================================================================================================================
MORTGAGE-RELATED DIVERSIFIED BOND, DIVERSIFIED o Prepayment risk--the risk that o Regular interest income
SECURITIES CONSERVATIVE GROWTH, GOVERNMENT the underlying mortgage or
INCOME, MONEY MARKET, PRUDENTIAL other debt may be prepaid o Pass-through instruments
JENNISON partially or completely, provide greater
generally during periods of diversification ownership of
(% VARIES) falling interest rates, which loans
could adversely affect yield to
maturity and could require the o Certain mortgage-backed
yielding securities securities may benefit from
security interest in real
o Credit risk--the risk that the estate collateral
underlying mortgages will not
be paid by debtors or by credit
insurers or benefit from
security interest in real
guarantors of such instruments.
Some mortgage securities are
unsecured or secured by
lower-rated issuers or
guarantors and thus may involve
greater risk
o See market risk and interest
rate risk
- ------------------------------------------------------------------------------------------------------------------------------------
ZERO COUPON BONDS DIVERSIFIED CONSERVATIVE GROWTH, o Typically subject to greater o Value rises faster when
ZERO COUPON PORTFOLIOS 2000 & volatility and less interest rates fall
2005 liquidity in adverse markets
than other debt securities
(% VARIES)
o Credit risk
o Market risk
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT EQUITY INCOME, FLEXIBLE MANAGED, o Performance depends on the o Real estate holdings can
TRUSTS 20/20 FOCUS strength of real estate generate good returns from
markets, REIT management and rents, rising market values,
(REITS) (% VARIES) property management which can etc.
be affected by many factors,
including national and regional o Greater diversification than
economic conditions direct ownership
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID SECURITIES ALL PORTFOLIOS EXCEPT MONEY o May be difficult to value o May offer a more attractive
MARKET (UP TO 15% OF NET ASSETS) precisely yield or potential for
growth than more widely
MONEY MARKET PORTFOLIO (10% OF o May be difficult to sell at the traded securities
ITS NET ASSETS) time or price desired
- ------------------------------------------------------------------------------------------------------------------------------------
LOAN PARTICIPATIONS CONSERVATIVE BALANCED, DIVERSIFIED o Credit risk o May offer right to receive
BOND, DIVERSIFIED CONSERVATIVE principal, interest and fees
GROWTH, FLEXIBLE MANAGED, HIGH o Market risk without as much risk as
YIELD BOND, MONEY MARKET lender
o A Portfolio has no rights
(% VARIES) against the borrower in the
event the borrower does not
repay the loan
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
===================================================================================================================================
INVESTMENT PORTFOLIO &
TYPE % OF ASSETS RISKS POTENTIAL REWARDS
===================================================================================================================================
WHEN-ISSUED AND DELAYED WHEN-ISSUED AND DELAYED o Use of such instruments and o Use of instruments may
DELIVERY SECURITIES, DELIVERY SECURITIES: strategies may magnify magnify investment gains
REVERSE REPURCHASE CONSERVATIVE BALANCED, underlying underlying
AGREEMENTS, DOLLAR DIVERSIFIED CONSERVATIVE GROWTH, investment losses
ROLLS AND SHORT SALES DIVERSIFIED BOND, EQUITY, EQUITY
INCOME, FLEXIBLE MANAGED, o Investment costs may exceed
GLOBAL, GOVERNMENT INCOME, HIGH potential underlying investment
YIELD BOND, MONEY MARKET, gains
NATURAL RESOURCES, PRUDENTIAL
JENNISON, SMALL CAPITALIZATION
STOCK, 20/20 FOCUS
(% VARIES)
REVERSE REPURCHASE AGREEMENTS:
CONSERVATIVE BALANCED, DIVERSIFIED
BOND, DIVERSIFIED CONSERVATIVE
GROWTH, FLEXIBLE MANAGED,
GOVERNMENT INCOME, HIGH YIELD BOND,
MONEY MARKET AND THE MONEY MARKET
PORTION OF ANY PORTFOLIO
(% VARIES)
DOLLAR ROLLS:
CONSERVATIVE BALANCED, DIVERSIFIED
BOND, DIVERSIFIED CONSERVATIVE
GROWTH, FLEXIBLE MANAGED,
GOVERNMENT INCOME, HIGH YIELD BOND
(% VARIES)
SHORT SALES:
CONSERVATIVE BALANCED, DIVERSIFIED
BOND, DIVERSIFIED CONSERVATIVE
GROWTH, FLEXIBLE MANAGED,
GOVERNMENT INCOME, HIGH YIELD BOND,
20/20 FOCUS
(% VARIES)
SHORT SALES AGAINST THE BOX:
ALL PORTFOLIOS EXCEPT THE MONEY
MARKET AND ZERO COUPON BOND
PORTFOLIOS
(% VARIES)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
HOW THE FUND IS MANAGED
BOARD OF DIRECTORS
The Board of Directors oversees the actions of the Investment Adviser, the
sub-advisers and the Distributor and decides on general policies. The Board also
oversees the Fund's officers who conduct and supervise the daily business
operations of the Fund.
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Prudential serves as the overall investment adviser for the Fund. Founded in
1875, it is responsible for the management of the Fund and provides investment
advice and related services to each Portfolio. As of December 31, 1999,
Prudential had total assets under management of approximately $364 billion.
Prudential is located at 751 Broad Street, Newark, New Jersey 07102-3777.
Prudential is currently considering reorganizing itself into a publicly traded
stock company through a process known as "demutualization". On February 10,
1998, the company's Board of Directors authorized management to take preliminary
steps necessary to allow the company to demutualize. On July 1, 1998,
legislation was enacted in New Jersey that would permit this conversion to occur
and that specified the process for conversion. Demutualization is a complex
process involving development of a plan of reorganization, adoption of a plan by
the company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval. Prudential is working toward completing
this process in 2001 and currently expects adoption by the Board of Directors to
take place in the latter part of 2000. However, there is no certainty that the
demutualization will be completed in this timeframe or that the necessary
approvals will be obtained. Also it is possible that after careful review,
Prudential could decide not to demutualize or could decide to delay its plans.
The following chart lists the total investment advisory fees paid in 1999 as a
percentage of the Portfolio's average net assets.
- --------------------------------------------------------------------------------
TOTAL ADVISORY FEES AS % OF
PORTFOLIO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Conservative Balanced 0.55
Diversified Bond 0.40
Diversified Conservative Growth 0.75
Equity 0.45
Equity Income 0.40
Flexible Managed 0.60
Global 0.75
Government Income 0.40
High Yield Bond 0.55
Money Market 0.40
Natural Resources 0.45
Prudential Jennison 0.60
Small Capitalization Stock 0.40
Stock Index 0.35
20/20 Focus 0.75
Zero Coupon Bond 2000 0.40
Zero Coupon Bond 2005 0.40
- --------------------------------------------------------------------------------
INVESTMENT SUB-ADVISERS
- --------------------------------------------------------------------------------
For each Portfolio, a sub-adviser provides day-to-day investment management.
Prudential pays the sub-adviser out of the fee Prudential receives from the
Fund.
Prudential Investment Corporation (PIC), a wholly owned subsidiary of
Prudential, provides substantially all of the investment advisory services for
the Portfolios, except the services provided by the sub-advisers listed below
and has served as an investment adviser to investment companies since 1984.
PIC's address is 751 Broad Street, Newark, New Jersey 07102.
48
<PAGE>
Jennison Associates LLC (Jennison), a wholly owned subsidiary of Prudential,
provides substantially all of the investment advisory services for the
Prudential Jennison Portfolio and the growth equity portion of the assets for
the 20/20 Focus Portfolio. Jennison's address is 466 Lexington Avenue, New York,
New York 10017. As of December 31, 1999, Jennison had over $59 billion in assets
under management for institutional and mutual fund clients.
For the Diversified Conservative Growth Portfolio, Prudential serves as overall
investment manager and is responsible for selecting sub-advisers to handle the
day-to-day investment management and monitoring their performance. With Board
approval, Prudential is permitted to change or add sub-advisers or enter into a
new agreement with a current sub-adviser without shareholder approval. The Fund
will notify shareholders of any new sub-adviser. Listed below are the current
sub-advisers for the Diversified Conservative Growth Portfolio:
JENNISON. (See above.)
PRUDENTIAL INVESTMENT CORPORATION. (See above.)
FRANKLIN ADVISERS, INC. (Franklin) is located at 777 Mariners Island
Blvd., San Mateo, California 94404 and is a wholly owned subsidiary of
Franklin Resources, Inc. As of December 31, 1999, Franklin and its
affiliates managed over $235 billion in assets. THE DREYFUS CORPORATION
(Dreyfus) is located at 200 Park Avenue, New York, New York, 10166 and
is a subsidiary of Mellon Bank corporation. As of December 31, 1999,
Dreyfus managed over $129 billion in assets. PACIFIC INVESTMENT
MANAGEMENT COMPANY (PIMCO) is located at 840 Newport Center Drive,
Newport Beach, California 92660 and is a subsidiary of PIMCO Advisors
L.P. As of December 31, 1999, PIMCO managed over $186 million in
assets.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
- --------------------------------------------------------------------------------
Prudential Investments' Fixed Income Group, which provides portfolio management
services to the Conservative Balanced, Diversified Bond, Diversified
Conservative Growth, Flexible Managed, Government Income, High Yield Bond, Money
Market, Zero Coupon Bond 2000 and Zero Coupon Bond 2005 Portfolios, manages more
than $127 billion for Prudential's retail investors, institutional investors,
and policyholders. Senior Managing Directors James J. Sullivan and Jack W.
Gaston head the Group, which is organized into teams specializing in different
market sectors. Top-down, broad investment decisions are made by the Fixed
Income Policy Committee, whereas bottom-up security selection is made by the
sector teams.
Mr. Sullivan has overall responsibility for overseeing portfolio management and
credit research. Prior to joining Prudential Investments in 1998, he was a
Managing Director in Prudential's Capital Management Group, where he oversaw
portfolio management and credit research for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 16 years of experience in
risk management, arbitrage trading and corporate bond investing.
Mr. Gaston has overall responsibility for overseeing quantitative research
and risk management. Prior to his appointment in 1999, he was Senior Managing
Director of the Capital Management Group where he was responsible for the
investment performance and risk management for Prudential's General Account and
subsidiary fixed-income portfolios. He has more than 20 years of experience in
investment management, including extensive experience applying quantitative
techniques to portfolio management.
The Fixed Income Investment Policy Committee is comprised of key senior
investment managers. Members include seven sector team leaders, the chief
investment strategist, and the head of risk management. The Committee uses a
top-down approach to investment strategy, asset allocation and general risk
management, identifying sectors in which to invest.
CONSERVATIVE BALANCED PORTFOLIO AND FLEXIBLE MANAGED PORTFOLIO
These Portfolios are managed by a team of portfolio managers. Mark Stumpp,
Ph.D., Senior Managing Director of Prudential Investments, a division of
Prudential, has been the lead portfolio manager of the Portfolios since 1994 and
is responsible for the overall asset allocation decisions.
49
<PAGE>
Warren Spitz, Managing Director of Prudential Investments, has been a portfolio
manager of the Portfolios since 1995 and manages a portion of each Portfolio's
equity holdings.
The Corporate Team, headed by Steven Kellner, is primarily responsible for
overseeing the day-to-day management of the fixed income portion of the
Portfolios. This team uses a bottom-up approach, which focuses on individual
securities, while staying within the guidelines of the Investment Policy
Committee and the Portfolios' investment restrictions and policies. In addition,
the Credit Research team of analysts supports the sector teams using bottom-up
fundamentals, as well as economic and industry trends. Other sector teams may
contribute to securities selection when appropriate.
CORPORATE
ASSETS UNDER MANAGEMENT (as of December 31, 1999): $47.3 billion.
TEAM LEADER: Steven Kellner. GENERAL INVESTMENT EXPERIENCE: 13 years.
PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 13 years,
which includes team members with mutual fund experience.
SECTOR: U.S. investment-grade corporate securities.
INVESTMENT STRATEGY: Focus is on identifying spread, credit quality and
liquidity trends to capitalize on changing opportunities in the market.
Ultimately, they seek the highest expected return with the least risk.
John Moschberger, CFA, Vice President of Prudential Investments, manages the
portions of each Portfolio designed to duplicate the performance of the S&P 500.
Mr. Moschberger joined Prudential in 1980 and has been a portfolio manager since
1986.
GOVERNMENT INCOME PORTFOLIO AND ZERO COUPON BOND PORTFOLIOS 2000 & 2005
The U.S. Liquidity Team, headed by Michael Lillard, is primarily responsible for
overseeing the day-to-day management of the Portfolios. This Team uses a
bottom-up approach, which focuses on individual securities, while staying within
the guidelines of the Investment Policy Committee and the Portfolios' investment
restrictions and policies. In addition, the Credit Research team of analysts
supports the sector teams using bottom-up fundamentals, as well as economic and
industry trends.
Other sector teams may contribute to securities selection when appropriate.
U.S. LIQUIDITY
ASSETS UNDER MANAGEMENT (as of December 31, 1999): $22.6 billion.
TEAM LEADER: Michael Lillard. GENERAL INVESTMENT EXPERIENCE: 12 years.
PORTFOLIO MANAGERS: 10. AVERAGE GENERAL INVESTMENT EXPERIENCE: 13
years, which includes team members with significant mutual fund
experience.
SECTOR: U.S. Treasuries, agencies and mortgages.
INVESTMENT STRATEGY: Focus is on high quality, liquidity and
controlled risk.
DIVERSIFIED BOND PORTFOLIO
The Corporate Team, headed by Steven Kellner, is primarily responsible for
overseeing the day-to-day management of the Portfolio. The Corporate Team is
described above in the description of the Conservative Balanced and Flexible
Managed Portfolios.
DIVERSIFIED CONSERVATIVE GROWTH PORTFOLIO
The equity portion of the Portfolio advised by Jennison is managed by Spiros
"Sig" Segalas, Michael A. Del Balso, and Kathleen A. McCarragher. Mr. Segalas is
a founding member and President and Chief Investment Officer of Jennison. He has
been in the investment business for over 35 years. Mr. Segalas is one of the
co-managers of the Prudential Jennison Portfolio and the 20/20 Focus Portfolio.
50
<PAGE>
Mr. Del Balso, a Director and Executive Vice President of Jennison, has been
part of the Jennison team since 1972 when he joined the firm from White, Weld &
Company. Mr. Del Balso is a member of the New York Society of Security Analysts.
Ms. McCarragher, Director and Executive Vice President of Jennison, is also
Jennison's Growth Equity Investment Strategist, having joined Jennison last year
after a 20 year investment career, including positions with Weiss, Peck & Greer
and State Street Research and Management Company, where she was a member of the
Investment Committee. Ms. McCarragher is also one of the co-managers of the
Prudential Jennison Portfolio.
Thomas R. Jackson manages the equity portion of the Portfolio assigned to PIC.
Mr. Jackson, a Managing Director of PIC, joined PIC in 1990 and has over 30
years of professional equity investment management experience. He was formerly
co-chief investment officer of Red Oak Advisers and Century Capital Associates,
each a private money management firm, where he managed pension and other
accounts for institutions and individuals. Mr. Jackson was also with The Dreyfus
Corporation where he managed and served as president of the Dreyfus Fund. He is
a member of the New York Society of Security Analysts.
The High Yield Team, headed by Casey Walsh, is primarily responsible for
overseeing the day-to-day management of the Prudential fixed income portion of
the Portfolio. For further information about the High Yield Team, see the
description under "High Yield Bond Portfolio" below.
Edward B. Jamieson, Michael McCarthy and Aidan O'Connell manage the portion of
the Portfolio assigned to Franklin. Mr. Jamieson is an Executive Vice President
of Franklin and Managing Director of Franklin's equity and high yield groups. He
has been with Franklin since 1987. Mr. McCarthy joined Franklin in 1992 and is a
vice president and portfolio manager specializing in research analysis of
several technology groups. Mr. O'Connell joined Franklin in 1998 and is a
research analyst specializing in research analysis of the semiconductor and
semiconductor capital equipment industries. Prior to joining Franklin, Mr.
O'Connell was a research associate and corporate finance associate with
Hambrecht & Quist.
William R. Rydell, CFA and Mark W. Sikorski, CFA, manage the portion of the
Portfolio assigned to Dreyfus. Mr. Rydell is a portfolio manager of Dreyfus and
is the President and Chief Executive Officer of Mellon Equity Associates LLP.
Mr. Rydell has been in the Mellon organization since 1973. Mr. Sikorski is a
portfolio manager of Dreyfus and a Vice President of Mellon Equity Associates
LLP. Mr. Sikorski has been in the Mellon organization since 1996. Prior to
joining Mellon, he managed various corporation treasury projects for Northeast
Utilities, including bond refinancing and investment evaluations.
John Hague manages the portion of the Portfolio assigned to PIMCO. Mr. Hague is
a Managing Director of PIMCO and has managed fixed income assets for PIMCO and
its predecessor since 1989.
EQUITY PORTFOLIO
Thomas Jackson, Managing Director of Prudential Investments, has managed this
Portfolio since 1990. (See description under "Diversified Conservative Growth
Portfolio," above.)
EQUITY INCOME PORTFOLIO
Warren Spitz, Managing Director of Prudential Investments, has managed this
Portfolio since 1988. (See description under "Conservative Balanced Portfolio
and Flexible Managed Portfolio," above.)
GLOBAL PORTFOLIO
Daniel Duane, CFA, Managing Director of Prudential Investments, Ingrid Holm,
CFA, Vice President of Prudential Investment and Michelle Picker, CFA, Vice
President of Prudential Investments, have been co-managers of this Portfolio
since 1997. Mr. Duane has managed the Portfolio since 1990. Ms. Holm has
assisted in the management of Prudential mutual funds since 1994 and has managed
a portion of Prudential's general account. Prior to 1994, Ms. Holm headed the
high yield research group for Prudential's general account. Ms. Picker has been
an analyst in Prudential global equity investments groups since 1992 and has
managed a portion of Prudential's general account.
51
<PAGE>
HIGH YIELD BOND PORTFOLIO
The High Yield Team, headed by Casey Walsh, is primarily responsible for
overseeing the day-to-day management of the fixed income portfolio of the
Portfolio. This Team uses a bottom-up approach, which focuses on individual
securities, while staying within the guidelines of the Investment Policy
Committee and the Portfolio's investment restrictions and policies. In addition,
the Credit Research team of analysts supports the sector teams using bottom-up
fundamentals, as well as economic and industry trends. Other sector teams may
contribute to securities selection when appropriate.
HIGH YIELD
ASSETS UNDER MANAGEMENT (as of December 31, 1999): $9.4 billion.
TEAM LEADER: Casey Walsh. GENERAL INVESTMENT EXPERIENCE: 17 years.
PORTFOLIO MANAGERS: 7. AVERAGE GENERAL INVESTMENT EXPERIENCE: 19 years,
which includes team members with significant mutual fund experience.
SECTOR: Below-investment-grade corporate securities.
INVESTMENT STRATEGY: Focus is generally on bonds with high total return
potential, given existing risk parameters. They also seek securities with
high current income, as appropriate. The Team uses a relative value
approach.
MONEY MARKET PORTFOLIO
The Money Market Team, headed by Joseph Tully, is primarily responsible for
overseeing the day-to-day management of the Portfolio. This team uses a
bottom-up approach, which focuses on individual securities, while staying within
the guidelines of the Investment Policy Committee and the Portfolio's investment
restrictions and policies.
MONEY MARKET
ASSETS UNDER MANAGEMENT (as of December 31, 1999): $3.6 billion.
TEAM LEADER: Joseph Tully. GENERAL INVESTMENT EXPERIENCE: 16 years.
PORTFOLIO MANAGERS: 8. AVERAGE GENERAL INVESTMENT EXPERIENCE: 12
years, which includes team members with significant mutual fund
experience. SECTOR: High-quality short-term debt securities, including
both taxable and tax-exempt instruments.
INVESTMENT STRATEGY: Focus is on safety of principal, liquidity and
controlled risk.
NATURAL RESOURCES PORTFOLIO
Leigh Goehring, Vice President of Prudential Investments, has managed this
Portfolio since 1992. Prior to that time, Mr. Goehring was portfolio manager for
The Prudential-Bache Option Growth Fund.
PRUDENTIAL JENNISON PORTFOLIO
This Portfolio is managed by Messrs. Segalas and Del Balso and Ms. McCarragher
of Jennison since 1999. (See description under "Diversified Conservative Growth
Portfolio," above.)
SMALL CAPITALIZATION STOCK PORTFOLIO
Wai Chiang, Vice President of Prudential Investments, has managed this Portfolio
since its inception in 1995. Mr. Chiang has been employed by Prudential as a
portfolio manager since 1986.
STOCK INDEX PORTFOLIO
John Moschberger, CFA, Vice President of Prudential Investments, has managed
this Portfolio since 1990. (See description under "Conservative Balanced
Portfolio and Flexible Managed Portfolio," above.)
52
<PAGE>
20/20 FOCUS PORTFOLIO
Thomas R. Jackson, Managing Director of Prudential Investments, manages
approximately 50% of the Portfolio's assets. (See description under "Diversified
Conservative Growth Portfolio," above.)
Spiros Segalas, Director, President and Chief Investment Officer of Jennison,
manages approximately 50% of the Portfolio's assets. (See description under
"Diversified Conservative Growth Portfolio," above.)
HOW TO BUY AND SELL SHARES OF THE FUND
The Fund offers two classes of shares in each Portfolio -- Class I and Class II.
Each Class participates in the same investments within a given Portfolio, but
the Classes differ as far as their charges. Class I shares are sold only to
separate accounts of Prudential as investment options under certain Contracts.
Class II is offered only to separate accounts of non-Prudential insurance
companies as investment options under certain of their Contracts. Please refer
to the accompanying Contract prospectus to see which Portfolios are available
through your Contract.
The way to invest in the Portfolios is through certain variable life insurance
and variable annuity contracts. Together with this prospectus, you should have
received a prospectus for such a Contract. You should refer to that prospectus
for further information on investing in the Portfolios.
Both Class I and Class II shares of a Portfolio are sold without any sales
charge at the net asset value of the Portfolio. Class II shares, however, are
subject to an annual distribution or "12b-1" fee of 0.25% and an administration
fee of 0.15% of the average daily net assets of Class II. Class I shares do not
have a distribution or administration fee.
Shares are redeemed for cash within seven days of receipt of a proper notice of
redemption or sooner if required by law. There is no redemption charge. We may
suspend the right to redeem shares or receive payment when the New York Stock
Exchange is closed (other than weekends or holidays), when trading on the New
York Stock Exchange is restricted, or as permitted by the SEC.
NET ASSET VALUE
Any purchase or sale of Portfolio shares is made at the net asset value, or NAV,
of such shares. The price at which a purchase or redemption is made is based on
the next calculation of the NAV after the order is received in good order. The
NAV of each share class of each Portfolio (except the Money Market Portfolio) is
determined once a day -- at 4:15 p.m. New York time -- on each day the New York
Stock Exchange is open for business. If the New York Stock Exchange closes early
on a day, the Portfolios' NAVs will be calculated some time between the closing
time and 4:15 p.m. on that day. The NAV for the Money Market Portfolio is
determined as of 12:00 p.m. on each day the New York Stock Exchange is open for
business.
The NAV for each of the Portfolios other than the Money Market Portfolio is
determined by a simple calculation. It's the total value of a Portfolio (assets
minus liabilities) divided by the total number of shares outstanding. The NAV
for the Money Market Portfolio will ordinarily remain at $10 per share. (The
price of each share remains the same but you will have more shares when
dividends are declared.)
To determine a Portfolio's NAV, its holdings are valued as follows:
EQUITY SECURITIES are generally valued at the last sale price on an exchange or
NASDAQ, or if there is not a sale on that day, at the mean between the most
recent bid and asked prices on that day. If there is no asked price, the
security will be valued at the bid price. Equity securities that are not sold on
an exchange or NASDAQ are generally valued by an independent pricing agent or
principal market maker.
A Portfolio may own securities that are primarily listed on foreign exchanges
that trade on weekends or other days when the Portfolios do not price their
shares. Therefore, the value of a Portfolio's assets may change on days when
shareholders cannot purchase or redeem Portfolio shares.
All SHORT-TERM DEBT SECURITIES held by the Money Market Portfolio are valued at
amortized cost. Short-term debt securities with remaining maturities of 12
months or less held by the Conservative Balanced and Flexible Managed Portfolios
are valued on an amortized cost basis. The amortized cost valuation method is
widely used by mutual
53
<PAGE>
funds. It means that the security is valued initially at its purchase price and
then decreases in value by equal amounts each day until the security matures. It
almost always results in a value that is extremely close to the actual market
value. The Fund's Board of Directors has established procedures to monitor
whether any material deviation between valuation and market value occurs and if
so, will promptly consider what action, if any, should be taken to prevent
unfair results to Contract owners.
For each Portfolio other than the Money Market Portfolio, and except as
discussed above for the Conservative Balanced and Flexible Managed Portfolios,
short-term debt securities, including bonds, notes, debentures and other debt
securities, and money market instruments such as certificates of deposit,
commercial paper, bankers' acceptances and obligations of domestic and foreign
banks, with remaining maturities of more than 60 days, for which market
quotations are readily available, are valued by an independent pricing agent or
principal market maker (if available, otherwise a primary market dealer).
SHORT-TERM DEBT SECURITIES with remaining maturities of 60 days or less are
valued at cost with interest accrued or discount amortized to the date of
maturity, unless such valuation, in the judgment of Prudential or a sub-adviser,
does not represent fair value.
CONVERTIBLE DEBT SECURITIES that are traded in the over-the-counter market,
including listed convertible debt securities for which the primary market is
believed by Prudential or a sub-adviser to be over-the-counter, are valued at
the mean between the last bid and asked prices provided by a principal market
maker (if available, otherwise a primary market dealer).
OTHER DEBT SECURITIES -- those that are not valued on an amortized cost basis --
are valued using an independent pricing service.
OPTIONS ON STOCK AND STOCK INDEXES that are traded on a national securities
exchange are valued at the last sale price on such exchange on the day of
valuation or, if there was no such sale on such day, at the mean between the
most recently quoted bid and asked prices on such exchange.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS are valued at the last sale
price at the close of the commodities exchange or board of trade on which they
are traded. If there has been no sale that day, the securities will be valued at
the mean between the most recently quoted bid and asked prices on that exchange
or board of trade.
FORWARD CURRENCY EXCHANGE CONTRACTS are valued at the cost of covering or
offsetting such contracts calculated on the day of valuation. Securities which
are valued in accordance herewith in a currency other than U.S. dollars shall be
converted to U.S. dollar equivalents at a rate obtained from a recognized bank,
dealer or independent service on the day of valuation.
OVER-THE-COUNTER (OTC) options are valued at the mean between bid and asked
prices provided by a dealer (which may be the counterparty). A sub-adviser will
monitor the market prices of the securities underlying the OTC options with a
view to determining the necessity of obtaining additional bid and ask quotations
from other dealers to assess the validity of the prices received from the
primary pricing dealer.
SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE AVAILABLE will be valued at fair
value by Prudential under the direction of the Fund's Board of Directors.
DISTRIBUTOR
Prudential Investment Management Services LLC (PIMS) distributes the Fund's
shares under a Distribution Agreement with the Fund. PIMS' principal business
address is 751 Broad Street, Newark, New Jersey 07102-3777. The Fund has adopted
a distribution plan under Rule 12b-1 of the Investment Company Act of 1940
covering Class II shares. Under that plan, Class II of each Portfolio pays to
PIMS a distribution or "12b-1" fee at the annual rate of 0.25% of the average
daily net assets of Class II. This fee pays for distribution services for Class
II shares. Because these fees are paid out of the Portfolio's assets on an
on-going basis, over time these fees will increase the cost of your investment
in Class II shares and may cost you more than paying other types of sales
charges. These 12b-1 fees do not apply to Class I.
54
<PAGE>
OTHER INFORMATION
FEDERAL INCOME TAXES
If you own or are considering purchasing a variable contract, you should consult
the prospectus for the variable contract for tax information about that variable
contract. You should also consult with a qualified tax adviser for information
and advice.
The SAI provides information about certain tax laws applicable to the Fund.
EUROPEAN MONETARY UNION
On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Fund will treat the euro
as a separate currency from that of any participating state. The conversion may
adversely affect the Fund if the euro does not take effect as planned; if a
participating state withdraws from the European Monetary Union; or if the
computing, accounting and trading systems used by the Fund's service providers,
or by entities with which the Fund or its service providers do business, are not
capable of recognizing the euro as a distinct currency at the time of, and
following, euro conversion. In addition, the conversion could cause markets to
become more volatile.
MONITORING FOR POSSIBLE CONFLICTS
The Fund sells its shares to fund variable life insurance contracts and variable
annuity contracts and is authorized to offer its shares to qualified retirement
plans. Because of differences in tax treatment and other considerations, it is
possible that the interest of variable life insurance contract owners, variable
annuity contract owners and participants in qualified retirement plans could
conflict. The Fund will monitor the situation and in the event that a material
conflict did develop, the Fund would determine what action, if any, to take in
response.
55
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
CONSERVATIVE BALANCED
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 15.08 $ 14.97 $ 15.52 $ 15.31 $ 14.10
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.62 0.66 0.76 0.66 0.63
Net realized and unrealized gains on
investments.......................... 0.37 1.05 1.26 1.24 1.78
-------- -------- -------- -------- --------
Total from investment operations... 0.99 1.71 2.02 1.90 2.41
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.62) (0.66) (0.76) (0.66) (0.64)
Distributions from net realized
gains................................ (0.06) (0.94) (1.81) (1.03) (0.56)
Distributions in excess from net
realized gains....................... (0.03) -- -- -- --
-------- -------- -------- -------- --------
Total distributions................ (0.71) (1.60) (2.57) (1.69) (1.20)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 15.36 $ 15.08 $ 14.97 $ 15.52 $ 15.31
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 6.69% 11.74% 13.45% 12.63% 17.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,387.1 $4,796.0 $4,744.2 $4,478.8 $3,940.8
Ratios to average net assets:
Expenses............................. 0.57% 0.57% 0.56% 0.59% 0.58%
Net investment income................ 4.02% 4.19% 4.48% 4.13% 4.19%
Portfolio turnover rate................ 109% 167% 295% 295% 201%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-1
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
DIVERSIFIED BOND
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.06 $ 11.02 $ 11.07 $ 11.31 $ 10.04
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.67 0.69 0.80 0.76 0.76
Net realized and unrealized gains
(losses) on investments.............. (0.75) 0.08 0.11 (0.27) 1.29
-------- -------- -------- -------- --------
Total from investment operations... (0.08) 0.77 0.91 0.49 2.05
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.69) (0.83) (0.73) (0.75)
Distributions from net realized
gains................................ (0.03) (0.04) (0.13) -- (0.03)
-------- -------- -------- -------- --------
Total distributions................ (0.03) (0.73) (0.96) (0.73) (0.78)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 10.95 $ 11.06 $ 11.02 $ 11.07 $ 11.31
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ (0.74)% 7.15% 8.57% 4.40% 20.73%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,253.8 $1,122.6 $816.7 $720.2 $655.8
Ratios to average net assets:
Expenses............................. 0.43% 0.42% 0.43% 0.45% 0.44%
Net investment income................ 6.25% 6.40% 7.18% 6.89% 7.00%
Portfolio turnover rate................ 171% 199% 224% 210% 199%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the PERIOD ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request.
<TABLE>
<CAPTION>
DIVERSIFIED
CONSERVATIVE
GROWTH
-----------------
MAY 3, 1999(a)
THROUGH
DECEMBER 31, 1999
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.22
Net realized and unrealized gains
(losses) on investments.............. 0.39
-------
Total from investment operations... 0.61
-------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.22)
Dividends in excess of net investment
income............................... (0.02)
-------
Total distributions................ (0.24)
-------
Net Asset Value, end of period......... $ 10.37
=======
TOTAL INVESTMENT RETURN:(b)............ 6.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $115.8
Ratios to average net assets:
Expenses............................. 1.05%(c)
Net investment income................ 3.74%(c)
Portfolio turnover rate................ 107%
</TABLE>
(a) Commencement of investment operations.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized.
F-3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
and Class II for the periods indicated.
The information for the FOUR YEARS AND PERIOD ENDED DECEMBER 31, 1999 has been
audited by PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the
financial statements, appear in the SAI, which is available upon request. THE
INFORMATION FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER
INDEPENDENT AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
EQUITY CLASS I EQUITY CLASS II
----------------------------------------------------- -----------------
YEAR ENDED
DECEMBER 31, MAY 3, 1999(d)
----------------------------------------------------- THROUGH
1999 1998 1997 1996 1995(A) DECEMBER 31, 1999
--------- --------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 20.66 $ 32.79
-------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.54 0.60 0.69 0.71 0.55 0.28
Net realized and unrealized gains on
investments.......................... 3.02 2.21 5.88 3.88 5.89 (0.60)
-------- -------- -------- -------- -------- -------
Total from investment operations... 3.56 2.81 6.57 4.59 6.44 (0.32)
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.53) (0.60) (0.70) (0.67) (0.52) (0.34)
Distributions from net realized
gains................................ (3.77) (3.64) (1.76) (2.60) (0.94) (3.21)
-------- -------- -------- -------- -------- -------
Total distributions................ (4.30) (4.24) (2.46) (3.27) (1.46) (3.55)
-------- -------- -------- -------- -------- -------
Net Asset Value, end of period......... $ 28.90 $ 29.64 $ 31.07 $ 26.96 $ 25.64 $ 28.92
======== ======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:(b)............ 12.49% 9.34% 24.66% 18.52% 31.29% (0.68)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $6,235.0 $6,247.0 $6,024.0 $4,814.0 $3,813.8 $0.3
Ratios to average net assets:
Expenses............................. 0.47% 0.47% 0.46% 0.50% 0.48% 0.87%(c)
Net investment income................ 1.72% 1.81% 2.27% 2.54% 2.28% 1.33%(c)
Portfolio turnover rate................ 9% 25% 13% 20% 18% 9%
</TABLE>
(a) Calculations are based on average month-end shares outstanding
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of offering of Class II shares.
F-4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 20.03 $ 22.39 $ 18.51 $ 16.27 $ 14.48
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.51 0.56 0.61 0.58 0.64
Net realized and unrealized gains
(losses) on investments.............. 1.89 (1.03) 6.06 2.88 2.50
Dividends and distributions............
-------- -------- -------- -------- --------
Total from investment operations... 2.40 (0.47) 6.67 3.46 3.14
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.50) (0.59) (0.57) (0.71) (0.62)
Distributions from net realized
gains................................ (2.41) (1.30) (2.22) (0.51) (0.73)
-------- -------- -------- -------- --------
Total distributions................ (2.91) (1.89) (2.79) (1.22) (1.35)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 19.52 $ 20.03 $ 22.39 $ 18.51 $ 16.27
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 12.52% (2.38)% 36.61% 21.74% 21.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $2,024.0 $2,142.3 $2,029.8 $1,363.5 $1,110.0
Ratios to average net assets:
Expenses............................. 0.42% 0.42% 0.41% 0.45% 0.43%
Net investment income................ 2.34% 2.54% 2.90% 3.36% 4.00%
Portfolio turnover rate................ 16% 20% 38% 21% 64%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-5
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
FLEXIBLE MANAGED PORTFOLIO
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 16.56 $ 17.28 $ 17.79 $ 17.86 $ 15.50
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.58 0.58 0.59 0.57 0.56
Net realized and unrealized gains on
investments.......................... 0.69 1.14 2.52 1.79 3.15
-------- -------- -------- -------- --------
Total from investment operations... 1.27 1.72 3.11 2.36 3.17
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.59) (0.58) (0.58) (0.56)
Distributions from net realized
gains................................ (0.19) (1.85) (3.04) (1.85) (0.79)
-------- -------- -------- -------- --------
Total distributions................ (0.19) (2.44) (3.62) (2.43) (1.35)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 17.64 $ 16.56 $ 17.28 $ 17.79 $ 17.86
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 7.78% 10.24% 17.96% 13.64% 24.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $5,125.3 $5,410.0 $5,490.1 $4,896.9 $4,261.2
Ratios to average net assets:
Expenses............................. 0.62 0.61% 0.62% 0.64% 0.63%
Net investment income................ 3.20 3.21% 3.02% 3.07% 3.30%
Portfolio turnover rate................ 76% 138% 227% 233% 173%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
GLOBAL
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 21.16 $ 17.92 $ 17.85 $ 15.53 $ 13.88
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.06 0.07 0.09 0.11 0.06
Net realized and unrealized gains
(losses) on investments.............. 10.04 4.38 1.11 2.94 2.14
-------- -------- -------- -------- --------
Total from investment operations... 10.10 4.45 1.20 3.05 2.20
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.16) (0.13) (0.11) (0.24)
Dividends in excess of net investment
income............................... (0.10) (0.12) (0.10) -- --
Distributions from net realized
gains................................ (0.18) (0.93) (0.90) (0.62) (0.31)
-------- -------- -------- -------- --------
Total distributions................ (0.28) (1.21) (1.13) (0.73) (0.55)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 30.98 $ 21.16 $ 17.92 $ 17.85 $ 15.53
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b) 48.27% 25.08% 6.98% 19.97% 15.88%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,298.3 $844.5 $638.4 $580.6 $400.1
Ratios to average net assets:
Expenses............................. 0.84% 0.86% 0.85% 0.92% 1.06%
Net investment income................ 0.21% 0.29% 0.47% 0.64% 0.44%
Portfolio turnover rate................ 76% 73% 70% 41% 59%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
F-7
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
GOVERNMENT INCOME
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995(A)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 11.87 $ 11.52 $ 11.22 $ 11.72 $ 10.46
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.76 0.67 0.75 0.75 0.74
Net realized and unrealized gains
(losses) on investments.............. (1.08) 0.36 0.30 (0.51) 1.28
------- ------- ------- ------- -------
Total from investment operations... (0.32) 1.03 1.05 0.24 2.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.68) (0.75) (0.74) (0.76)
Dividends in excess of net investment
income............................... -- --(c) -- -- --
------- ------- ------- ------- -------
Total distributions................ -- (0.68) (0.75) (0.74) (0.76)
------- ------- ------- ------- -------
Net Asset Value, end of year........... $ 11.55 $ 11.87 $ 11.52 $ 11.22 $ 11.72
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ (2.70)% 9.09% 9.67% 2.22% 19.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $335.5 $443.2 $429.6 $482.0 $501.8
Ratios to average net assets:
Expenses............................. 0.44% 0.43% 0.44% 0.46% 0.45%
Net investment income................ 5.72% 5.71% 6.40% 6.38% 6.55%
Portfolio turnover rate................ 106% 109% 88% 95% 195%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
(c) Less than $.005 per share.
F-8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
HIGH YIELD BOND
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 7.21 $ 8.14 $ 7.87 $ 7.80 $ 7.37
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.79 0.77 0.78 0.80 0.81
Net realized and unrealized gains
(losses) on investments.............. (0.46) (0.94) 0.26 0.06 0.46
Dividends and distributions............
-------- -------- -------- -------- --------
Total from investment operations... 0.33 (0.17) 1.04 0.86 1.27
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.02) (0.76) (0.77) (0.78) (0.84)
Dividends in excess of net investment
income............................... -- -- -- (0.01) --
-------- -------- -------- -------- --------
Total distributions................ (0.02) (0.76) (0.77) (0.79) (0.84)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 7.52 $ 7.21 $ 8.14 $ 7.87 $ 7.80
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 4.61% (2.36)% 13.78% 11.39% 17.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $802.2 $789.3 $568.7 $432.9 $367.9
Ratios to average net assets:
Expenses............................. 0.60% 0.58% 0.57% 0.63% 0.61%
Net investment income................ 10.48% 10.31% 9.78% 9.89% 10.34%
Portfolio turnover rate................ 58% 63% 106% 88% 139%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-9
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
MONEY MARKET
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income and realized and
unrealized gains..................... 0.49 0.52 0.54 0.51 0.56
Dividends and distributions............ (0.49) (0.52) (0.54) (0.51) (0.56)
-------- -------- -------- -------- -------
Net Asset Value, end of year........... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:(b)............ 4.97% 5.39% 5.41% 5.22% 5.80%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $1,335.5 $920.2 $657.5 $668.8 $613.3
Ratios to average net assets:
Expenses............................. 0.42% 0.41% 0.43% 0.44% 0.44%
Net investment income................ 4.90% 5.20% 5.28% 5.10% 5.64%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
NATURAL RESOURCES
-------------------------------------------------------
YEAR ENDED
DECEMBER 31,
-------------------------------------------------------
1999 1998 1997 1996 1995(A)
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of
year........................ $ 11.98 $ 15.24 $ 19.77 $ 17.27 $ 14.44
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......... 0.10 0.09 0.12 0.15 0.21
Net realized and unrealized
gains (losses) on
investments................. 5.40 (2.48) (2.43) 5.11 3.66
-------- -------- -------- -------- -------
Total from investment
operations.............. 5.50 (2.39) (2.31) 5.26 3.87
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends from net investment
income...................... (0.10) (0.11) (0.10) (0.14) (0.21)
Distributions from net
realized gains.............. -- (0.75) (2.12) (2.62) (0.83)
Tax return of capital
distributions............... -- (0.01) -- -- --
-------- -------- -------- -------- -------
Total distributions....... (0.10) (0.87) (2.22) (2.76) (1.04)
-------- -------- -------- -------- -------
Net Asset Value, end of
year........................ $ 17.38 $ 11.98 $ 15.24 $ 19.77 $ 17.27
======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN:(b)... 45.99% (17.10)% (11.59)% 30.88% 26.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)................... $289.5 $236.9 $358.0 $438.4 $293.2
Ratios to average net assets:
Expenses.................... 0.57% 0.61% 0.54% 0.52% 0.50%
Net investment income....... 0.70% 0.63% 0.60% 0.75% 1.25%
Portfolio turnover rate....... 26% 12% 32% 36% 46%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-11
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE PERIOD ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT AUDITORS
WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
PRUDENTIAL JENNISON
--------------------------------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)(a)
---------------------------------------- TO
1999 1998 1997 1996 DECEMBER 31, 1995
--------- --------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 23.91 $ 17.73 $ 14.32 $ 12.55 $ 10.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.05 0.04 0.04 0.02 0.02
Net realized and unrealized gains on
investments.......................... 9.88 6.56 4.48 1.78 2.54
-------- -------- ------- ------- -------
Total from investment operations... 9.93 6.60 4.52 1.80 2.56
-------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.05) (0.04) (0.04) (0.03) (0.01)
Distributions from net realized
gains................................ (1.40) (0.38) (1.07) -- --
-------- -------- ------- ------- -------
Total distributions................ (1.45) (0.42) (1.11) (0.03) (0.01)
-------- -------- ------- ------- -------
Net Asset Value, end of period......... $ 32.39 $ 23.91 $ 17.73 $ 14.32 $ 12.55
======== ======== ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 41.76% 37.46% 31.71% 14.41% 24.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $2,770.7 $1,198.7 $495.9 $226.5 $63.1
Ratios to average net assets:
Expenses............................. 0.63% 0.63% 0.64% 0.66% 0.79%(c)
Net investment income................ 0.17% 0.20% 0.25% 0.20% 0.15%(c)
Portfolio turnover rate................ 58% 54% 60% 46% 37%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of investment operations.
F-12
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE PERIOD ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT AUDITORS
WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
SMALL CAPITALIZATION STOCK
------------------------------------------------------------
YEAR ENDED
DECEMBER 31, APRIL 25, 1995(d)
-------------------------------------- TO
1999 1998 1997 1996 DECEMBER 31, 1995(A)
-------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 14.71 $ 15.93 $ 13.79 $ 11.83 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.10 0.09 0.10 0.09 0.08
Net realized and unrealized gains
(losses) on investments.............. 1.71 (0.25) 3.32 2.23 1.91
------- ------- ------- ------- -------
Total from investment operations... 1.81 (0.16) 3.42 2.32 1.99
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.09) (0.10) (0.09) (0.04)
Distributions from net realized
gains................................ (0.27) (0.97) (1.18) (0.27) (0.12)
------- ------- ------- ------- -------
Total distributions................ (0.27) (1.06) (1.28) (0.36) (0.16)
------- ------- ------- ------- -------
Net Asset Value, end of period......... 16.25 $ 14.71 $ 15.93 $ 13.79 $ 11.83
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 12.68% (0.76)% 25.17% 19.77% 19.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $437.5 $360.4 $290.3 $147.9 $47.5
Ratios to average net assets:
Expenses............................. 0.45% 0.47% 0.50% 0.56% 0.60%(c)
Net investment income................ 0.70% 0.57% 0.69% 0.87% 0.68%(c)
Portfolio turnover rate................ 31% 26% 31% 13% 32%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(c) Annualized
(d) Commencement of investment operations.
F-13
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
STOCK INDEX
-----------------------------------------------------
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 37.74 $ 30.22 $ 23.74 $ 19.96 $ 14.96
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.44 0.42 0.43 0.40 0.40
Net realized and unrealized gains
(losses) on investments.............. 7.23 8.11 7.34 4.06 5.13
-------- -------- -------- -------- --------
Total from investment operations... 7.67 8.53 7.77 4.46 5.53
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.43) (0.42) (0.42) (0.40) (0.38)
Distributions from net realized
gains................................ (0.53) (0.59) (0.87) (0.28) (0.15)
-------- -------- -------- -------- --------
Total distributions................ (0.96) (1.01) (1.29) (0.68) (0.53)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 44.45 $ 37.74 $ 30.22 $ 23.74 $ 19.96
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ 20.54% 28.42% 32.83% 22.57% 37.06%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $4,655.0 $3,548.1 $2,448.2 $1,581.4 $1,031.3
Ratios to average net assets:
Expenses............................. 0.39% 0.37% 0.37% 0.40% 0.38%
Net investment income................ 1.09% 1.25% 1.55% 1.95% 2.27%
Portfolio turnover rate................ 2% 3% 5% 1% 1%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-14
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the PERIOD ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request.
<TABLE>
<CAPTION>
20/20 FOCUS
-----------------
MAY 3, 1999(C) TO
DECEMBER 31, 1999
-----------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of period... $ 10.00
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income.................. 0.02
Net realized and unrealized gains on
investments.......................... 1.88
-------
Total from investment operations... 1.90
-------
LESS DISTRIBUTIONS:
Dividends from net investment income... (0.02)
Dividends in excess of net investment
income............................... --(d)
Distributions from net realized
gains................................ --(d)
-------
Total distributions................ (0.02)
-------
Net Asset Value, end of period......... $ 11.88
=======
TOTAL INVESTMENT RETURN:(a)............ 18.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
millions)............................ $65.0
Ratios to average net assets:
Expenses............................. 1.09(b)
Net investment income................ 0.33(b)
Portfolio turnover rate................ 64%
</TABLE>
(a) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each period reported and includes
reinvestment of dividends and distributions. Total investment returns for
less than a full year are not annualized.
(b) Annualized.
(c) Commencement of investment operations.
(d) Less than $0.005 per share.
F-15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
ZERO COUPON BOND 2000
------------------------------------------------
YEAR ENDED
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995(A)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 12.74 $ 12.61 $ 12.92 $ 13.27 $ 11.86
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.70 0.63 0.67 0.55 0.59
Net realized and unrealized gains
(losses) on investments.............. (0.43) 0.31 0.22 (0.36) 1.95
------- ------- ------- ------- -------
Total from investment operations... 0.27 0.94 0.89 0.19 2.54
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.64) (0.67) (0.54) (0.60)
Distributions from net realized
gains................................ (0.02) (0.17) (0.53) -- (0.53)
------- ------- ------- ------- -------
Total distributions................ (0.02) (0.81) (1.20) (0.54) (1.13)
------- ------- ------- ------- -------
Net Asset Value, end of year........... $ 12.99 $ 12.74 $ 12.61 $ 12.92 $ 13.27
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:(b)............ 2.18% 7.57% 7.17% 1.53% 21.56%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $41.2 $40.2 $41.3 $44.7 $25.3
Ratios to average net assets:
Expenses............................. 0.58% 0.62% 0.66% 0.52% 0.48%
Net investment income................ 5.56% 4.85% 4.78% 4.88% 4.53%
Portfolio turnover rate................ 4% 16% 32% 13% 71%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
(c) Less than $.005 per share.
F-16
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you evaluate the financial performance of
each Portfolio. The TOTAL RETURN in each chart represents the rate that a
shareholder earned on an investment in that share class of the Portfolio,
assuming reinvestment of all dividends and other distributions. The charts do
not reflect charges under any variable contract. The information is for Class I
for the periods indicated.
The information for the FOUR YEARS ENDED DECEMBER 31, 1999 has been audited by
PRICEWATERHOUSECOOPERS LLP, whose unqualified report, along with the financial
statements, appear in the SAI, which is available upon request. THE INFORMATION
FOR THE ONE YEAR ENDED DECEMBER 31, 1995 WAS AUDITED BY OTHER INDEPENDENT
AUDITORS WHOSE REPORT WAS ALSO UNQUALIFIED.
<TABLE>
<CAPTION>
ZERO COUPON BOND 2005
----------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995(A)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net Asset Value, beginning of year..... $ 13.44 $ 12.60 $ 12.25 $ 13.19 $ 10.74
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.67 0.66 0.68 0.66 0.66
Net realized and unrealized gains
(losses) on investments.............. (1.43) 0.87 0.66 (0.82) 2.73
-------- -------- -------- -------- --------
Total from investment operations... (0.76) 1.53 1.34 (0.16) 3.39
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income... -- (0.67) (0.71) (0.64) (0.65)
Distributions from net realized
gains................................ -- (0.02) (0.28) (0.14) (0.29)
-------- -------- -------- -------- --------
Total distributions................ -- (0.69) (0.99) (0.78) (0.94)
-------- -------- -------- -------- --------
Net Asset Value, end of year........... $ 12.68 $ 13.44 $ 12.60 $ 12.25 $ 13.19
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN:(b)............ (5.66)% 12.35% 11.18% (1.01)% 31.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
millions)............................ $45.4 $45.5 $30.8 $25.8 $23.6
Ratios to average net assets:
Expenses............................. 0.59% 0.61% 0.74% 0.53% 0.49%
Net investment income................ 5.31% 5.35% 5.71% 5.42% 5.32%
Portfolio turnover rate................ 15% -- 35% 10% 69%
</TABLE>
(a) Calculations are based on average month-end shares outstanding.
(b) Total investment return is calculated assuming a purchase of shares on the
first day and a sale on the last day of each year reported and includes
reinvestment of dividends and distributions.
F-17
<PAGE>
(This page intentionally left blank.)
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund and each Portfolio
can be obtained upon request without charge and
can be found in the following documents:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
(incorporated by reference into this prospectus)
ANNUAL REPORT
(including a discussion of market conditions and strategies that significantly
affected the Portfolios' performance during the previous year)
SEMI-ANNUAL REPORT
To obtain these documents or to ask any questions about the Fund:
Call toll-free (800) 778-2255
Write to The Prudential Series Fund, Inc., 751 BROAD STREET, NEWARK, NJ
07102-3777
You can also obtain copies of Fund documents from the
Securities and Exchange Commission as follows:
By Mail:
- --------
Securities and Exchange Commission
Public Reference Section
Washington, DC 20549-0102
By Electronic Request:
- ----------------------
[email protected]
(The SEC charges a fee to copy documents.)
In Person:
- ----------
Public Reference Room
in Washington, DC
(For hours of operation, call 1-202-942-8090)
Via the Internet:
- -----------------
on the EDGAR Database at
http://www.sec.gov
SEC File No. 811-03623
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 2000
THE PRUDENTIAL
SERIES FUND, INC.
The Prudential Series Fund, Inc. (the Fund) is a diversified, open-end
management investment company (commonly known as a mutual fund) that is intended
to provide a range of investment alternatives through its seventeen separate
Portfolios, each of which is, for investment purposes, in effect a separate fund
(the Portfolios).
The Fund offers two classes of shares of each Portfolio: Class I and Class II.
Class I shares are sold only to separate accounts of The Prudential Insurance
Company of America (Prudential) as investment options under variable life
insurance and variable annuity contracts. Class II shares are offered only to
separate accounts of non-Prudential insurance companies for the same types of
contracts (collectively with the Prudential contracts, the Contracts). These
separate accounts invest in shares of the Fund through subaccounts that
correspond to the Portfolios. The separate accounts will redeem shares of the
Fund to the extent necessary to provide benefits under the Contracts or for such
other purposes as may be consistent with the Contracts.
NOT EVERY PORTFOLIO IS AVAILABLE UNDER EACH CONTRACT. THE PROSPECTUS FOR EACH
CONTRACT LISTS THE PORTFOLIOS CURRENTLY AVAILABLE UNDER THAT PARTICULAR
CONTRACT.
In order to sell shares to both Prudential and non-Prudential insurance
companies, the Fund has obtained an exemptive order (the Order) from the SEC.
The Fund and its Portfolios are managed in compliance with the terms and
conditions of that Order. This statement of additional information is not a
prospectus and should be read in conjunction with the Fund's prospectus dated
April 30, 2000, which is available without charge upon written request to The
Prudential Series Fund, Inc., 751 Broad Street, Newark, New Jersey 07102-3777 or
by telephoning (800) 778-2255.
THE PRUDENTIAL SERIES FUND, INC.
751 Broad Street
Newark, New Jersey 07102-3777
Telephone: (800) 778-2255
PSF-2 Ed 5-00 Catalog No. 646674P
<PAGE>
CONTENTS
PAGE
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS .................... 1
GENERAL ............................................................. 1
CONVERTIBLE SECURITIES .............................................. 1
WARRANTS ............................................................ 1
FOREIGN SECURITIES .................................................. 1
OPTIONS ON STOCK AND DEBT SECURITIES ................................ 3
OPTIONS ON STOCK INDEXES ............................................ 5
OPTIONS ON FOREIGN CURRENCIES ....................................... 7
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS .................. 8
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ......................... 9
INTEREST RATE SWAPS ................................................. 11
LOAN PARTICIPATIONS ................................................. 11
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS ...................... 11
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES ......................... 12
SHORT SALES ......................................................... 12
LOANS OF PORTFOLIO SECURITIES ....................................... 13
LLIQUID SECURITIES .................................................. 13
FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS ........... 14
INVESTMENT RESTRICTIONS ................................................. 15
INVESTMENT MANAGEMENT AND DISTRIBUTION ARRANGEMENTS ..................... 19
INVESTMENT MANAGEMENT ARRANGEMENTS ................................. 19
DISTRIBUTION ARRANGEMENTS .......................................... 22
CODE OF ETHICS ..................................................... 23
OTHER INFORMATION CONCERNING THE FUND ................................... 23
INCORPORATION AND AUTHORIZED STOCK .................................. 23
PORTFOLIO TRANSACTIONS AND BROKERAGE ................................ 24
TAXATION OF THE FUND ................................................ 27
CUSTODIAN AND TRANSFER AGENT ........................................ 27
EXPERTS ............................................................. 28
LICENSES ............................................................ 28
MANAGEMENT OF THE FUND .................................................. 28
FUND PERFORMANCE ........................................................ 30
FINANCIAL STATEMENTS OF THE PRUDENTIAL SERIES FUND, INC ................. 33
APPENDIX: DEBT RATINGS
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS
I. GENERAL
This Statement of Additional Information provides information about the Fund,
which consists of seventeen separate portfolios--the Conservative Balanced
Portfolio, Diversified Bond Portfolio, Diversified Conservative Growth
Portfolio, Equity Portfolio, Equity Income Portfolio, Flexible Managed
Portfolio, Global Portfolio, Government Income Portfolio, high Yield Bond
Portfolio, Money Market Portfolio, Natural Resources Portfolio, Prudential
Jennison Portfolio, Small Capitalization Stock Portfolio, Stock Index Portfolio,
20/20 Focus Portfolio, Zero Coupon Bond Portfolio 2000 and Zero Coupon Bond
Portfolio 2005. Not every Portfolio is available under every Contract. The
prospectus for each Contract lists the Portfolios currently available under that
particular Contract. The Portfolios are managed by Prudential as discussed under
MANAGEMENT OF THE FUND.
Each of the seventeen Portfolios has a different investment objective. For this
reason, each Portfolio will have different investment results and be subject to
different financial and market risks. As discussed in the prospectus, several of
the portfolios may invest in money market instruments and comparable securities
as part of assuming a temporary defensive positions.
The investment objectives of the Portfolios can be found under RISK/RETURN
SUMMARY and HOW THE PORTFOLIOS INVEST in the prospectus.
A detailed discussion of the type of investment instruments in which the
portfolios may invest follows.
II. CONVERTIBLE SECURITIES
The Conservative Balanced, Diversified Conservative Growth, Flexible Managed,
Equity, Prudential Jennison, Small Capitalization Stock and 20/20 Focus
Portfolios may invest in convertible securities and a significant portion of the
assets of the Equity Income, Global and Natural Resources Portfolios may be
invested in these types of securities.
A convertible security is a debt security--for example, a bond--that may be
converted into common stock of the same or different issuer. The convertible
security sets the price, quantity of shares and time period in which it may be
so converted. Convertible stock is senior to a company's common stock but is
usually subordinated to debt obligations of the company. Convertible securities
provide a steady stream of income which is generally at a higher rate than the
income on the issuer's common stock but lower than the rate on the issuer's debt
obligations. At the same time, they offer--through their conversion
mechanism--the chance to participate in the capital appreciation of the
underlying common stock. The price of a convertible security tends to increase
and decrease with the market value of the underlying common stock.
III. WARRANTS
The Conservative Balanced, Equity, Equity Income, Flexible Managed, Global,
Natural Resources, Prudential Jennison, Small Capitalization Stock and 20/20
Focus Portfolios may invest in warrants on common stocks. A warrant is a right
to buy a number of shares of stock at a specified price during a specified
period of time. The risk associated with warrants is that the market price of
the underlying stock will stay below the exercise price of the warrant during
the exercise period. If this occurs, the warrant becomes worthless and the
investor loses the money he or she paid for the warrant.
From time to time, the Diversified Bond and the High Yield Bond Portfolios may
invest in debt securities that are offered together with warrants but only when
the debt security meets the Portfolio's investment criteria and the value of the
warrant is relatively very small. If the warrant later becomes valuable, it may
be sold or exercised.
IV. FOREIGN SECURITIES
The Global Portfolio may invest up to 100% of its total assets in common stock
and convertible securities denominated in a foreign currency and issued by
foreign or domestic issuers. The Diversified Bond and High Yield
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Bond Portfolios may each invest up to 20% of their assets in U.S. currency
denominated debt securities issued outside the U.S. by foreign or U.S. issuers.
In addition, the fixed income portions of the Conservative Balanced and Flexible
Managed Portfolios may each invest up to 20% in such securities. The
Conservative Balanced, Equity Income and Flexible Managed Portfolios may invest
up to 30% of their total assets in debt and equity securities denominated in a
foreign currency and issued by foreign or U.S. issuers. The Equity, Natural
Resources and Prudential Jennison Portfolios may invest up to 30% of their total
assets in non-U.S. currency denominated common stock and fixed income securities
convertible into common stock of foreign and U.S. issuers. The Diversified
Conservative Growth Portfolio may invest up to 15% of its total assets in
foreign equity securities and up to 25% of its total assets in foreign debt
obligations (of which, 10% of the Portfolio's total assets may be invested in
debt obligations of issuers in emerging countries). The 20/20 Focus Portfolio
may invest up to 20% of its total assets in securities of foreign issuers.
American Depositary Receipts (ADRs) are not considered "foreign securities" for
purposes of the percentage limitations set forth in the preceding paragraph.
ADRs are U.S. dollar-denominated certificates issued by a U.S. bank or trust
company. ADRs represent the right to receive securities of a foreign issuer
deposited in a domestic bank or foreign branch of a U.S. bank and traded on a
U.S. exchange or in the over-the-counter (OTC) market. Investment in ADRs has
certain advantages over direct investments in the underlying foreign securities
because they are easily transferable, have readily available market quotations,
and the foreign issuers are usually subject to comparable auditing, accounting
and financial reporting standards as U.S. issuers.
Foreign securities (including ADRs) involve certain risks, which should be
considered carefully by an investor. These risks include political or economic
instability in the country of an issuer, the difficulty of predicting
international trade patterns, the possibility of imposition of exchange controls
and, in the case of securities not denominated in U.S. currency, the risk of
currency fluctuations. Foreign securities may be subject to greater movement in
price than U.S. securities and under certain market conditions, may be less
liquid than U.S securities. In addition, there may be less publicly available
information about a foreign company than a U.S company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to U.S. companies. There is
generally less government regulation of securities exchanges, brokers and listed
companies abroad than in the U.S., and, with respect to certain foreign
countries, there is a possibility of expropriations, confiscatory taxation or
diplomatic developments which could affect investment in those countries.
Finally, in the event of a default of any foreign debt obligations, it may be
more difficult for a Portfolio to obtain or enforce a judgment against the
issuers of such securities.
If a security is denominated in a foreign currency, it may be affected by
changes in currency rates and in exchange control regulations, and costs may be
incurred in connection with conversions between currencies. The Portfolios that
may invest in foreign securities may enter into forward foreign currency
exchange contracts for the purchase or sale of foreign currency for hedging
purposes, including: locking in the U.S. dollar price equivalent of interest or
dividends to be paid on such securities which are held by a Portfolio; and
protecting the U.S. dollar value of such securities which are held by the
Portfolio. A Portfolio will not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. In addition, the Portfolios may, for hedging purposes, enter into
certain transactions involving options on foreign currencies, foreign currency
futures contracts and options on foreign currency futures contracts.
SPECIAL CONSIDERATIONS OF INVESTMENT IN EURO-DENOMINATED SECURITIES. On January
1, 1999, 11 of the 15 member states of the European Monetary Union introduced
the "euro" as a common currency. During a three-year transitional period, the
euro will coexist with each participating state's currency and, on July 1, 2002,
the euro is expected to become the sole currency of the participating states.
During the transition period, the Portfolios will treat the euro as a separate
currency from that of any participating state. The conversion may adversely
affect a Portfolio if the euro does not take effect as planned; if a
participating state withdraws from the European Monetary Union; or if the
computing, accounting and trading systems used by the Portfolio's service
providers, or by entities with which the Portfolio or its service providers do
business, are not capable of recognizing the euro as a distinct currency at the
time of, and following euro conversion. In addition, the conversion could cause
markets to become more volatile. The overall effect of the transition of member
states' currencies to the euro is not known at this time. It is likely that more
general short- and long-term ramifications can be expected, such as changes in
the economic environment
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and change in the behavior of investors, which would affect a Portfolio's
investments and its net asset value. In addition, although U.S. Treasury
regulations generally provide that the euro conversion will not, in itself,
cause a U.S. taxpayer to realize gain or loss, other changes that may occur at
the time of the conversion, such as accrual periods, holiday conventions,
indexes, and other features may require the realization of a gain or loss by a
Portfolio as determined under existing tax law. The Portfolio managers have
taken steps: (1) that they believe will reasonably address euro-related changes
to enable the Portfolios and their service providers to process transactions
accurately and completely with minimal disruption to business activities and (2)
to obtain reasonable assurances that appropriate steps have been taken by the
Portfolios other service providers to address the conversion. The Portfolios
have not borne any expense relating to these actions.
V. OPTIONS ON STOCK AND DEBT SECURITIES
A. OPTIONS ON STOCK
The Conservative Balanced, Diversified Conservative Growth, Equity Income,
Equity, Flexible Managed, Global, Natural Resources, Prudential Jennison and
Small Capitalization Stock Portfolios may purchase and "write" (that is, sell)
put and call options on equity securities that are traded on securities
exchanges, listed on the National Association of Securities Dealers Automated
Quotation System (NASDAQ), or privately negotiated with broker-dealers (OTC
equity options).
A call option is a short-term contract that gives the option purchaser or
"holder" the right to acquire a particular equity security for a specified price
at any time during a specified period. For this right, the option purchaser pays
the option seller a certain amount of money or "premium" which is set before the
option contract is entered into. The seller or "writer" of the option is
obligated to deliver the particular security if the option purchaser exercises
the option.
A put option is a similar contract. In a put option, the option purchaser has
the right to sell a particular security to the option seller for a specified
price at any time during a specified period. In exchange for this right, the
option purchaser pays the option seller a premium.
The Portfolios will write only "covered" options on stocks. A call option is
covered if:
(1) the Portfolio owns the security underlying the option;
(2) the Portfolio has an absolute right to acquire the security
immediately;
(3) the Portfolio has a call on the same security that underlies the
option which has an exercise price equal to or less than the exercise
price of the covered option (or, if the exercise price is greater, the
Portfolio sets aside in a segregated account liquid assets that are
equal to the difference).
A put option is covered if:
(1) the Portfolio sets aside in a segregated account liquid assets that
are equal to or greater than the exercise price of the option;
(2) the Portfolio holds a put on the same security that underlies the
option which has an exercise price equal to or greater than the
exercise price of the covered option (or, if the exercise price is
less, the Portfolio sets aside in a segregated account liquid assets
that are equal to the difference).
The Conservative Balanced, Diversified Conservative Growth, Equity Income,
Equity, Flexible Managed, Global, Natural Resources, Prudential Jennison, Small
Capitalization Stock and 20/20/ Focus Portfolios, can also purchase "protective
puts" on equity securities. These are acquired to protect a Portfolio's security
from a decline in market value. In a protective put, a Portfolio has the right
to sell the underlying security at the exercise price, regardless of
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how much the underlying security may decline in value. In exchange for this
right, the Portfolio pays the put seller a premium.
The Portfolios may use options for both hedging and investment purposes. None of
the Portfolios intends to use more than 5% of its net assets to acquire call
options on stocks. The Portfolios may purchase equity securities that have a put
or call option provided by the issuer.
B. OPTIONS ON DEBT SECURITIES
The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Flexible Managed, Government Income and High Yield Bond Portfolios may purchase
and sell put and call options on debt securities, including U.S. government debt
securities, that are traded on a U.S. securities exchange or privately
negotiated with primary U.S. government securities dealers that are recognized
by the Federal Reserve Bank of New York (OTC debt options). None of the
Portfolios currently intends to invest more than 5% of its net assets at any one
time in call options on debt securities.
Options on debt securities are similar to stock options (see above) except that
the option holder has the right to acquire or sell a debt security rather than
an equity security.
The Portfolios will write only covered options. Options on debt securities are
covered in much the same way as options on equity securities. One exception is
in the case of call options on U.S. Treasury Bills. With these options, a
Portfolio might own U.S. Treasury Bills of a different series from those
underlying the call option, but with a principal amount and value that matches
the option contract amount and a maturity date that is no later than the
maturity date of the securities underlying the option.
The above Portfolios may also write straddles--which are simply combinations of
a call and a put written on the same security at the same strike price and
maturity date. When a Portfolio writes a straddle, the same security is used to
"cover" both the put and the call. If the price of the underlying security is
below the strike price of the put, the Portfolio will set aside liquid assets as
additional cover equal to the difference. A Portfolio will not use more than 5%
of its net assets as cover for straddles.
The above Portfolios may also purchase protective puts to try to protect the
value of one of the securities it owns against a decline in market value, as
well as putable and callable debt securities.
C. RISKS OF TRANSACTIONS IN OPTIONS ON EQUITY AND DEBT SECURITIES.
A Portfolio's use of options on equity or debt securities is subject to certain
special risks, in addition to the risk that the market value of the security
will move opposite to the Portfolio's option position. An exchange-traded option
position may be closed out only on an exchange, board of trade or other trading
facility which provides a secondary market for an option of the same series.
Although the Portfolios will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time, and for some options
no secondary market on an exchange or otherwise may exist. In such event it
might not be possible to effect closing transactions in particular options, with
the result that the Portfolio would have to exercise its options in order to
realize any profit and would incur brokerage commissions upon the exercise of
such options and upon the subsequent disposition of underlying securities
acquired through the exercise of call options or upon the purchase of underlying
securities for the exercise of put options. If a Portfolio, as a covered call
option writer, is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on an exchange include the
following: ( i ) there may be insufficient trading interest in certain options;
(ii) restrictions imposed by an exchange on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to
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particular classes or series of options or underlying securities; (iv) unusual
or unforeseen circumstances may interrupt normal operations on an exchange; (v)
the facilities of an exchange or a clearing corporation may not be adequate at
all times to handle the trading volume; or (vi) one or more exchanges could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on that exchange would cease to exist,
although outstanding options on that exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The purchase and sale of OTC options will also be subject to certain risks.
Unlike exchange-traded options, OTC options generally do not have a continuous
liquid market. Consequently, a Portfolio will generally be able to realize the
value of an OTC option it has purchased only by exercising it or reselling it to
the dealer who issued it. Similarly, when a Portfolio writes an OTC option, it
generally will be able to close out the OTC option prior to its expiration only
by entering into a closing purchase transaction with the dealer to which the
Portfolio originally wrote the OTC option. While the Portfolios will seek to
enter into OTC options only with dealers who agree to enter into closing
transactions with the Portfolio, there can be no assurance that a Portfolio will
be able to liquidate an OTC option at a favorable price at any time prior to
expiration. In the event of insolvency of the other party, a Portfolio may be
unable to liquidate an OTC option. Prudential monitors the creditworthiness of
dealers with whom the Portfolios enter into OTC option transactions under the
Board of Directors' general supervision.
VI. OPTIONS ON STOCK INDEXES
A. STOCK INDEX OPTIONS
The Conservative Balanced, Diversified Conservative Growth, Equity, Equity
Income, Flexible Managed, Global, Natural Resources, Prudential Jennison, Small
Capitalization Stock, Stock Index, and 20/20 Focus Portfolios may purchase and
sell put and call options on stock indexes that are traded on securities
exchanges, listed on NASDAQ or that are privately-negotiated with broker-dealers
(OTC options). Options on stock indexes are similar to options on stocks, except
that instead of giving the option holder the right to receive or sell a stock,
it gives the holder the right to receive an amount of cash if the closing level
of the stock index is greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option. The amount of cash the holder
will receive is determined by multiplying the difference between the index's
closing price and the option's exercise price, expressed in dollars, by a
specified "multiplier". Unlike stock options, stock index options are always
settled in cash and gain or loss depends on price movements in the stock market
generally (or a particular market segment, depending on the index) rather than
the price movement of an individual stock.
A Portfolio will only sell or "write" covered options on stock indexes. A call
option is covered if the Portfolio holds stocks at least equal to the value of
the index times the multiplier times the number of contracts (the Option Value).
When a Portfolio writes a call option on a broadly based stock market index, the
Portfolio will set aside cash, cash equivalents or "qualified securities"
(defined below). The value of the assets to be segregated cannot be less than
100% of the Option Value as of the time the option is written.
If a Portfolio has written an option on an industry or market segment index, it
must set aside at least five "qualified securities," all of which are stocks of
issuers in that market segment, with a market value at the time the option is
written of not less than 100% of the Option Value. The qualified securities will
include stocks which represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the Portfolio's holdings
in that industry or market segment. No individual security will represent more
than 15% of the amount so set aside in the case of broadly based stock market
index options or 25% of such amount in the case of options on a market segment
index. If at the close of business on any day the market value of the qualified
securities falls below 100% of the Option Value as of that date, the Portfolio
will set aside an amount in liquid unencumbered assets equal in value to the
difference. In addition, when a Portfolio writes a call on an index which is
"in-the-money"
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at the time the option is written--that is, the index's value is above the
strike price--the Portfolio will set aside liquid unencumbered assets equal to
the amount by which the call is in-the-money times the multiplier times the
number of contracts. Any amount so set aside may be applied to the Portfolio's
obligation to segregate additional amounts in the event that the market value of
the qualified securities falls below 100% of the current Option Value. A
"qualified security" is an equity security which is listed on a securities
exchange or listed on NASDAQ against which the Portfolio has not written a stock
call option and which has not been hedged by the Portfolio by the sale of stock
index futures. However, the Portfolio will not be subject to the requirement
described in this paragraph if it holds a call on the same index as the call
written and the exercise price of the call held is equal to or less than the
exercise price of the call written or greater than the exercise price of the
call written if the difference is maintained by the Portfolio in liquid
unencumbered assets in a segregated account with its custodian.
A put index option is covered if: (1) the Portfolio sets aside in a segregated
account liquid unencumbered assets of a value equal to the strike price times
the multiplier times the number of contracts; or (2) the Portfolio holds a put
on the same index as the put written where the strike price of the put held is
equal to or greater than the strike price of the put written or less than the
strike price of the put written if the difference is maintained by the Portfolio
in liquid unencumbered assets in a segregated account.
B. RISKS OF TRANSACTIONS IN OPTIONS ON STOCK INDEXES
A Portfolio's purchase and sale of options on stock indexes has the same risks
as stock options described in the previous section. In addition, the distinctive
characteristics of options on indexes create special risks. Index prices may be
distorted if trading of certain stocks included in the index is interrupted.
Trading in index options also may be interrupted in certain circumstances, such
as if trading were halted in a substantial number of stocks included in the
index. If this occurred, a Portfolio would not be able to close out options
which it had purchased or written and, if restrictions on exercise were imposed,
may be unable to exercise an option it holds, which could result in substantial
losses to the Portfolio. It is the policy of the Portfolios to purchase or write
options only on stock indexes which include a number of stocks sufficient to
minimize the likelihood of a trading halt in options on the index.
The ability to establish and close out positions on stock index options are
subject to the existence of a liquid secondary market. A Portfolio will not
purchase or sell any index option contract unless and until, in the portfolio
manager's opinion, the market for such options has developed sufficiently that
the risk in connection with such transactions is no greater than the risk in
connection with options on stocks.
There are certain additional risks associated with writing calls on stock
indexes. Because exercises of index options are settled in cash, a call writer
such as a Portfolio cannot determine the amount of its settlement obligations in
advance and, unlike call writing on specific stocks, cannot precisely provide in
advance for, or cover, its potential settlement obligations by acquiring and
holding the underlying securities. However, the Portfolios will follow the
"cover" procedures described above.
Price movements of a Portfolio's equity securities probably will not correlate
precisely with movements in the level of the index. Therefore, in writing a call
on a stock index a Portfolio bears the risk that the price of the securities
held by the Portfolio may not increase as much as the index. In that case, the
Portfolio would bear a loss on the call which may not be completely offset by
movement in the price of the Portfolio's equity securities. It is also possible
that the index may rise when the Portfolio's securities do not rise in value. If
this occurred, the Portfolio would experience a loss on the call which is not
offset by an increase in the value of its securities and might also experience a
loss in its securities. However, because the value of a diversified securities
portfolio will, over time, tend to move in the same direction as the market,
movements in the value of a Portfolio's securities in the opposite direction as
the market would be likely to occur for only a short period or to a small
degree.
When a Portfolio has written a stock index call, there is also a risk that the
market may decline between the time the Portfolio has a call exercised against
it, at a price which is fixed as of the closing level of the index on the date
of exercise, and the time the Portfolio is able to sell stocks in its portfolio.
As with stock options, a Portfolio will not learn that an index option has been
exercised until the day following the exercise date but, unlike a call on stock
where the Portfolio would be able to deliver the underlying securities in
settlement, the Portfolio may have to sell
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part of its stock portfolio in order to make settlement in cash, and the price
of such stocks might decline before they can be sold. This timing risk makes
certain strategies involving more than one option substantially more risky with
options in stock indexes than with stock options. For example, even if an index
call which a Portfolio has written is "covered" by an index call held by the
Portfolio with the same strike price, the Portfolio will bear the risk that the
level of the index may decline between the close of trading on the date the
exercise notice is filed with the clearing corporation and the close of trading
on the date the Portfolio exercises the call it holds or the time the Portfolio
sells the call which in either case would occur no earlier than the day
following the day the exercise notice was filed.
There are also certain special risks involved in purchasing put and call options
on stock indexes. If a Portfolio holds an index option and exercises it before
final determination of the closing index value for that day, it runs the risk
that the level of the underlying index may change before closing. If such a
change causes the exercised option to fall out-of-the-money, the Portfolio will
be required to pay the difference between the closing index value and the
exercise price of the option (times the applicable multiplier) to the assigned
writer. Although the Portfolio may be able to minimize this risk by withholding
exercise instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the exercise
price, it may not be possible to eliminate this risk entirely because the cutoff
times for index options may be earlier than those fixed for other types of
options and may occur before definitive closing index values are announced.
VII. OPTIONS ON FOREIGN CURRENCIES
A. OPTIONS ON FOREIGN CURRENCY
The Conservative Balanced, Diversified Conservative Growth, Equity Income,
Equity, Flexible Managed, Global, Natural Resources and Prudential Jennison
Portfolios may purchase and write put and call options on foreign currencies
traded on U.S. or foreign securities exchanges or boards of trade for hedging
purposes in a manner similar to that in which forward foreign currency exchange
contracts and futures contracts on foreign currencies are employed (see below).
Options on foreign currencies are similar to options on stocks, except that the
option holder has the right to take or make delivery of a specified amount of
foreign currency rather than stock.
A Portfolio may purchase and write options to hedge its securities denominated
in foreign currencies. If the U.S. dollar increases in value relative to a
foreign currency in which the Portfolio's securities are denominated, the value
of those securities will decline in U.S. dollar terms. To hedge against a
decline of a foreign currency a Portfolio may purchase put options on that
foreign currency. If the value of the foreign currency declines, the gain
realized on the put option would offset, at least in part, the decline in the
value of the Portfolio's holdings denominated in that foreign currency.
Alternatively, a Portfolio may write a call option on a foreign currency. If the
foreign currency declines, the option would not be exercised and the decline in
the value of the Portfolio's securities denominated in that foreign currency
would be offset in part by the premium the Portfolio received for the option.
If on the other hand, the portfolio manager anticipates purchasing a foreign
security and also anticipates a rise in the foreign currency in which it is
denominated, the Portfolio may purchase call options on the foreign currency.
The purchase of such options could offset, at least partially, the effects of
adverse movements of the exchange rates. Alternatively, the Portfolio could
write a put option on the currency and, if the exchange rates move as
anticipated, the option would expire unexercised.
B. RISKS OF TRANSACTIONS IN OPTIONS ON FOREIGN CURRENCY
A Portfolio's successful use of currency exchange options on foreign currencies
depends upon the portfolio manager's ability to predict the direction of the
currency exchange markets and political conditions, which requires different
skills and techniques than predicting changes in the securities markets
generally. For instance, if the currency being hedged has moved in a favorable
direction, the corresponding appreciation of the Portfolio's securities
denominated in such currency would be partially offset by the premiums paid on
the options. If the currency exchange rate does not change, the Portfolio's net
income would be less than if the Portfolio had not hedged since there are costs
associated with options.
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The use of these options is subject to various additional risks. The correlation
between the movements in the price of options and the price of the currencies
being hedged is imperfect. The use of these instruments will hedge only the
currency risks associated with investments in foreign securities, not market
risk. A Portfolio's ability to establish and maintain positions will depend on
market liquidity. The ability of the Portfolio to close out an option depends on
a liquid secondary market. There is no assurance that liquid secondary markets
will exist for any particular option at any particular time.
Because there are two currencies involved, developments in either or both
countries can affect the values of options on foreign currencies. In addition,
the quantities of currency underlying option contracts represent odd lots in a
market dominated by transactions between banks; this can mean extra transaction
costs upon exercise. Option markets may be closed while round-the-clock
interbank currency markets are open, and this can create price and rate
discrepancies.
VIII. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A. FUTURES AND OPTIONS ON FUTURES
The Conservative Balanced, Diversified Conservative Growth, Equity, Equity
Income, Flexible Managed, Global, Natural Resources, Prudential Jennison, Small
Capitalization Stock, Stock Index, and 20/20 Focus Portfolios may purchase and
sell stock index futures contracts. A stock index futures contract is an
agreement between the buyer and the seller of the contract to transfer an amount
of cash equal to the daily variation margin of the contract. No physical
delivery of the underlying stocks in the index is made.
The Conservative Balanced, Diversified Bond, Flexible Managed, Global,
Government Income and High Yield Bond Portfolios may, to the extent permitted by
applicable regulations, purchase and sell futures contracts on interest-bearing
securities or interest rate indexes. The Diversified Conservative Growth
Portfolio may, to the extent permitted by applicable regulations, purchase and
sell futures contracts on debt securities, aggregates of debt securities, and
U.S. government securities.
The Conservative Balanced, Diversified Conservative Growth, Flexible Managed,
Equity Income, Equity, Prudential Jennison, Global, Natural Resources and 20/20
Focus Portfolios may purchase and sell futures contracts on foreign currencies.
When a futures contract is entered into, each party deposits with a futures
commission merchant (or in a segregated account) approximately 5% of the
contract amount. This is known as the "initial margin." Every day during the
futures contract, either the buyer or the futures commission merchant will make
payments of "variation margin." In other words, if the value of the underlying
security, index or interest rate increases, then the buyer will have to add to
the margin account so that the account balance equals approximately 5% of the
value of the contract on that day. The next day, the value of the underlying
security, index or interest rate may decrease, in which case the buyer would
receive money from the account equal to the amount by which the account balance
exceeds 5% of the value of the contract on that day.
The above Portfolios may purchase or sell futures contracts without limit for
hedging purposes. This would be the case, for example, if a portfolio manager is
using a futures contract to reduce the risk of a particular position on a
security. The above Portfolios can also purchase or sell futures contract for
non-hedging purposes provided the initial margins and premiums associated with
the contracts do not exceed 5% of the fair market value of the Portfolio's
assets, taking into account unrealized profits or unrealized losses on any such
futures. This would be the case if a portfolio manager uses futures for
investment purposes, to increase income or to adjust the Portfolio's asset mix.
B. ADDITIONAL INFORMATION REGARDING THE USE OF FUTURES AND OPTIONS BY THE
STOCK INDEX AND SMALL CAPITALIZATION STOCK PORTFOLIOS
As explained in the prospectus, the Stock Index Portfolio seeks to duplicate the
performance of the Standard & Poor's 500 Stock Price Index (S&P 500 Index) and
the Small Capitalization Stock Portfolio seeks to duplicate the
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performance of the Standard & Poor's Small Capitalization Stock Index (S&P
SmallCap Index). The Portfolios will be as fully invested in the S&P Indexes'
stocks as is feasible in light of cash flow patterns and the cash requirements
for efficiently investing in a unit of the basket of stocks comprising the S&P
500 and S&P SmallCap Indexes, respectively. When the Portfolios do have
short-term investments, they may purchase stock index futures contracts in an
effort to have the Portfolio better follow the performance of a fully invested
portfolio. When a Portfolio purchases stock index futures contracts, an amount
of cash and cash equivalents, equal to the market value of the futures
contracts, will be deposited in a segregated account with the Portfolio's
custodian and/or in a margin account with a broker to collateralize the position
and thereby ensure that the use of futures is unleveraged.
As an alternative to the purchase of a stock index futures contract, a Portfolio
may construct synthetic positions involving options on stock indexes and options
on stock index futures that are equivalent to such a long futures position. In
particular, a Portfolio may utilize "put/call combinations" as synthetic long
stock index futures positions. A put/call combination is the purchase of a call
and the sale of a put at the same time with the same strike price and maturity.
It is equivalent to a forward position and, if settled every day, is equivalent
to a long futures position. When constructing put/call combinations, the
Portfolio will set aside cash or cash equivalents in a segregated account equal
to the market value of the Portfolio's forward position to collateralize the
position and ensure that it is unleveraged.
C. RISKS OF TRANSACTIONS IN FUTURES CONTRACTS
There are several risks associated with a Portfolio's use of futures contracts.
When used for investment purposes (that is, non-hedging purposes), successful
use of futures contracts, like successful investment in securities, depends on
the ability of the portfolio manager to predict correctly movements in the
relevant markets, interest rates and/or currency exchange rates. When used for
hedging purposes, there is a risk of imperfect correlation between movements in
the price of the futures contract and the price of the securities or currency
that are the subject of the hedge. In the case of futures contracts on stock or
interest rate indexes, the correlation between the price of the futures contract
and movements in the index might not be perfect. To compensate for differences
in volatility, a Portfolio could purchase or sell futures contracts with a
greater or lesser value than the securities or currency it wished to hedge or
purchase. Other risks apply to use for both hedging and investment purposes.
Temporary price distortions in the futures market could be caused by a variety
of factors. Further, the ability of a Portfolio to close out a futures position
depends on a liquid secondary market. There is no assurance that a liquid
secondary market on an exchange will exist for any particular futures contract
at any particular time.
The hours of trading of futures contracts may not conform to the hours during
which a Portfolio may trade the underlying securities and/or currency. To the
extent that the futures markets close before the securities or currency markets,
significant price and rate movements can take place in the securities and/or
currency markets that cannot be reflected in the futures markets.
D. RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES CONTRACTS
Options on futures contracts are subject to risks similar to those described
above with respect to options on securities, options on stock indexes, and
futures contracts. These risks include the risk that the portfolio manager may
not correctly predict changes in the market, the risk of imperfect correlation
between the option and the securities being hedged, and the risk that there
might not be a liquid secondary market for the option. There is also the risk of
imperfect correlation between the option and the underlying futures contract. If
there were no liquid secondary market for a particular option on a futures
contract, a Portfolio might have to exercise an option it held in order to
realize any profit and might continue to be obligated under an option it had
written until the option expired or was exercised. If the Portfolio were unable
to close out an option it had written on a futures contract, it would continue
to be required to maintain initial margin and make variation margin payments
with respect to the option position until the option expired or was exercised
against the Portfolio.
IX. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Conservative Balanced, Diversified Conservative Growth, Flexible Managed,
Equity Income, Equity, Prudential Jennison, Global, Natural Resources and 20/20
Focus Portfolios may enter into foreign currency exchange contracts
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to protect the value of their foreign holdings against future changes in the
level of currency exchange rates. When a Portfolio enters into a contract for
the purchase or sale of a security denominated in a foreign currency, or when a
Portfolio anticipates the receipt in a foreign currency of dividends or interest
payments on a security which it holds, the Portfolio may desire to "lock-in" the
U.S. dollar price of the security or the U.S. dollar equivalent of such dividend
or interest payment, as the case may be. By entering into a forward contract for
a fixed amount of dollars, for the purchase or sale of the amount of foreign
currency involved in the underlying transactions, the Portfolio will be able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the foreign currency during the period
between the date on which the security is purchased or sold, or on which the
dividend or interest payment is declared, and the date on which such payments
are made or received.
Additionally, when a portfolio manager believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Portfolio may enter into a forward contract for a fixed amount of
dollars, to sell the amount of foreign currency approximating the value of some
or all of the portfolio securities denominated in such foreign currency. The
precise matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The above Portfolios will not enter into
such forward contracts or maintain a net exposure to such contracts where the
consummation of the contracts would obligate a Portfolio to deliver an amount of
foreign currency in excess of the value of the securities or other assets
denominated in that currency held by the Portfolio. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the long-term investment decisions made with regard to overall diversification
strategies. However, the Portfolios believe that it is important to have the
flexibility to enter into such forward contracts when it is determined that the
best interests of the Portfolios will thereby be served.
The Portfolios generally will not enter into a forward contract with a term of
greater than one year. At the maturity of a forward contract, a Portfolio may
either sell the security and make delivery of the foreign currency or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract with the same currency
trader obligating it to purchase, on the same maturity date, the same amount of
the foreign currency.
It is impossible to forecast with absolute precision the market value of a
particular security at the expiration of the contract. Accordingly, it may be
necessary for a Portfolio to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If a Portfolio retains the security and engages in an offsetting transaction,
the Portfolio will incur a gain or a loss (as described below) to the extent
that there has been movement in forward contract prices. If forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. If forward
prices increase, the Portfolio will suffer a loss to the extent that the price
of the currency it has agreed to purchase exceeds the price of the currency it
has agreed to sell.
The above Portfolios' dealing in forward foreign currency exchange contracts
will be limited to the transactions described above. Of course, the Portfolios
are not required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this method of
protecting the value of a Portfolio's securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the
securities which are unrelated to exchange rates. Additionally, although such
contracts tend to minimize the risk of loss due to a decline in the value of the
hedged currency, at the same time they tend to limit any potential gain which
might result should the value of such currency increase.
Although the Portfolios value their assets daily in terms of U.S. dollars, they
do not intend physically to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. They will do so from time to time, and investors
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should be aware of the costs of currency conversion. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign currency
to a Portfolio at one rate, while offering a lesser rate of exchange should the
Portfolio desire to resell that currency to the dealer.
The High Yield Bond Portfolio may also invest up to 10% of its total assets in
foreign currency denominated debt securities of foreign or U.S. issuers. If the
Portfolio does engage in such investment activity, it may also enter into
forward foreign currency exchange contracts.
X. INTEREST RATE SWAPS
The Diversified Bond, Diversified Conservative Growth, Government Income, and
High Yield Bond Portfolios and the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios may use interest rate swaps subject to
the limitations set forth in the prospectus.
Interest rate swaps, in their most basic form, involve the exchange by a
Portfolio with another party of their respective commitments to pay or receive
interest. For example, a Portfolio might exchange its right to receive certain
floating rate payments in exchange for another party's right to receive fixed
rate payments. Interest rate swaps can take a variety of other forms, such as
agreements to pay the net differences between two different indexes or rates,
even if the parties do not own the underlying instruments. Despite their
differences in form, the function of interest rate swaps is generally the
same--to increase or decrease a Portfolio's exposure to long or short-term
interest rates. For example, a Portfolio may enter into a swap transaction to
preserve a return or spread on a particular investment or a portion of its
portfolio or to protect against any increase in the price of securities the
Portfolio anticipates purchasing at a later date.
The use of swap agreements is subject to certain risks. As with options and
futures, if the portfolio manager's prediction of interest rate movements is
incorrect, the Portfolio's total return will be less than if the Portfolio had
not used swaps. In addition, if the counterparty's creditworthiness declines,
the value of the swap would likely decline. Moreover, there is no guarantee that
a Portfolio could eliminate its exposure under an outstanding swap agreement by
entering into an offsetting swap agreement with the same or another party.
Each of the above Portfolios will set aside liquid assets in a segregated
custodial account to cover its current obligations under swap agreements. If a
Portfolio enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of the Portfolio's
accrued obligations under the swap agreement over the accrued amount the
Portfolio is entitled to receive under the agreement. If a Portfolio enters into
a swap agreement on other than a net basis, it will segregate assets with a
value equal to the full amount of the Portfolio's accrued obligations under the
agreement.
XI. LOAN PARTICIPATIONS
The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Flexible Managed, High Yield Bond and Money Market Portfolios may invest in
fixed and floating rate loans that are privately negotiated between a corporate
borrower and one or more financial institutions. The above Portfolios will
generally invest in loans in the form of "loan participations." In the typical
loan participation, the Portfolio will have a contractual relationship with the
lender but not the borrower. This means that the Portfolio will not have any
right to enforce the borrower's compliance with the terms of the loan and may
not benefit directly from any collateral supporting the loan. As a result, the
Portfolio will assume the credit risk of both the borrower and the lender. In
the event of the lender's insolvency, the Portfolio may be treated as a general
creditor of the lender and may not benefit from any set-off between the lender
and the borrower.
XII. REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
A. DESCRIPTION OF REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
The Diversified Bond, Diversified Conservative Growth, Government Income and
High Yield Bond Portfolios, and the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios, may use up to 30% of their
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net assets for reverse repurchase agreements and dollar rolls. The Money Market
Portfolio and the money market portion of any Portfolio may use up to 10% of its
net assets for reverse repurchase agreements.
In a reverse repurchase transaction, a Portfolio sells one of its securities and
agrees to repurchase the same security at a set price on a specified date.
During the time the security is held by the other party, the Portfolio will
often continue to receive principal and interest payments on the security. The
terms of the reverse repurchase agreement reflect a rate of interest for use of
the money received by the Portfolio and thus, is similar to borrowing.
Dollar rolls involve the sale by the Portfolio of one of its securities for
delivery in the current month and a contract to repurchase substantially similar
securities (for example, with the same coupon) from the other party on a
specified date in the future at a specified amount. During the roll period, a
Portfolio does not receive any principal or interest earned on the security. The
Portfolio realizes a profit to the extent the current sale price is more than
the price specified for the future purchase, plus any interest earned on the
cash paid to the Portfolio on the initial sale.
A "covered roll" is a specific type of dollar roll where there is an offsetting
cash position or a cash equivalent security position which matures on or before
the forward settlement date of the dollar roll transaction.
A Portfolio participating in reverse repurchase or dollar roll transactions will
set aside liquid assets in a segregated account which equal in value the
Portfolio's obligations under the reverse repurchase agreement or dollar roll,
respectively.
B. RISKS OF REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities retained by a Portfolio may decline below the price of
the securities it has sold but is obligated to repurchase under the agreement.
If the other party in a reverse purchase or dollar roll transaction becomes
insolvent, a Portfolio's use of the proceeds of the agreement may be restricted
pending a determination by a third party of whether to enforce the Portfolio's
obligation to repurchase.
XIII. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Equity, Equity Income, Flexible Managed, Global, Government Income, High Yield
Bond, Natural Resources, Prudential Jennison, Small Capitalization Stock and
20/20 Focus Portfolios may purchase or sell securities on a when-issued or
delayed delivery basis. This means that the delivery and payment can take place
a month or more after the date of the transaction. A Portfolio will make
commitments for when-issued transactions only with the intention of actually
acquiring the securities. A Portfolio's custodian will maintain in a segregated
account, liquid assets having a value equal to or greater to such commitments.
If the Portfolio chooses to dispose of the right to acquire a when-issued
security prior to its acquisition, it could, as with the disposition of any
other security, incur a gain or loss.
The Money Market Portfolio and the short-term portion of the other Portfolios
may purchase money market securities on a when-issued or delayed-delivery basis.
XIV. SHORT SALES
The Conservative Balanced, Diversified Bond, Diversified Conservative Growth,
Flexible Managed, Government Income, High Yield Bond and 20/20 Focus Portfolios
may enter into short sales. In a short sale, a Portfolio sells a security it
does not own in anticipation of a decline in the market value of those
securities. To complete the transaction, the Portfolio will borrow the security
to make delivery to the buyer. The Portfolio is then obligated to replace the
security it borrowed by purchasing it at the market price at the time of
replacement. The price at that time may be more or less than the price at which
the Portfolio sold it. Until the security is replaced, the Portfolio is required
to pay to the lender any interest which accrues during the period of the loan.
To borrow the security, the Portfolio may be required to pay a fee which would
increase the cost of the security sold.
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Until a Portfolio replaces a borrowed security used in a short sale, it will set
aside liquid assets in a segregated account equal to the current market value of
the security sold short or otherwise cover the short position. No more than 25%
of any Portfolio's net assets will be, when added together: (1) deposited as
collateral for the obligation to replace securities borrowed in connection with
short sales and (2) segregated in accounts in connection with short sales.
A Portfolio incurs a loss in a short sale if the price of the security increases
between the date of the short sale and the date the Portfolio replaces the
borrowed security. On the other hand, a Portfolio will realize gain if the
security's price decreases between the date of the short sale and the date the
security is replaced.
XV. LOANS OF PORTFOLIO SECURITIES
A. DESCRIPTION OF SECURITIES LOANS
All of the Portfolios except the Money Market Portfolio may lend the securities
they hold to broker-dealers, qualified banks and certain institutional
investors. All securities loans will be made pursuant to a written agreement and
continuously secured by collateral in the form of cash, U.S. Government
securities or irrevocable standby letters of credit in an amount equal or
greater than the market value of the loaned securities plus the accrued interest
and dividends. While a security is loaned, the Portfolio will continue to
receive the interest and dividends on the loaned security while also receiving a
fee from the borrower or earning interest on the investment of the cash
collateral. Upon termination of the loan, the borrower will return to the
Portfolio a security identical to the loaned security. The Portfolio will not
have the right to vote a security that is on loan, but would be able to
terminate the loan and retain the right to vote if that were considered
important with respect to the investment.
B. RISKS ASSOCIATED WITH LENDING SECURITIES
The primary risk in lending securities is that the borrower may become insolvent
on a day on which the loaned security is rapidly advancing in price. In this
event, if the borrower fails to return the loaned security, the existing
collateral might be insufficient to purchase back the full amount of the
security loaned, and the borrower would be unable to furnish additional
collateral. The borrower would be liable for any shortage but the Portfolio
would be an unsecured creditor with respect to any shortfall and might not be
able to recover all or any of it. However, this risk can be decreased by the
careful selection of borrowers and securities to be lent.
None of the Portfolios will lend securities to entities affiliated with
Prudential.
XVI. ILLIQUID SECURITIES
Each Portfolio, other than the Money Market Portfolio, may hold up to 15% of its
net assets in illiquid securities. The Money Market Portfolio may hold up to 10%
of its net assets in illiquid securities. Securities are "illiquid" if they
cannot be sold in the ordinary course of business within seven days at
approximately the value at which the Portfolio has them valued. Repurchase
agreements with a maturity of greater than seven days are considered illiquid.
The Portfolios may purchase securities which are not registered under the
Securities Act of 1933 but which can be sold to qualified institutional buyers
in accordance with Rule 144A under that Act. These securities will not be
considered illiquid so long as it is determined by the investment adviser,
acting under guidelines approved and monitored by the Board of Directors, that
an adequate trading market exists for that security. In making that
determination, the investment adviser will consider, among other relevant
factors: (1) the frequency of trades and quotes for the security; (2) the number
of dealers willing to purchase or sell the security and the number of other
potential purchasers; (3) dealer undertakings to make a market in the security;
and (4) the nature of the security and the nature of the marketplace trades. A
Portfolio's treatment of Rule 144A securities as liquid could have the effect
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of increasing the level of portfolio illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. In addition, the investment adviser, acting under guidelines
approved and monitored by the Board of Directors, may conditionally determine,
for purposes of the 15% test, that certain commercial paper issued in reliance
on the exemption from registration in Section 4(2) of the Securities Act of 1933
will not be considered illiquid, whether or not it may be resold under Rule
144A. To make that determination, the following conditions must be met: (1) the
security must not be traded flat or in default as to principal or interest; (2)
the security must be rated in one of the two highest rating categories by at
least two nationally recognized statistical rating organizations ("NRSROs"), or
if only one NRSRO rates the security, by that NRSRO (if the security is unrated,
the investment adviser must determine that the security is of equivalent
quality); and (3) the investment adviser must consider the trading market for
the specific security, taking into account all relevant factors. The investment
adviser will continue to monitor the liquidity of any Rule 144A security or any
Section 4(2) commercial paper which has been determined to be liquid and, if a
security is no longer liquid because of changed conditions, the holdings of
illiquid securities will be reviewed to determine if any steps are required to
assure that the 15% test (10% for the Money Market Portfolio) continues to be
satisfied.
XVII. FURTHER INFORMATION ABOUT THE ZERO COUPON BOND PORTFOLIOS
As stated in the prospectus, the objective of Zero Coupon Bond Portfolios 2000
and 2005 is to achieve the highest predictable compounded investment return for
a specified period of time, consistent with the safety of invested capital. This
discussion provides a more detailed explanation of the investment policies that
will be employed to manage these Portfolios.
If each Zero Coupon Bond Portfolio held only stripped securities that were
obligations of the United States Government, maturing on the liquidation date,
the compounded yield of the Portfolio from the date of initial investment until
the liquidation date could be calculated arithmetically to a high degree of
accuracy. By: ( i ) including stripped corporate obligations and interest
bearing debt securities; (ii) including securities with maturity dates within 2
years of the liquidation date; and (iii) more actively managing the Portfolio,
the accuracy of the predicted yield is reduced somewhat with the objective of
achieving an increased yield. The reduction in accuracy is kept to an acceptably
small amount, however, by an investment technique known as "immunization." By
purchasing securities with maturity dates or with interest payment dates prior
to the liquidation date, a risk is incurred that the payments received will not
be able to be reinvested at interest rates as high as or higher than the yield
initially predicted. This is known as "reinvestment risk." By including
securities with maturity dates after the liquidation date, a risk is incurred
that, because interest rates have increased, the market value of such securities
will be lower than had been anticipated. This is known as "market risk." It is
also possible, conversely, that payments received prior to the liquidation date
can be reinvested at higher rates than the predicted yield and that the value of
unmatured securities on the liquidation date will be greater than anticipated.
Reinvestment risk and market risk are thus reciprocal in that any change in the
general level of interest rates has an opposite effect on the two classes of
securities described above.
The Portfolios' investment adviser seeks to balance these risks by making use of
the concept of "duration." A bond's duration is the average weighted period of
time until receipt of all scheduled cash payments under the bond (whether
principal or interest), where the weights are the present value of the amounts
to be received on each payment date. Unlike the concept of a bond's "term to
maturity," therefore, duration takes into account both the amount and timing of
a bond's interest payments, in addition to its maturity date and yield to
maturity. The duration of a zero coupon bond is the product of the face amount
of the bond and the time until maturity. As applied to a portfolio of bonds, a
portfolio's "duration" is the average weighted period of time until receipt of
all scheduled payments, whether principal or interest, from all bonds in the
portfolio.
When a Portfolio's duration is equal to the length of time remaining until its
liquidation date, fluctuations in the amount of income accumulated by the
Portfolio through reinvestment of coupon or principal payments received prior to
the liquidation date (that is, fluctuations caused by reinvestment risk) will,
over the period ending on the liquidation date, be approximately equal in
magnitude to, but opposite in direction from, fluctuations in the market value
on the liquidation date of the Portfolio's unmatured bonds (that is,
fluctuations caused by market risk). By maintaining each Portfolio's duration
within one year of the length of time remaining until its liquidation date, the
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investment adviser believes that each Portfolio's value on its liquidation date,
and hence an investor's compounded investment return to that date, will largely
be immunized against changes in the general level of interest rates. The success
of this technique could be affected, however, by such factors as changes in the
relationship between long-term and short-term interest rates and changes in the
difference between the yield on corporate and Treasury securities.
The investment adviser will also calculate a projected yield for each Zero
Coupon Bond Portfolio. At the beginning of each week, after the net asset value
of each Zero Coupon Bond Portfolio has been determined, the investment adviser
will calculate the compounded annual yield that will result if all securities in
the Portfolio are held until the liquidation date or, if earlier, until their
maturity dates (with the proceeds reinvested until the liquidation date). This
is the predicted yield for that date. It can also be expressed as the amount to
which a premium of $10,000 is predicted to grow by the Portfolio's liquidation
date. Both of these numbers will be furnished upon request. Unless there is a
significant change in the general level of interest rates--in which case a
recalculation will be made--the predicted yield is not likely to vary materially
over the course of each week.
As stated in the prospectus, as much as 30% of each Portfolio's assets may be
invested in zero coupon debt securities issued by United States corporations or
in high grade interest-bearing debt securities, provided that no more than 20%
of the assets of the Portfolio may be invested in interest-bearing securities.
The extent to which the Portfolio invests in interest-bearing securities may
rise above 20% as the Portfolio moves closer to its liquidation date since both
reinvestment risk and market risk become smaller as the period to the
liquidation date decreases.
INVESTMENT RESTRICTIONS
Set forth below are certain investment restrictions applicable to the
Portfolios. Restrictions 1, 3, 5, and 8 through 11 are fundamental and may not
be changed without shareholder approval as required by the 1940 Act.
Restrictions 2, 4, 6, 7, and 12 are not fundamental and may be changed by the
Board of Directors without shareholder approval.
None of the Portfolios will:
1. Buy or sell real estate and mortgages, although the Portfolios may buy
and sell securities that are secured by real estate and securities of
real estate investment trusts and of other issuers that engage in real
estate operation. Buy or sell commodities or commodities contracts,
except that the Diversified Stock, Balanced, and Specialized
Portfolios may purchase and sell stock index futures contracts and
related options; the Fixed Income Portfolios (other than the Money
Market and Zero Coupon Bond Portfolios), the Global Portfolio, and the
Balanced Portfolios may purchase and sell interest rate futures
contracts and related options; and all Portfolios (other than the
Money Market, Government Income, Zero Coupon Bond, and Small
Capitalization Stock Portfolios) may purchase and sell foreign
currency futures contracts and related options and forward foreign
currency exchange contracts.
2. No Portfolio will, except as part of a merger, consolidation,
acquisition, or reorganization, invest more than 5% of the value of
its total assets in the securities of any one investment company or
more than 10% of the value of its total assets, in the aggregate, in
the securities of two or more investment companies, or acquire more
than 3% of the total outstanding voting securities of any one
investment company. Provided, however, that any Portfolio may invest
in the securities of one or more investment companies to the extent
permitted by any order of exemption granted by the United States
Securities and Exchange Commission.
3. Acquire securities for the purpose of exercising control or management
of any company except in connection with a merger, consolidation,
acquisition or reorganization.
4. Make short sales of securities or maintain a short position, except
that the Diversified Bond, Diversified Conservative Growth, 20/20
Focus, High Yield Bond, Government Income, Conservative Balanced and
Flexible Managed Portfolios may sell securities short up to 25% of
their net assets and except that the Portfolios (other than the Money
Market and Zero Coupon Bond Portfolios) may make short sales against
the box. Collateral arrangements entered into with respect to options,
futures contracts and forward
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contracts are not deemed to be short sales. Collateral arrangements
entered into with respect to interest rate swap agreements are not
deemed to be short sales.
5. Purchase securities on margin or otherwise borrow money or issue
senior securities except that the Diversified Bond, Diversified
Conservative Growth, High Yield Bond and Government Income Portfolios,
as well as the fixed income portions of the Balanced Portfolios, may
enter into reverse repurchase agreements, dollar rolls and may
purchase securities on a when-issued and delayed delivery basis;
except that the Money Market Portfolio and the money market portion of
any Portfolio may enter into reverse repurchase agreements and may
purchase securities on a when-issued and delayed delivery basis; and
except that the Equity, Prudential Jennison, 20/20 Focus, Small
Capitalization Stock, Equity Income, Natural Resources and Global
Portfolios may purchase securities on a when-issued or a delayed
delivery basis. The Fund may also obtain such short-term credit as it
needs for the clearance of securities transactions and may borrow from
a bank for the account of any Portfolio as a temporary measure to
facilitate redemptions (but not for leveraging or investment) or to
exercise an option, an amount that does not exceed 5% of the value of
the Portfolio's total assets (including the amount owed as a result of
the borrowing) at the time the borrowing is made. Interest paid on
borrowings will not be available for investment. Collateral
arrangements with respect to futures contracts and options thereon and
forward foreign currency exchange contracts (as permitted by
restriction no. 1) are not deemed to be the issuance of a senior
security or the purchase of a security on margin. Collateral
arrangements with respect to the writing of the following options by
the following Portfolios are not deemed to be the issuance of a senior
security or the purchase of a security on margin: Diversified Stock
and Specialized Portfolios other than the Stock Index Portfolio
(options on equity securities, stock indexes, foreign currencies) and
the Small Capitalization Stock Portfolio (options on equity
securities, stock indexes); the Diversified Conservative Growth and
the Balanced Portfolios (options on debt securities, equity
securities, stock indexes, foreign currencies); Diversified Bond and
High Yield Bond Portfolios (options on debt securities, foreign
currencies); Government Income Portfolio (options on debt securities);
20/20 Focus Portfolio (options on stock indexes). Collateral
arrangements entered into by the Fixed Income Portfolios (other than
the Money Market and Zero Coupon Bond Portfolios), Diversified
Conservative Growth Portfolio and the Balanced Portfolios with respect
to interest rate swap agreements are not deemed to be the issuance of
a senior security or the purchase of a security on margin.
6. Enter into reverse repurchase agreements if, as a result, the
Portfolio's obligations with respect to reverse repurchase agreements
would exceed 10% of the Portfolio's net assets (defined to mean total
assets at market value less liabilities other than reverse repurchase
agreements); except that the Diversified Bond, Diversified
Conservative Growth, High Yield Bond, and Government Income
Portfolios, as well as the fixed income portions of the Conservative
Balanced and Flexible Managed Portfolios, may enter into reverse
repurchase agreements and dollar rolls provided that the Portfolio's
obligations with respect to those instruments do not exceed 30% of the
Portfolio's net assets (defined to mean total assets at market value
less liabilities other than reverse repurchase agreements and dollar
rolls).
7. Pledge or mortgage assets, except that no more than 10% of the value
of any Portfolio may be pledged (taken at the time the pledge is made)
to secure authorized borrowing and except that a Portfolio may enter
into reverse repurchase agreements. Collateral arrangements entered
into with respect to futures and forward contracts and the writing of
options are not deemed to be the pledge of assets. Collateral
arrangements entered into with respect to interest rate swap
agreements are not deemed to be the pledge of assets.
8. Lend money, except that loans of up to 10% of the value of each
Portfolio may be made through the purchase of privately placed bonds,
debentures, notes, and other evidences of indebtedness of a character
customarily acquired by institutional investors that may or may not be
convertible into stock or accompanied by warrants or rights to acquire
stock. Repurchase agreements and the purchase of publicly traded debt
obligations are not considered to be "loans" for this purpose and may
be entered into or purchased by a Portfolio in accordance with its
investment objectives and policies.
9. Underwrite the securities of other issuers, except where the Fund may
be deemed to be an underwriter for purposes of certain federal
securities laws in connection with the disposition of Portfolio
securities and with loans that a Portfolio may make pursuant to item 8
above.
16
<PAGE>
10. Make an investment unless, when considering all its other investments,
75% of the value of a Portfolio's assets would consist of cash, cash
items, obligations of the United States Government, its agencies or
instrumentalities, and other securities. For purposes of this
restriction, "other securities" are limited for each issuer to not
more than 5% of the value of a Portfolio's assets and to not more than
10% of the issuer's outstanding voting securities held by the Fund as
a whole. Some uncertainty exists as to whether certain of the types of
bank obligations in which a Portfolio may invest, such as certificates
of deposit and bankers' acceptances, should be classified as "cash
items" rather than "other securities" for purposes of this
restriction, which is a diversification requirement under the 1940
Act. Interpreting most bank obligations as "other securities" limits
the amount a Portfolio may invest in the obligations of any one bank
to 5% of its total assets. If there is an authoritative decision that
any of these obligations are not "securities" for purposes of this
diversification test, this limitation would not apply to the purchase
of such obligations.
11. Purchase securities of a company in any industry if, as a result of
the purchase, a Portfolio's holdings of securities issued by companies
in that industry would exceed 25% of the value of the Portfolio,
except that this restriction does not apply to purchases of
obligations issued or guaranteed by the U.S. Government, its agencies
and instrumentalities or issued by domestic banks. For purposes of
this restriction, neither finance companies as a group nor utility
companies as a group are considered to be a single industry and will
be grouped instead according to their services; for example, gas,
electric, and telephone utilities will each be considered a separate
industry. For purposes of this exception, domestic banks shall include
all banks which are organized under the laws of the United States or a
state (as defined in the 1940 Act), U.S. branches of foreign banks
that are subject to the same regulations as U.S. banks and foreign
branches of domestic banks (as permitted by the Securities and
Exchange Commission ("SEC")).
12. Invest more than 15% of its net assets in illiquid securities. (The
Money Market Portfolio will not invest more than 10% of its net assets
in illiquid securities.) For purposes of this restriction, illiquid
securities are those deemed illiquid pursuant to SEC regulations and
guidelines, as they may be revised from time to time.
Consistent with item 5 above, the Fund has entered into a joint $1 billion
revolving credit facility with other Prudential mutual funds to facilitate
redemptions if necessary. This credit facility, which was entered into on March
13, 1999, is a syndicated arrangement with 12 different major banks.
The Natural Resources Portfolio will generally invest a substantial majority of
its total assets in securities of natural resource companies. With respect to
item 11 above, as it relates to the Natural Resources Portfolio, the following
categories will be considered separate and distinct industries: integrated
oil/domestic, integrated oil/international, crude oil production, natural gas
production, gas pipeline, oil service, coal, forest products, paper, foods
(including corn and wheat), tobacco, fertilizers, aluminum, copper, iron and
steel, all other basic metals (for example, nickel, lead), gold, silver,
platinum, mining finance, plantations (for example, edible oils), mineral sands,
and diversified resources. A company will be deemed to be in a particular
industry if the majority of its revenues is derived from or the majority of its
assets is dedicated to one of the categories described in the preceding
sentence. The Board of Directors of the Fund will review these industry
classifications from time to time to determine whether they are reasonable under
the circumstances and may change such classifications, without shareholder
approval, to the extent necessary.
Certain additional non-fundamental investment policies are applicable only to
the Money Market Portfolio. That Portfolio will not:
1. Invest in oil and gas interests, common stock, preferred stock,
warrants or other equity securities.
2. Write or purchase any put or call option or combination of them,
except that it may purchase putable or callable securities.
3. Invest in any security with a remaining maturity in excess of 397
days, except that securities held pursuant to repurchase agreements
may have a remaining maturity of more than 397 days.
Certain additional non-fundamental investment policies are applicable only to
the High Yield Bond Portfolio. That Portfolio will not:
17
<PAGE>
1. Invest in any non-fixed income equity securities, including warrants,
except when attached to or included in a unit with fixed income
securities, but not including preferred stock.
2. Invest more than 20% of the market or other fair value of its total
assets in United States currency denominated issues of foreign
governments and other foreign issuers; or invest more than 10% of the
market or other fair value of its total assets in securities which are
payable in currencies other than United States dollars. The Portfolio
will not engage in investment activity in non-U.S. dollar denominated
issues without first obtaining authorization to do so from the Fund's
Board of Directors. See INVESTMENT OBJECTIVES AND POLICIES OF THE
PORTFOLIOS.
The investments of the various Portfolios are generally subject to certain
additional restrictions under the laws of the State of New Jersey. In the event
of future amendments to the applicable New Jersey statutes, each Portfolio will
comply, without the approval of the shareholders, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
stand are, in summary form, as follows:
1. An Account may not purchase any evidence of indebtedness issued,
assumed or guaranteed by any institution created or existing under the
laws of the U.S., any U.S. state or territory, District of Columbia,
Puerto Rico, Canada or any Canadian province, if such evidence of
indebtedness is in default as to interest. "Institution" includes any
corporation, joint stock association, business trust, business joint
venture, business partnership, savings and loan association, credit
union or other mutual savings institution.
2. The stock of a corporation may not be purchased unless: (i) the
corporation has paid a cash dividend on the class of stock during each
of the past 5 years preceding the time of purchase; or (ii) during the
5-year period the corporation had aggregate earnings available for
dividends on such class of stock sufficient to pay average dividends
of 4% per annum computed upon the par value of such stock or upon
stated value if the stock has no par value. This limitation does not
apply to any class of stock which is preferred as to dividends over a
class of stock whose purchase is not prohibited.
3. Any common stock purchased must be: (i) listed or admitted to trading
on a securities exchange in the United States or Canada; or (ii)
included in the National Association of Securities Dealers' national
price listings of "over-the-counter" securities; or (iii) determined
by the Commissioner of Insurance of New Jersey to be publicly held and
traded and have market quotations available.
4. Any security of a corporation may not be purchased if after the
purchase more than 10% of the market value of the assets of a
Portfolio would be invested in the securities of such corporation.
As a result of these currently applicable requirements of New Jersey law, which
impose substantial limitations on the ability of the Fund to invest in the stock
of companies whose securities are not publicly traded or who have not recorded a
5-year history of dividend payments or earnings sufficient to support such
payments, the Portfolios will not generally hold the stock of newly organized
corporations. Nonetheless, an investment not otherwise eligible under items 1 or
2 above may be made if, after giving effect to the investment, the total cost of
all such non-eligible investments does not exceed 5% of the aggregate market
value of the assets of the Portfolio.
Investment limitations also arise under the insurance laws and regulations of
Arizona and may arise under the laws and regulations of other states. Although
compliance with the requirements of New Jersey law set forth above will
ordinarily result in compliance with any applicable laws of other states, under
some circumstances the laws of other states could impose additional restrictions
on the Portfolios.
Current federal income tax laws require that the assets of each Portfolio be
adequately diversified so that Prudential and other insurers with separate
accounts which invest in the Fund, as applicable, and not the Contract owners,
are considered the owners of assets held in the Accounts for federal income tax
purposes. Prudential intends to maintain the assets of each Portfolio pursuant
to those diversification requirements.
18
<PAGE>
INVESTMENT MANAGEMENT AND
DISTRIBUTION ARRANGEMENTS
I. INVESTMENT MANAGEMENT ARRANGEMENTS
Prudential is the investment adviser of the Fund. The Fund has entered into an
Investment Advisory Agreement with Prudential under which Prudential will,
subject to the direction of the Board of Directors of the Fund, be responsible
for the management of the Fund, and provide investment advice and related
services to each Portfolio. Prudential has entered into a Service Agreement with
its wholly-owned subsidiary, The Prudential Investment Corporation ("PIC"),
which provides that PIC will furnish to Prudential such services as Prudential
may require in connection with Prudential's performance of its obligations under
advisory agreements with clients which are registered investment companies. In
addition, Prudential has entered into Subadvisory Agreements with Franklin
Advisers, Inc. ("Franklin"), The Dreyfus Corporation ("Dreyfus"), Pacific
Investment Management Company ("PIMCO") and Jennison Associates LLC ("Jennison")
under which these companies provide investment advisory services to the
Diversified Conservative Growth Portfolio. Prudential has also entered into
Subadvisory Agreements with Jennison under which Jennison furnishes investment
advisory services in connection with the management of the Prudential Jennison
and 20/20 Focus Portfolios. More detailed information about Prudential and its
role as investment adviser can be found in HOW THE PORTFOLIOS ARE MANAGED in the
prospectus.
Under the Investment Advisory Agreement, Prudential receives an investment
management fee as compensation for its services to the Fund. The fee is a daily
charge, payable quarterly, equal to an annual percentage of the average daily
net assets of each individual Portfolio.
The investment management fee for the Stock Index Portfolio is equal to an
annual rate of 0.35% of the average daily net assets of the Portfolio. For the
Money Market, Diversified Bond, Government Income, Zero Coupon Bond, Equity
Income, and Small Capitalization Stock Portfolios that fee is equal to an annual
rate of 0.40% of the average daily net assets of each of the Portfolios. For the
Equity and Natural Resources Portfolios, the fee is equal to an annual rate of
0.45% of the average daily net assets of each of the Portfolios. The fee for the
Conservative Balanced and High Yield Bond Portfolios is equal to an annual rate
of 0.55% of the average daily net assets of each of the Portfolios. For the
Flexible Managed and Prudential Jennison Portfolios, the fee is equal to an
annual rate of 0.60% of the average daily net assets of the Portfolio. The fee
for the Global, 20/20 Focus and Diversified Conservative Growth Portfolios is
equal to an annual rate of 0.75% of the average daily net assets of the
Portfolio. Under the Service Agreement, Prudential pays PIC a portion of the fee
it receives for providing investment management services. Prudential pays
Jennison a portion of the fee it receives for providing investment management
services to the Prudential Jennison, 20/20 Focus and Diversified Conservative
Growth Portfolios.
19
<PAGE>
For the years ended December 31, 1999, 1998 and 1997, Prudential was paid the
following fees for providing investment management services to the Portfolios:
INVESTMENT MANAGEMENT FEES
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
PORTFOLIO 1999 1998 1997
--------- ------------ ------------ ------------
<S> <C> <C> <C>
Conservative Balanced Portfolio ........................................ $ 25,195,056 $ 26,224,569 $ 25,757,735
Diversified Bond Portfolio ............................................. 4,880,364 3,782,116 2,981,884
Diversified Conservative Growth Portfolio (1) .......................... 398,516 n/a n/a
Equity Income Portfolio ................................................ 8,409,886 8,830,161 6,601,602
Equity Portfolio ....................................................... 28,188,640 28,389,539 24,840,379
Flexible Managed Portfolio ............................................. 31,532,667 33,049,940 31,740,440
Global Portfolio ....................................................... 7,287,427 5,342,945 4,836,302
Government Income Portfolio ............................................ 1,545,837 1,735,370 1,758,870
High Yield Bond Portfolio .............................................. 4,421,391 3,782,134 2,679,304
Money Market Portfolio ................................................. 4,400,851 3,246,494 2,667,947
Natural Resources Portfolio ............................................ 1,182,863 1,349,743 1,975,906
Prudential Jennison Portfolio .......................................... 11,126,560 4,662,187 2,063,572
Small Capitalization Stock Portfolio (1) ............................... 1,504,880 1,243,051 867,687
Stock Index Portfolio ................................................. 14,259,131 10,279,903 7,121,699
20/20 Focus Portfolio(1) ............................................... 151,794 n/a n/a
Zero Coupon Bond 2000 Portfolio ........................................ 160,235 159,341 161,101
Zero Coupon Bond 2005 Portfolio ........................................ 179,486 149,980 123,525
------------ ------------ ------------
Total .............................................................. $144,825,584 $132,227,473 $116,177,953
============ ============ ============
</TABLE>
- -------------
(1) Portfolio commenced operations in May of 1999.
The Investment Advisory Agreement requires Prudential to pay for maintaining any
Prudential staff and personnel who perform clerical, accounting, administrative,
and similar services for the Fund, other than investor services and any daily
Fund accounting services. It also requires Prudential to pay for the equipment,
office space and related facilities necessary to perform these services and the
fees or salaries of all officers and directors of the Fund who are affiliated
persons of Prudential or of any subsidiary of Prudential.
Each Portfolio pays all other expenses incurred in its individual operation and
also pays a portion of the Fund's general administrative expenses allocated on
the basis of the asset size of the respective Portfolios. Expenses that will be
borne directly by the Portfolios include redemption expenses, expenses of
portfolio transactions, shareholder servicing costs, interest, certain taxes,
charges of the custodian and transfer agent, and other expenses attributable to
a particular Portfolio. Expenses that will be allocated among all Portfolios
include legal expenses, state franchise taxes, auditing services, costs of
printing proxies, prospectuses and statements of additional information, costs
of stock certificates, SEC fees, accounting costs, the fees and expenses of
directors of the Fund who are not affiliated persons of Prudential or any
subsidiary of Prudential, and other expenses properly payable by the entire
Fund. If the Fund is sued, litigation costs may be directly applicable to one or
more Portfolio or allocated on the basis of the size of the respective
Portfolios, depending upon the nature of the lawsuit. The Fund's Board of
Directors has determined that this is an appropriate method of allocating
expenses.
Under the Investment Advisory Agreement, Prudential has agreed to refund to a
Portfolio (except the Diversified Conservative Growth, Global and 20/20 Focus
Portfolios) the portion of the investment management fee for that Portfolio
equal to the amount that the aggregate annual ordinary operating expenses of
that Portfolio (excluding interest, taxes, and brokerage fees and commissions
but including investment management fees) exceeds 0.75% of the Portfolio's
average daily net assets. There is no expense limitation or reimbursement
provision for the Diversified Conservative Growth, Global or 20/20 Focus
Portfolios.
20
<PAGE>
The Investment Advisory Agreement with Prudential was most recently approved by
the Fund's Board of Directors, including a majority of the Directors who are not
interested persons of Prudential, on May 28, 1999 with respect to all Portfolios
except the Diversified Conservative Growth and 20/20 Focus Portfolios and was
most recently approved by the shareholders in accordance with instructions from
Contract owners at their 1989 annual meeting with respect to all Portfolios
except the Prudential Jennison, Small Capitalization Stock, Diversified
Conservative Growth and 20/20 Focus Portfolios. A Supplemental Advisory
Agreement regarding the Prudential Jennison and Small Capitalization Stock
Portfolios was approved by the Funds Board of Directors on December 20, 1994 and
by the sole shareholder of the Prudential Jennison and Small Capitalization
Stock Portfolios on April 5, 1995. A Supplemental Advisory Agreement with the
20/20 Focus Portfolio and the Diversified Conservative Growth Portfolio was
approved by the Fund's Board of Directors on February 25, 1999 and by the sole
shareholder of those Portfolios on April 5, 1999.
The Investment Advisory and Supplemental Investment Advisory Agreements will
continue in effect if approved annually by: (1) a majority of the non-interested
persons of the Fund's Board of Directors; and (2) by a majority of the entire
Board of Directors or by a majority vote of the shareholders of each Portfolio.
The required shareholder approval of the Agreements shall be effective with
respect to any Portfolio if a majority of the voting shares of that Portfolio
vote to approve the Agreements, even if the Agreements are not approved by a
majority of the voting shares of any other Portfolio or by a majority of the
voting shares of the entire Fund. The Agreements provide that they may not be
assigned by Prudential and that they may be terminated upon 60 days' notice by
the Fund's Board of Directors or by a majority vote of its shareholders.
Prudential may terminate the Agreements upon 90 days' notice.
The Service Agreement between Prudential and PIC was most recently ratified by
shareholders of the Fund at their 1989 annual meeting with respect to all
Portfolios except for the Prudential Jennison, Small Capitalization Stock, 20/20
Focus and Diversified Conservative Growth Portfolios, which had not yet been
established. The Service Agreement with respect to the Prudential Jennison and
Small Capitalization Stock Portfolios and the Investment Subadvisory Agreement
with Jennison for the Prudential Jennison Portfolio were ratified by the sole
shareholder of those Portfolios on April 5, 1995. The Service Agreement with
respect to the 20/20 Focus and Diversified Conservative Growth Portfolios were
ratified by the sole shareholder of those Portfolios on April 5, 1999. The
Service Agreement between Prudential and PIC will continue in effect as to the
Fund for a period of more than 2 years from its execution, only so long as such
continuance is specifically approved at least annually in the same manner as the
Investment Advisory Agreement between Prudential and the Fund. The Service
Agreement may be terminated by either party upon not less than 30 days prior
written notice to the other party, will terminate automatically in the event of
its assignment, and will terminate automatically as to the Fund in the event of
the assignment or termination of the Investment Advisory Agreement between
Prudential and the Fund. Prudential is not relieved of its responsibility for
all investment advisory services under the Investment Advisory Agreement.
The Fund has entered in a Sub-Advisory Agreement with Jennison in respect of its
20/20 Focus Portfolio. This Sub-Advisory Agreement was ratified by the sole
shareholder of the Portfolio on April 5, 1999. The Fund has also entered into
Sub-Advisory Agreements in respect of its Diversified Conservative Growth
Portfolio with Jennison, PIC, Franklin, Dreyfus and PIMCO. These Sub-Advisory
Agreements were ratified by the sole shareholder of the Portfolio on April 5,
1999. Under each Sub-Advisory Agreement, Prudential has agreed to pay the named
sub-adviser a portion of the fee it receives for providing investment management
services to the Diversified Conservative Growth Portfolio.
Franklin Advisers, Inc.
Franklin is a California corporation located at 777 Mariners Island Blvd., San
Mateo, Ca 94404. Franklin is a wholly-owned subsidiary of Franklin Resources
Inc., a publicly-owned company engaged in the financial services industry
through its subsidiaries. Franklin advises 97 domestic equity and fixed income
mutual funds in the Franklin Templeton Group of funds. As of December 31, 1999,
Franklin and its affiliates managed over $235 billion in assets. Franklin
Advisers, Inc. is subject to a Code of Ethics that permits personnel to invest
in securities, including securities that may be acquired by the Fund. However,
the Code imposes a variety of restrictions on such investing, such as blackout
periods.
21
<PAGE>
The Dreyfus Corporation
Dreyfus has its headquarters at 200 Park Avenue, New York, NY 10166. Dreyfus is
a subsidiary of Mellon Bank corporation, a broad-based financial services
company with a bank at its core, and over $300 billion under management or
administration. As of December 31, 1999, Dreyfus managed over $129 billion in
assets. Dreyfus is subject to a Code of Ethics that permits personnel to invest
in securities, including securities that may be acquired by the Fund. However,
the Code imposes a variety of restrictions on such investing, such as blackout
periods.
Pacific Investment Management Company
PIMCO is a Delaware general partnership located at 840 Newport Center Drive,
Newport Beach, CA 92660. PIMCO is a subsidiary of PIMCO Advisors L.P. ("PIMCO
Advisors"). The general partners of PIMCO Advisors are PIMCO Partners, G.P. and
PIMCO Advisors Holdings L.P. ("PAH"). PIMCO Partners, G.P. is a general
partnership between PIMCO Holding LLC, a Delaware limited liability company and
indirect wholly-owned subsidiary of Pacific Life Insurance company, and Pimco
Partners LLC, a California limited liability company controlled by the PIMCO
Managing Directors. PimCO Partners, G.P. is the sole general partner of PAH.
PIMCO is registered as an investment advisor with the Commission and as a
commodity trading advisor with the CFTC. As of December 31, 1999, PIMCO had
approximately $186 million in assets. PIMCO is subject to a Code of Ethics that
permits personnel to invest in securities, including securities that may be
acquired by the Fund. However, the Code imposes a variety of restrictions on
such investing, such as blackout periods.
Prudential also serves as the investment adviser to several other investment
companies. When investment opportunities arise that may be appropriate for more
than one entity for which Prudential serves as investment adviser, Prudential
will not favor one over another and may allocate investments among them in an
impartial manner believed to be equitable to each entity involved. The
allocations will be based on each entity's investment objectives and its current
cash and investment positions. Because the various entities for which Prudential
acts as investment adviser have different investment objectives and positions,
Prudential may from time to time buy a particular security for one or more such
entities while at the same time it sells such securities for another.
Prudential is currently considering reorganizing itself into a publicly traded
stock company through a process known as "demutualization." On February 10,
1998, the Company's Board of Directors authorized management to take the
preliminary steps necessary to allow the Company to demutualize. On July 1,
1998, legislation was enacted in New Jersey that would permit the conversion to
occur and that specified the process for conversion. Demutualization is a
complex process involving development of a plan of reorganization, adoption of a
plan by the Company's Board of Directors, a public hearing, voting by qualified
policyholders and regulatory approval. Prudential is working toward completing
this process in 2001 and currently expects adoption by the Board of Directors to
take place in the latter part of 2000. However, there is no certainty that the
demutualization will be completed in this timeframe or that the necessary
approvals will be obtained. Also it is possible that after careful review,
Prudential could decide not to demutualize or could decide to delay its plans.
II. DISTRIBUTION ARRANGEMENTS
Prudential Investment Management Services LLC ("PIMS"), a direct wholly-owned
subsidiary of Prudential, acts as the principal underwriter of the Fund by
distributing Fund shares on a continuous basis. PIMS is a limited liability
corporation organized under Delaware law in 1996. PIMS is a registered
broker-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, New Jersey 07102-3777. Since the Fund's
shares do not carry any sales load, no part of any sales load is paid to PIMS
for its distribution services to the Fund.
The Fund has adopted a Distribution and Service Plan pursuant to Rule 12b-1 of
the Investment Company Act of 1940 (the Plan) in respect of Class II of each
Portfolio. The expenses incurred under the Plan include commissions and account
servicing fees paid to, or on account of, insurers or their agents who sell
Class II shares, advertising
22
<PAGE>
expenses, indirect and overhead costs of the Fund's underwriter associated with
the sale of Class II shares. Under the Plan, the Fund pays PIMS 0.25 of 1% of
the average net assets of the Class II shares.
The Class II Plan will continue in effect from year to year, upon annual
approval by a vote of the Fund's Board of Directors, including a majority vote
of the Directors who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreement related to the Plan (the "12b-1 Directors"). The Plan may be
terminated at any time, without penalty, by the vote of a majority of the Rule
12b-1 Directors or by the vote of the holders of a majority of the outstanding
shares of Class II. The Plan may not be amended to materially increase the
amounts payable thereunder without shareholder approval.
III. CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics. In addition,
Prudential, PIC, PIMS, and Jennison have each adopted a Code of Ethics (the
"Codes"). The Codes permit personnel subject to the Codes to invest in
securities, including securities that may be purchased or held by the Fund.
However, the protective provisions of the Codes prohibit certain investments and
limit such personnel from making investments during periods when the Fund is
making such investments. The Codes are on public file with, and are available
from, the Commission. With respect to the Diversified Conservative Growth
Portfolio, the Codes of Ethics that have been adopted by Franklin Advisers,
Inc., The Dreyfus Corporation, and Pacific Investment Management Company are
discussed under "Investment Management Arrangements", immediately above.
OTHER INFORMATION CONCERNING THE FUND
I. INCORPORATION AND AUTHORIZED STOCK
The Fund was incorporated under Maryland law on November 15, 1982. As of the
date of this SAI, the shares of capital stock are divided into thirty-four
classes: Conservative Balanced Portfolio Capital Stock--Class I, Conservative
Balanced Portfolio Capital Stock--Class II, Diversified Bond Portfolio Capital
Stock--Class I, Diversified Bond Portfolio Capital Stock--Class II, Diversified
Conservative Growth Portfolio Capital Stock--Class I, Diversified Conservative
Growth Portfolio Capital Stock--Class II, Equity Portfolio Capital Stock--Class
I, Equity Portfolio Capital Stock--Class II, Equity Income Portfolio Capital
Stock--Class I, Equity Income Portfolio Capital Stock--Class II, Flexible
Managed Portfolio Capital Stock--Class I, Flexible Managed Portfolio Capital
Stock--Class II, Global Portfolio Capital Stock--Class I, Global Portfolio
Capital Stock--Class II, Government Income Portfolio Capital Stock--Class I,
Government Income Portfolio Capital Stock--Class II, High Yield Bond Portfolio
Capital Stock--Class I, High Yield Bond Portfolio Capital Stock--Class II, Money
Market Portfolio Capital Stock--Class I, Money Market Portfolio Capital
Stock--Class II, Natural Resources Portfolio Capital Stock--Class I, Natural
Resources Portfolio Capital Stock--Class II, Prudential Jennison Portfolio
Capital Stock--Class I, Prudential Jennison Portfolio Capital Stock--Class II,
Small Capitalization Stock Portfolio Capital Stock--Class I, Small
Capitalization Stock Portfolio Capital Stock--Class II, Stock Index Portfolio
Capital Stock--Class I, Stock Index Portfolio Capital Stock--Class II, 20/20
Focus Portfolio Capital Stock--Class I, 20/20 Focus Portfolio Capital
Stock--Class II, Zero Coupon Bond 2000 Portfolio Capital Stock--Class I, Zero
Coupon Bond 2000 Portfolio Capital Stock--Class II, Zero Coupon Bond 2005
Portfolio Capital Stock--Class I and Zero Coupon Bond 2005 Portfolio Capital
Stock--Class II.
Each class of shares of each Portfolio represents an interest in the same assets
of the Portfolio and is identical in all respects except that: (1) Class II
shares are subject to distribution and administration fees whereas Class I
shares are not; (2) each class has exclusive voting rights on any matter
submitted to shareholders that relates solely to its arrangement and has
separate voting rights on any matter submitted to shareholders in which the
interest of one class differs from the interests of any class; and (3) each
class is offered to a limited group of investors.
23
<PAGE>
The shares of each class, when issued, will be fully paid and non-assessable,
will have no conversion or similar rights, and will be freely transferable. Each
share of each class is equal as to earnings, assets and voting privileges. Class
II bears the expenses related to the distribution of its shares. In the event of
liquidation, each share of a Portfolio is entitled to its portion of all of the
Portfolio's assets after all debts and expenses of the Portfolio have been paid.
Since Class II shares bear distribution and administration expenses, the
liquidation proceeds to Class II shareholders are likely to be lower than to
Class I shareholders, whose shares are not subject to any distribution or
administration fees.
From time to time, Prudential has purchased shares of the Fund to provide
initial capital and to enable the Portfolios to avoid unrealistically poor
investment performance that might otherwise result because the amounts available
for investment are too small. Prudential will not redeem any of its shares until
a Portfolio is large enough so that redemption will not have an adverse effect
upon investment performance. Prudential will vote its shares in the same manner
and in the same proportion as the shares held by the separate accounts that
invest in the Fund, which in turn, are generally voted in accordance with
instructions from Contract owners.
II. PORTFOLIO TRANSACTIONS AND BROKERAGE
Prudential, as the Portfolio's investment adviser, is responsible for decisions
to buy and sell securities, options on securities and indexes, and futures and
related options for the Fund. Prudential is also responsible for the selection
of brokers, dealers, and futures commission merchants to effect the transactions
and the negotiation of brokerage commissions, if any. Broker-dealers may receive
brokerage commissions on Portfolio transactions, including options and the
purchase and sale of underlying securities upon the exercise of options. Orders
may be directed to any broker or futures commission merchant including, to the
extent and in the manner permitted by applicable law, Prudential Securities
Incorporated, an indirect wholly-owned subsidiary of Prudential (PSI).
Equity securities traded in the over-the-counter market and bonds, including
convertible bonds, are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission, although the price
of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. On occasion, certain money market instruments and U.S.
Government agency securities may be purchased directly from the issuer, in which
case no commissions or discounts are paid. The Fund will not deal with PSI in
any transaction in which PSI acts as principal. Thus, it will not deal with PSI
if execution involves PSI's acting as principal with respect to any part of the
Fund's order.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which PSI, during the existence of the syndicate, is a principal
underwriter (as defined in the 1940 Act) except in accordance with rules of the
SEC. This limitation, in the opinion of the Fund, will not significantly affect
the Portfolios' current ability to pursue their respective investment
objectives. However, in the future it is possible that the Fund may under other
circumstances be at a disadvantage because of this limitation in comparison to
other funds not subject to such a limitation.
In placing orders for portfolio securities of the Fund, Prudential's overriding
objective is to obtain the best possible combination of price and execution.
Prudential seeks to effect each transaction at a price and commission that
provides the most favorable total cost or proceeds reasonably attainable in the
circumstances. The factors that Prudential may consider in selecting a
particular broker, dealer or futures commission merchant firms are: Prudential's
knowledge of negotiated commission rates currently available and other
transaction costs; the nature of the portfolio transaction; the size of the
transaction; the desired timing of the trade; the activity existing and expected
in the market for the particular transaction; confidentiality; the execution,
clearance and settlement capabilities of the firms; the availability of research
and research related services provided through such firms; Prudential's
knowledge of the financial stability of the firms; Prudential's knowledge of
actual or apparent operational problems of firms; and the amount of capital, if
any, that would be contributed by firms executing the transaction. Given these
factors, the Fund may pay transaction costs in excess of that which another firm
might have charged for effecting the same transaction. The greater a Portfolio's
portfolio turnover (i.e., purchases or sales of securities), the greater the
Portfolio's "other expenses" are likely to be.
24
<PAGE>
When Prudential selects a firm that executes orders or is a party to portfolio
transactions, relevant factors taken into consideration are whether that firm
has furnished research and research related products and/or services, such as
research reports, research compilations, statistical and economic data, computer
data bases, quotation equipment and services, research oriented
computer-software, hardware and services, reports concerning the performance of
accounts, valuations of securities, investment related periodicals, investment
seminars and other economic services and consultants. Such services are used in
connection with some or all of Prudential's investment activities; some of such
services, obtained in connection with the execution of transactions for one
investment account may be used in managing other accounts, and not all of these
services may be used in connection with the Fund.
PSI may act as a securities broker or futures commission merchant for the Fund.
In order for PSI to effect any transactions for the Portfolios, the commissions
received by PSI must be reasonable and fair compared to the commissions received
by other brokers in connection with comparable transactions involving similar
securities being purchased or sold on a securities exchange during a comparable
period of time. This standard would allow PSI to receive no more than the
remuneration that would be expected to be received by an unaffiliated broker or
futures commission merchant in a commensurate arm's-length transaction.
Furthermore, the Board of Directors of the Fund, including a majority of the
directors who are not "interested" persons, has adopted procedures which are
reasonably designed to provide that any commissions, fees or other remuneration
paid to PSI are consistent with the foregoing standard. In accordance with Rule
11a2-2(T) under the Securities Exchange Act of 1934, PSI may not retain
compensation for effecting transactions on a national securities exchange for
the Fund unless the Fund has expressly authorized the retention of such
compensation in a written contract executed by the Fund and PSI. Rule 11a2-2(T)
provides that PSI must furnish to the Fund at least annually a statement setting
forth the total amount of all compensation retained by PSI from transactions
effected for the Fund during the applicable period. Brokerage and futures
transactions with PSI are also subject to such fiduciary standards as may be
imposed by applicable law.
For the years ended December 31, 1999, 1998, and 1997, the Portfolios paid the
following amounts in brokerage commissions:
COMMISSIONS PAID BY THE PORTFOLIOS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
% OF
AGGREGATE COMMISSIONS COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO PSI PAID TO PSI
--------- ----------- ----------- -----------
<S> <C> <C> <C>
Conservative Balanced ................................................. $ 280,871 $ 2,600 93%
Equity ................................................................ 2,503,195 319,224 12.75%
Equity Income ......................................................... 1,751,497 69,381 3.96%
Flexible Managed ...................................................... 782,063 10,257 1.31%
High Yield ............................................................ 11,184 0 0.00%
Natural Resources ..................................................... 467,448 3,431 .73%
Prudential Jennison ................................................... 1,843,765 188,075 10.20%
Small Cap Stock ....................................................... 258,130 0 0.00%
Stock Index ........................................................... 161,051 0 0.00%
---------- --------
Total ................................................................. $8,059,204 $592,968
========== ========
</TABLE>
25
<PAGE>
COMMISSIONS PAID BY THE PORTFOLIOS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
% OF
AGGREGATE COMMISSION COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO PSI PAID TO PSI
--------- ----------- ----------- -----------
<S> <C> <C> <C>
Conservative Balanced ................................................. $ 1,320,049 $ 32,490 2.46%
Equity ................................................................ 3,861,374 294,641 7.63%
Equity Income ......................................................... 1,808,503 160,840 8.89%
Flexible Managed ...................................................... 2,176,922 103,021 4.73%
Global ................................................................ 1,891,928 14,247 0.75%
High Yield Bond ....................................................... 6,770 0 0.00%
Natural Resources ..................................................... 331,482 1,800 0.54%
Prudential Jennison ................................................... 936,449 56,980 6.08%
Small Cap Stock ....................................................... 249,010 0 0.00%
Stock Index ........................................................... 180,781 0 0.00%
----------- --------
Total ............................................................. $12,763,268 $664,019
=========== ========
</TABLE>
COMMISSIONS PAID BY THE PORTFOLIOS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
% OF
AGGREGATE COMMISSION COMMISSIONS
PORTFOLIO COMMISSIONS PAID TO PSI PAID TO PSI
--------- ----------- ----------- -----------
<S> <C> <C> <C>
Diversified Bond ...................................................... $ 54,863 $ 0 0.00%
Government Income ..................................................... 4,971 0 0.00%
Conservative Balanced ................................................. 3,338,897 256,752 7.69%
Flexible Managed ...................................................... 6,544,428 428,008 6.54%
High Yield Bond ....................................................... 47,273 0 0.00%
Stock Index ........................................................... 200,865 0 0.00%
Equity Income ......................................................... 2,241,887 198,726 8.86%
Equity ................................................................ 1,823,705 189.498 10.39%
Prudential Jennison ................................................... 484,086 0 0.00%
Small Capitalization Stock ............................................ 227,781 0 0.00%
Global ................................................................ 2,055,319 7,621 0.37%
Natural Resources ..................................................... 569,768 132 0.02%
----------- ----------
Total ............................................................. $17,593,843 $1,080,737
=========== ==========
</TABLE>
26
<PAGE>
For 1999, the percentage of the aggregate dollar amount of transactions effected
through PSI on a Portfolio basis was:
PERCENTAGE OF AGGREGATE DOLLAR AMOUNT
PORTFOLIO OF TRANSACTIONS EFFECTED THROUGH PSI
----------- --------------------------------------
Conservative Balanced ................ .13%
Equity ............................... .11%
Equity Income ........................ .18%
Flexible Managed ..................... .13%
Natural Resources .................... .75%
Prudential Jennison .................. .08%
III. TAXATION OF THE FUND
The Fund intends to qualify as regulated investment company under Subchapter M
of the Internal Code of 1986, as amended (the "Code"). The Fund generally will
not be subject to federal income tax to the extent it distributes to
shareholders its net investment income and net capital gains in the manner
required by the Code. There is a 4% excise tax on the undistributed income of a
regulated investment company if that company fails to distribute the required
percentage of its net investment income and net capital gains. The Fund intends
to employ practices that will eliminate or minimize this excise tax.
Federal tax law requires that the assets underlying variable contracts,
including the Fund, meet certain diversification requirements. Each Portfolio is
required to diversify its investments each quarter so that no more than 55% of
the value of its assets is represented by any one investment, no more than 70%
is represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four investments.
Generally, securities of a single issuer are treated as one investment and
obligations of each U.S. Government agency and instrumentality (such as the
Government National Mortgage Association) are treated as issued by separate
issuers. In addition, any security issued, guaranteed or insured (to the extent
so guaranteed or insured) by the United States or an instrumentality of the U.S.
will be treated as a security issued by the U.S. Government or its
instrumentality, whichever is applicable.
Some foreign securities purchased by the Portfolios may be subject to foreign
taxes which could reduce the return on those securities.
This is a general and brief summary of the tax laws and regulations applicable
to the Fund. The law and regulations may change. You should consult a tax
adviser for complete information and advice.
IV. CUSTODIANS AND TRANSFER AGENT
State Street Bank and Trust Company (State Street), 127 West 10th Street, Kansas
City, MO 64105-1716, is the custodian of the assets held by all the Portfolios.
State Street is also the custodian of the assets held in connection with
repurchase agreements entered into by the Portfolios, and is authorized to use
the facilities of the Depository Trust Company and the facilities of the
book-entry system of the Federal Reserve Bank with respect to securities held by
these Portfolios. State Street employs subcustodians, who were approved in
accordance with regulations of the SEC, for the purpose of providing custodial
service for the Fund's foreign assets held outside the United States. The
transfer agent is Prudential Mutual Fund Series LLC (PMFS), Raritan Plaza One,
Edison, NJ 08837. For performance by PMFS pursuant to the Transfer Agency and
Service Agreement, the Fund pays to PMFS an annual fee of $125,000 and certain
out-of-pocket expense including, but not limited to; postage, stationery,
printing, allocable communication costs, microfilm or microfiche, and expense
incurred at the specific direction of the Fund.
27
<PAGE>
V. EXPERTS
The financial statements of the Fund as of December 31, 1999 and for each of the
three years in the period then ended included in this statement of additional
information have been so included in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's
principal business address is 1177 Avenue of the Americas, New York, NY 10036.
VI. LICENSES
As part of the Investment Advisory Agreement, Prudential has granted the Fund a
royalty-free, non-exclusive license to use the words "The Prudential" and
"Prudential" and its registered service mark of a rock representing the Rock of
Gibraltar. However, Prudential may terminate this license if Prudential or a
company controlled by it ceases to be the Fund's investment adviser. Prudential
may also terminate the license for any other reason upon 60 days' written
notice; but, in this event, the Investment Advisory Agreement shall also
terminate 120 days following receipt by the Fund of such notice, unless a
majority of the outstanding voting securities of the Fund vote to continue the
Agreement notwithstanding termination of the license.
The Fund is not sponsored, endorsed, sold or promoted by Standard & Poors
("S&P"). S&P makes no representation or warranty, express or implied, to
Contract owners or any member of the public regarding the advisability of
investing in securities generally or in the Fund particularly or the ability of
the S&P 500 Index or the S&P SmallCap 600 Index to track general stock market
performance. S&P's only relationship to the Fund is the licensing of certain
trademarks and trade names of S&P and the S&P 500 Index. The S&P 500 Index and
the S&P SmallCap 600 Index are determined, composed and calculated by S&P
without regard to the Fund, the Stock Index Portfolio or the Small
Capitalization Stock Portfolio. S&P has no obligation to take the needs of the
Fund or the Contract owners into consideration in determining, composing or
calculating the S&P 500 Index or the S&P SmallCap 600 Index. S&P is not
responsible for and has not participated in the determination of the prices and
amount of the Fund shares or the timing of the issuance or sale of those shares
or in the determination or calculation of the equation by which the shares are
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Fund shares.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL
HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES
NO WARRANTY, EXPRESS OR IMPLIED AS TO RESULTS TO BE OBTAINED BY THE FUND,
CONTRACT OWNERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX, THE S&P SMALLCAP 600 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT
LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY
SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS),
EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
MANAGEMENT OF THE FUND
The names of all directors and major officers of the Fund and the principal
occupation of each during the last 5 years are shown below. Unless otherwise
stated, the address of each director and officer is 751 Broad Street, Newark,
New Jersey 07102-3777.
DIRECTORS OF THE FUND
JOHN R. STRANGFELD*, 46, Chairman and President--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.
SAUL K. FENSTER, 67, Director--President of New Jersey Institute of Technology.
Address: 323 Martin Luther King, Jr. Boulevard, Newark, New Jersey 07102.
28
<PAGE>
W. SCOTT MCDONALD, JR., 63, Director--Vice President, Kaludis Consulting Group
since 1997; 1995 to 1996: Principal, Scott McDonald & Associates. Address: 9
Zamrok Way, Morristown, New Jersey 07960.
JOSEPH WEBER, 76, Director--Vice President, Interclass (international corporate
learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey 07006.
OFFICERS WHO ARE NOT DIRECTORS
LEE D. AUGSBURGER, Secretary--Assistant General Counsel of Prudential since
1997; prior to 1997, Consultant with Price Waterhouse LLP.
ROBERT F. GUNIA, Vice President--Executive Vice President, Prudential
Investments, since 1999; Vice President, Prudential from 1997 to 1999; prior to
1997, Senior Vice President, Prudential Securities Incorporated.
WILLIAM V. HEALEY, Assistant Secretary--Vice President and Associate General
Counsel of Prudential and Chief Legal Officer of Prudential Investments since
1998; Director, ICI Mutual Insurance Company since 1999; prior to 1998,
Associate General Counsel of The Dreyfus Corporation.
DAVID R. ODENATH, JR., Vice President--President, Chief Executive Officer and
Chief Operating Officer of Prudential Investments Fund Management LLC (PIFM)
since 1999; prior to 1999, Senior Vice President, PaineWebber Group, Inc.
C. CHRISTOPHER SPRAGUE, Assistant Secretary--Assistant General Counsel of
Prudential since 1994.
GRACE C. TORRES, Treasurer and Principal Financial and Accounting Officer--First
Vice President of PIFM since 1996; prior to 1996: First Vice President of
Prudential Securities Inc.
STEPHEN M. UNGERMAN, Assistant Treasurer--Vice President and Tax Director of
Prudential Investments since 1996; prior to 1996: First Vice President of
Prudential Mutual Fund Management, Inc.
- -------------
*This member of the Board is an interested person of Prudential, its affiliates
or the Fund as defined in the 1940 Act. Certain actions of the Board, including
the annual continuance of the Investment Advisory Agreement between the Fund and
Prudential, must be approved by a majority of the members of the Board who are
not interested persons of Prudential, its affiliates or the Fund. Mr.
Strangfeld, one of the four members of the Board, is an interested person of
Prudential and the Fund, as that term is defined in the 1940 Act, because he is
an officer and/or affiliated person of Prudential, the investment advisor to the
Fund. Messrs. Fenster, McDonald, and Weber are not interested persons of
Prudential, its affiliates or the Fund. However, Mr. Fenster is President of the
New Jersey Institute of Technology. Prudential has issued a group annuity
contract to the Institute and provides group life insurance to its employees.
No director or officer of the Fund who is also an officer, director or employee
of Prudential or its affiliates is entitled to any remuneration from the Fund
for services as one of its directors or officers. A single annual retainer fee
of $35,000 is paid to each of the directors who is not an interested person of
the Fund for services rendered to five different Prudential mutual funds,
including this Fund. (The amount paid in respect of each fund is determined on
the basis of the funds' relative average net assets.) The directors who are not
interested persons of the Fund are also reimbursed for all expenses incurred in
connection with attendance at meetings.
The following table sets forth the aggregate compensation paid by the Fund to
the Directors who are not affiliated with Prudential for the fiscal year ended
December 31, 1999 and the aggregate compensation paid to such Directors for
service on the Fund's Board and the Boards of any other investment companies
managed by Prudential for the calendar year ended December 31, 1999. Below are
listed all Directors who have served the Fund during its most recent fiscal
year.
29
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION
AGGREGATE BENEFITS ANNUAL RELATED
COMPENSATION ACCRUED AS BENEFITS TO FUNDS
FROM PART OF SERIES UPON MANAGED BY
NAME AND POSITION SERIES FUND FUND EXPENSES RETIREMENT PRUDENTIAL (**)
- ----------------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
John R. Strangfeld* ................................... -- -- -- --
Saul K. Fenster ....................................... $22,800 None N/A $35,000 (5/21)
W. Scott McDonald ..................................... $22,800 None N/A $35,000 (5/21)
Joseph Weber .......................................... $22,800 None N/A $35,000 (5/21)
</TABLE>
- ------------
* Directors who are "interested" do not receive compensation from Prudential
(including the Fund).
** Indicates number of funds and portfolios (including the Fund) to which
aggregate compensation relates.
As of April 1, 2000, the Directors and officers of the Fund, as a group,
beneficially owned less than one percent of the outstanding shares of the Fund's
capital stock.
FUND PERFORMANCE
Performance for each of the Portfolios is set out below. These performance
figures do not include the effect of charges imposed by variable insurance
contracts investing in the Fund which, when deducted, reduce performance.
For the seven days ended December 31, 1999, the yield and effective yield of
Class I shares of Money Market Portfolio were 5.59% and 5.16%, respectively.
For the 1 year, 5 year and 10 year periods ended on December 31, 1999, the
average annual return of Class I shares of each Portfolio is set out below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSERVATIVE BALANCED DIVERSIFIED DIVERSIFIED CONSERVATIVE GROWTH*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
6.69% 12.30% 10.28% (0.74%) 7.80% 7.69% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUITY EQUITY INCOME FLEXIBLE MANAGED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
12.49% 18.99% 15.08% 12.52% 17.33% 14.06% 7.78% 14.60% 11.77%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
GLOBAL GOVERNMENT INCOME HIGH YIELD MONEY MARKET
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
48.27% 22.44% 13.38% (2.70%) 7.29% 7.09% 4.61% 8.76% 9.78% 4.97% 5.36% 5.18%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NATURAL RESOURCE PRUDENTIAL JENNISON SMALL CAPITALIZATION STOCK STOCK INDEX
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
45.99% 12.19% 9.03% 41.76% N/A N/A 12.68% N/A N/A 20.54% 28.14% 17.75%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
20/20 FOCUS ZERO COUPON BOND 2000 ZERO COUPON 2005
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs 1 yr. 5 yrs 10 yrs
- ------------------------------------------------------------------------------------------------------------------------------------
N/A N/A N/A 2.18% 7.77% 8.00% (5.66%) 8.99% 8.73%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Diversified Conservative Growth and 20/20 Focus Portfolio commenced
operations on May 3, 1999, so there is not a full year of performance to
report.
30
<PAGE>
AVERAGE AMOUNT TOTAL RETURN
The Fund may from time to time advertise its average annual total return.
Average annual total return is determined separately for each class.
A Portfolio "average annual total return" is computed according to a formula
prescribed by the SEC expressed as follows:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years
EVR = Ending Redeemable Value (ERV) at the end of 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of 1-, 5-, or 10-year period.
AGGREGATE TOTAL RETURN
The Fund may also advertise its aggregate total return. Aggregate total return
is determined separately for each class.
A Portfolio's aggregate total return represents the cumulative change in the
value of an investment in the Portfolio for the specified period and is computed
by the following formula:
ERV-- P
--------
P
Where: P = a hypothetical initial payment of $1,000.
EVR = Ending Redeemable Value (ERV) at the end of 1-, 5- or 10-year
period (or fractional portion thereof) of a hypothetical $1,000
investment made at the beginning of 1-, 5-, or 10-year period
assuming reinvestment of all dividends and distributions..
The ERV assumes complete redemption of the hypothetical investment at the end of
the measuring period.
A Portfolio's performance will vary from time to time depending upon market
conditions, the composition of its portfolio and its operation expenses.
Consequently, any given performance quotation should not be considered
representative of a Portfolio's performance for any specified period in the
future.
A Portfolio may include comparative performance information in advertising or
marketing the Portfolio's shares. Such performance information may include data
from Lipper Inc., Moningstar Publication, Inc. and other industry publications,
business periodicals and market indexes.
CALCULATION OF YIELD
The Money Market Portfolio may from time to time advertise a current quotation
of yield. The yield quoted will be the simple annualized yield for an identified
seven calendar day period. The yield calculation will be based on a hypothetical
account having a balance of exactly one share at the beginning of the seven-day
period. The base period return will be the change in the value of the
hypothetical account during the seven-day period, including dividends declared
on any shares purchase with dividends on the shares, but excluding any capital
changes, divided by the value of the account at the beginning of the base
period. The yield will vary as interest rates and other conditions affecting
money market instruments change. Yield also depends on the quality, length of
maturity and type of instruments in the Portfolio and operating expenses. The
Portfolio also may prepare an effective annual yield
31
<PAGE>
computed by compounding the unannualized seven-day period return as follows: by
adding 1 to the unannualized seven-day period return, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result.
Effective yield = [(base period return + 1)365/7] - 1
Comparative performance information may be used from time to time in advertising
or marketing the Portfolio's shares, including data from Lipper Analytical
Services, Inc., Morningstar Publications, Inc., IBC Financial Data. Inc., The
Bank Rate Monitor, other industry publications, business periodicals and market
indices.
The Money Market Portfolio's yield fluctuates, and an annualized yield quotation
is not a representation by the Portfolio as to what an investment in the
Portfolio will actually yield for any given period. Actual yield will depend
upon not only changes in interest rates generally during the period in which the
investment in the Portfolio is held, but also on changes in the Portfolio's
expenses.
32
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc.'s financial statements and financial highlights
for the fiscal year ended December 31, 2000, and report of the auditor appear in
the Annual Reports provided herewith. These reports are incorporated herein by
reference to their filing with the Securites and Exchange Commission on March
10, 2000 and with respect to the Diversified Conservative Growth Portfolio and
the 20/20 Focus Portfolio, as filed on March 21, 2000.
33
<PAGE>
BOARD OF
DIRECTORS THE PRUDENTIAL SERIES FUND, INC
JOHN R. STRANGFELD W. SCOTT McDONALD, JR., Ph.D.
Chairman, Vice President,
The Prudential Series Fund, Inc. Kaludis Consulting Group
SAUL K. FENSTER, Ph.D. JOSEPH WEBER, Ph.D.
President, Vice President,
New Jersey Institute Interclass (international
of Technology corporate learning)
<PAGE>
APPENDIX
DEBT RATINGS
Moody's Investors Services, Inc. describes its categories of corporate debt
securities and its "Prime-1" and "Prime-2" commercial paper as follows:
Bonds:
Aaa -- Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated "Baa" are considered as medium grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated "Ca" represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C -- Bonds which are rated "C" are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Commercial paper:
Issuers rated Prime-1 (or supporting institutions) have a superior ability for
repayment of senior short-term debt obligations. Prime-1 repayment ability will
often be evidenced by many of the following characteristics:
- -- Leading market positions in well-established industries.
- -- High rates of return of funds employed.
A-1
<PAGE>
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- -- Well established access to a range of financial markets and assured sources
of alternate liquidity.
Issuers rated Prime-2 (or supporting institutions) have a strong ability for
repayment of short-term debt obligations. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree. Earnings trends
and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Standard & Poor's Ratings Services describes its grades of corporate debt
securities and its "A" commercial paper as follows:
Bonds:
AAA Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB Debt rated "BBB" is regarded as having adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher-rated categories.
BB-B-CCC-CC-C
Debt rated "BB", "B", "CCC", "CC", and "C" is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.
Commercial paper:
Commercial paper rated A by Standard & Poor's Ratings Services has the following
characteristics: Liquidity ratios are better than the industry average. Long
term senior debt rating is "A" or better. In some cases BBB credits may be
acceptable. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowances
made for unusual circumstances. Typically, the issuer's industry is well
established, the issuer has a strong position within its industry and the
reliability and quality of management is unquestioned. Issuers rated A are
further referred to by use of numbers 1, 2 and 3 to denote relative strength
within this classification.
A-2
<PAGE>
THE PRUDENTIAL
SERIES FUND, INC.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, Newark, NJ 07102-3777
<PAGE>
<TABLE>
<CAPTION>
PART C
OTHER INFORMATION
ITEM 23.
EXHIBITS
<S> <C>
(a) Articles of Restatement of The Prudential Filed herewith.
Series Fund, Inc. {September 1, 1999]
(b) By-laws of The Prudential Series Fund, Filed herewith.
Inc., as amended February 29, 2000.
(d) (1) Investment Advisory Agreement, as Incorporated by reference to Post-Effective
amended July 14, 1988 between The Amendment No. 33 to this Registration Statement,
Prudential Insurance Company of America filed April 28, 1997.
and The Prudential Series Fund, Inc.
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(2) Supplemental Investment Advisory Agreement Incorporated by reference to Post-Effective
between The Prudential Insurance Company Amendment No. 28 to this Registration Statement,
of America and The Prudential Series Fund, filed April 28, 1997.
Inc.
(3) Subadvisory Agreement between The Incorporated by reference to Post-Effective
Prudential Insurance Company of America Amendment No. 28 to this Registration Statement,
and Jennison Associates Capital Corp.
(4) Subadvisory Agreement between The Incorporated by reference to Post-Effective
Prudential Insurance Company of America Amendment No. 36 to this Registration Statement,
and Jennison Associates LLC. filed April 28, 1999.
(5) Subadvisory Agreement between The Incorporated by reference to Post-Effective
Prudential Insurance Company of America Amendment No. 36 to this Registration Statement,
and The Dreyfus Corporation. filed April 28, 1999.
(6) Subadvisory Agreement between The Incorporated by reference to Post-Effective
Prudential Insurance Company of Amendment No. 36 to this Registration Statement,
America and Franklin Advisers, Inc. filed April 28, 1999.
(7) Subadvisory Agreement between The Incorporated by reference to Post-Effective
Prudential Insurance Company of America Amendment No. 36 to this Registration Statement,
and Pacific Investment Management Company. filed April 28, 1999.
(8) Service Agreement between The Prudential Incorporated by reference to Post-Effective
Insurance Company of America and The Amendment No. 33 to this Registration Statement,
Prudential Investment Corporation. filed April 28, 1997.
(e) Distribution Agreement between The Incorporated by reference to Post-Effective
Prudential Series Fund, Inc. and Pruco Amendment No. 33 to this Registration Statement,
Securities Corporation. filed April 28, 1997.
(g) (1) Custodian Agreement between Chase Incorporated by reference to Post-Effective
Manhattan Bank (formerly Chemical Bank and Amendment No. 33 to this Registration Statement,
Manufacturers Hanover Trust Company) and filed April 28, 1997.
The Prudential Series Fund, Inc.
(1)(a) Addendum #2 to Custodian Contract Incorporated by reference to Post-Effective
Between Chase Manhattan Bank and The Amendment No. 32 to this Registration Statement,
Prudential Series Fund, Inc. filed February 28, 1997.
(2) Custodian Agreement between Brown Brothers Incorporated by reference to Post-Effective
Harriman & Co. and The Prudential Series Amendment No. 33 to this Registration Statement,
Fund, Inc. filed April 28, 1997.
(3) Form of Custodian Agreement between Incorporated by reference to Post-Effective
Investors Fiduciary Trust Company and Amendment No. 34 to this Registration Statement,
The Prudential Series Fund, Inc. dated filed April 24, 1998.
May 19, 1997.
(3)(i) Custodian Agreement between Filed herewith.
Investors Fiduciary Trust Company
and The Prudential Insurance
Company of America dated September
16, 1996.
(ii) Assignment of Custodian Agreement Filed herewith.
from Investors Fiduciary Trust
Company to State Street effective
January 1, 2000.
(iii) First Amendment to Custody Filed herewith.
Agreement between The Prudential
Insurance Company of America and
Investors Fiduciary Trust Company
dated December 1, 1996.
(4) Transfer Agent Agreement between Incorporated by reference to Post-Effective
Prudential Mutual Fund Services LLC Amendment No. 36 to this Registration Statement,
and The Prudential Series Fund, Inc. filed April 28, 1999.
(5) Supplement to Custody Agreement between Filed herewith.
The Prudential Series Fund, Inc.,
Prudential's Gibralter Fund and
Investors Fiduciary Trust Company dated
August 19, 1998.
(6)(i) Special Custody Agreement between The Filed herewith.
Prudential Series Fund, Inc., Natural
Resources Portfolio, Goldman, Sachs &
Co., and Investors Fiduciary Trust
Company.
(ii) Assignment of Special Custody Filed herewith.
Agreement from Investors Fiduciary Trust
Company to State Street effective
January 1, 2000.
(iii) First Amendment of Custody Agreement Filed herewith.
between the Prudential Series Fund, Inc.
and Prudential's Gibraltar Fund and State
Street Bank and Trust dated March 1, 2000.
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(h) (1) Indemnification Agreement Regarding Reg. Incorporated by reference to Post-Effective Amendment No. 33
to this Registration Statement, filed April 28, 1997.
(2) Indemnification Agreement Regarding Reg. Incorporated by reference to Post-Effective Amendment No. 33
No. 33-57186. to this Registration Statement, filed April 28, 1997.
(3)(a) Investment Accounting Agreement Filed herewith.
between The Prudential Series Fund Inc.,
Prudential's Gibraltor Fund and Investor
Fiduciary Trust Company dated December 31,
1994.
(3)(b) First Amendment to Investment Accounting Filed herewith.
Agreement between The Prudential Series
Fund, Inc., Prudential's Gibraltar Fund
and Investors Fiduciary Trust Company dated
June 20, 1995.
(3)(c) Second Amendment to Investment Accounting
Agreement between The Prudential Series Fund,
Inc. and Prudential's Gibraltar Fund and State
Street Bank and Trust dated March 1, 2000.
(4)(a) Code of Ethics for The Prudential Filed herewith.
Insurance Company of America Adopted
2/29/00.
(b) Code of Ethics for The Prudential Series Filed herewith.
Fund, Inc. Adopted 2/29/00.
(c) Code of Ethics for Prudential Investment Filed herewith.
Management Services LLC Adopted 2/29/00.
(d) Code of Ethics for Franklin Advisers, Filed herewith.
Inc. Adopted 2/29/00.
(e) Code of Ethics for The Dreyfus Corporation Filed herewith.
Adopted 2/29/00.
(f) Code of Ethics for Pacific Investment Filed herewith.
Management Company Adopted 2/29/00.
(g) Code of Ethics for The Prudential Filed herewith.
Investment Corporation Adopted 2/29/00.
(h) Code of Ethics for Jennison Associates Filed herewith.
LLC Adopted 2/29/00.
(5)(a) Fund Participation Agreement between Great- Filed herewith.
West Life & Annuity Insurance Company, The
Prudential Series Fund, Inc., The Prudential
Insurance Company of America, Prudential
Investment Management Services LLC and Charles
Schwab & Co., Inc. dated May 1, 1999.
(b) Fund Participation Agreement between Filed herewith.
First Great-West Life & Annuity Insurance
Company, The Prudential Series Fund, Inc.,
The Prudential Insurance Company of America,
Prudential Investment Management Services
LLC and Charles Schwab & Co., Inc. dated
May 1, 1999
(c) Fund Participation Agreement between The Filed herewith.
Ohio National Life Insurance Company, The
Prudential Insurance Company of America, The
Prudential Series Fund, Inc. and Prudential
Investment Management Services LLC.
(6) Procedural Agreement between Merrill Lynch Filed herewith.
Futures, Inc., The Prudential Series Fund,
Inc. and Investors Fiduciary Trust Company
(7)(a) Pledge Agreement between Goldman, Sachs Filed herewith.
& Co., The Prudential Series Fund, Inc.
and Investors Fiduciary Trust Company,
dated August 15, 1997.
(b) Pledge Agreement between Lehman Brothers Filed herewith.
Inc., The Prudential Series Fund, Inc. and
Investors Fiduciary Trust Company, dated
August 29, 1997.
(c) Pledge Agreement between J.P. Morgan Filed herewith.
Futures Inc., The Prudential Series Fund,
Inc. and Investors Fiduciary Trust Company
dated September 1997.
(d) Pledge Agreement between PaineWebber Filed herewith.
Inc., The Prudential Series Fund, Inc. and
Investors Fiduciary Trust Company, dated
September 25, 1997.
(e) Pledge Agreement between Credit Suisse Filed herewith.
First Boston Corp., The Prudential Series
Fund, Inc. and Investors Fiduciary Trust
Company dated November 11, 1997.
(j)(1) Consent of PricewaterhouseCoopers LLP Filed herewith.
Independent accountants.
(j)(2) Power of Attorney for John Strangfeld Filed herewith.
(m) Rule 12b-1 Plan. Incorporated by reference to Post-Effective Amendment No. 36
to this Registration Statement, filed April 28, 1999.
(o) Rule 18f-3 Plan. [February 15, 1999] Incorporated by reference to Post-Effective Amendment No. 36
to this Registration Statement, filed April 28, 1999.
</TABLE>
C-3
<PAGE>
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
All of Registrant's outstanding securities are owned by the following separate
accounts which are registered as unit investment trusts under the Investment
Company Act of 1940 (the "Act"): The Prudential Variable Appreciable Account,
The Prudential Individual Variable Contract Account, The Prudential Variable
Contract Account GI-2, The Prudential Qualified Individual Variable Contract
Account, The Prudential Variable Contract Account-24, The Prudential Discovery
Select Group Variable Annuity Contract Account (separate accounts of
Prudential); the Pruco Life Flexible Premium Variable Annuity Account; the Pruco
Life PRUvider Variable Appreciable Account; the Pruco Life Variable Universal
Account, the Pruco Life Variable Insurance Account, the Pruco Life Variable
Appreciable Account, the Pruco Life Single Premium Variable Life Account, the
Pruco Life Single Premium Variable Annuity Account (separate accounts of Pruco
Life Insurance Company ["Pruco Life"]); the Pruco Life of New Jersey Flexible
Premium Variable Annuity Account; the Pruco Life of New Jersey Variable
Insurance Account, the Pruco Life of New Jersey Variable Appreciable Account,
the Pruco Life of New Jersey Single Premium Variable Life Account, and the Pruco
Life of New Jersey Single Premium Variable Annuity Account (separate accounts of
Pruco Life Insurance Company of New Jersey ["Pruco Life of New Jersey"]). Pruco
Life, a corporation organized under the laws of Arizona, is a direct
wholly-owned subsidiary of Prudential. Pruco Life of New Jersey, a corporation
organized under the laws of New Jersey, is a direct wholly-owned subsidiary of
Pruco Life, and an indirect wholly-owned subsidiary of Prudential.
Registrant's shares will be voted in proportion to the directions of persons
having interests in the above-referenced separate accounts. Registrant may
nonetheless be deemed to be controlled by such entities by virtue of the
presumption contained in Section 2(a)(9) of the Act, although Registrant
disclaims such control.
The subsidiaries of Prudential are set forth in Schedule D of Prudential's
Annual Statement as shown on the following pages. In addition to those
subsidiaries, Prudential holds all of the voting securities of Prudential's
Gibraltar Fund, Inc., a Maryland corporation, in three of its separate accounts.
The Gibraltar Fund is registered as an open-end, diversified, management
investment company under the Act. The separate accounts are registered as unit
investment trusts under the Act. Registrant may also be deemed to be under
common control with The Prudential Variable Contract Account-2, The Prudential
Variable Contract Account-10, The Prudential Variable Account Contract
Account-11, (separate accounts of Prudential which are registered as open-end,
diversified management investment companies) and The Prudential Variable
Contract Account-24 (separate account of Prudential which is registered as a
unit investment trust under the Act).
C-4
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Do Insurer's
Admitted
Assets
NAIC Include
NAIC Valuation Intangible
Company Method(See Assets
Code or SVO Connected
Alien Purposes with Holding
CUSIP Description Insurer and of Such
Identifica- Name of Subsidiary, Controlled or Identification Procedures Company's
TAB # tion Affiliated Company Number manual) Stock?
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
18 ..74429#-12-0 Prudential of America Life Ins. Co. (Canada) A ..................AA-1560018 ............3(f) .........No
18 ..74429#-13-8 Prudential of America Life Ins. Co. (Canada) B ..................AA-1560018 ............3(f) .........No
18 ..74429#-14-6 Prudential of America Life Ins. Co. (Canada) C ..................AA-1560018 ............3(f) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
0499999 - Preferred Stock - Alien Insurer
- -----------------------------------------------------------------------------------------------------------------------------------
23 ..000000-00-0 Prudential Realty Securities ...........................................................3(f) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
0699999 - Preferred.Stock.-.Investment.Subsidiary
- -----------------------------------------------------------------------------------------------------------------------------------
23 ..74438*-11-5 Prudential Timber Investments, Inc. ....................................................3(f) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
0799999 - Preferred Stock - Other Affiliates
- -----------------------------------------------------------------------------------------------------------------------------------
0899999 - Total Preferred Stocks
- -----------------------------------------------------------------------------------------------------------------------------------
10 ..37465@-10-8 Gibraltar Casualty Company ...........................................35947 ............3(c) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
1099999 - Common Stock - U.S. P&C Insurer
- -----------------------------------------------------------------------------------------------------------------------------------
3 ...74408#-10-9 Pruco Life Insurance Company .........................................79227 ............3(c) .........No
7 ...74445@-10-6 Prudential HealthCare and Life Insurance Co. of America ..............74020 ............3(c) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
1199999 - Common Stock - U S LAH Insurer
- -----------------------------------------------------------------------------------------------------------------------------------
12 ..T7415#-10-9 Prumerica Life, S.p.A. ..........................................AA-1360003 ............3(g) .........No
18 ..74429#-10-4 Prudential of America Life Ins. (Canada) Series.1 ...............AA-1560018 ............3(g) .........No
18 ..74429#-11-2 Prudential of America Life Ins. (Canada) Series.2 ...............AA-1560018 ............3(g) .........No
12 ..Y7443@-10-1 The Prudential Life Insurance Company of Korea, Ltd. ............AA-0130001 ............3(g) .........No
12 ..J7443#-10-6 The Prudential Life Insurance Company, Ltd. .....................AA-1580001 ............3(g) .........No
12 ..AMPRU1-23-2 The Prumerica Life Insurance Company, Inc. ......................AA-5660025 ............3(g) .........No
12 ..POLAND-12-8 Prumerica Towarzystwo Ubezpieczen na Zycie, S.A. ................AA-9640003 ............3(g) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
1299999 - Common Stock - Alien Insurer
- -----------------------------------------------------------------------------------------------------------------------------------
11 ..74408@-10-1 PRUCO, Inc. ............................................................................3(b) .........Yes
14 ..744400-10-2 Prudential Select Holdings, Inc. .......................................................3(b) .........No
12 ..000000-00-0 Prudential International Insurance Holdings, Ltd .......................................3(b) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
1399999 - Common Stock - Non-Insurer Which Controls Insurer
- -----------------------------------------------------------------------------------------------------------------------------------
23 ..BREE00-07-9 BREE Investors Inc. ....................................................................3(b) .........No
7 ...42223@-10-1 Health Ventures Partner, Inc. ..........................................................3(a) .........No
5 ...69337*-10-9 PIC Realty Canada, Ltd. ................................................................3(b) .........No
23 ..74430*-10-5 Prudential Mortgage Asset Corporation II ...............................................3(b) .........No
23 ..744355-2#-4 Prudential Realty Securities, Inc. .....................................................3(a) .........No
23 ..74390@-10-1 Prudential Realty Securities II, Inc. ..................................................3(a) .........No
1 ...GATWAY-00-5 Gateway Holdings, Inc. .................................................................3(a) .........No
23 ..26244*-10-1 Dryden Holdings, Inc. ..................................................................3(a) .........No
23 ..26243*-10-2 Dryden Finance, Inc. ...................................................................3(a) .........No
23 ..37475X-10-5 Gibraltar Properties, Inc. .............................................................3(a) .........No
23 ..78487@-10-6 SVIIT Holdings, Inc. ...................................................................3(a) .........No
23 ..78457#-10-0 SMP Holdings, Inc. .....................................................................3(a) .........No
8 ...000000-00-0 Prudential Human Resources Management Co., Inc. ........................................3(a) .........No
23 ..000000-00-0 PIC Realty Corporation. ................................................................3(b) .........Yes
- -----------------------------------------------------------------------------------------------------------------------------------
1499999 - Common Stock.- Investment.Subsidiary
- -----------------------------------------------------------------------------------------------------------------------------------
23 ..69332#-10-0 PGR Advisors I, Inc. ...................................................................3(a) .........Yes
23 ..PGA100-AB-0 PGA European Holdings, Inc. ............................................................3(a) .........No
23 ..71953K-69-9 PIC Holdings, Ltd. .....................................................................3(b) .........Yes
23 ..PLA100-12-9 Prudential Latin American Investments, Ltd. ............................................3(b) .........No
23 ..PPC100-12-8 Prudential Private Capital Management ..................................................3(b) .........No
11 ..74408@-10-1 PRUCO, Inc. ............................................................................3(b) .........No
14 ..744400-10-2 Prudential Select Holdings, Inc. .......................................................3(b) .........Yes
21 ..74445#-10-4 Prudential Direct Distributors, Inc. ...................................................3(a) .........No
6 ...744299-20-7 Prudential Global Funding ..............................................................3(a) .........No
23 ..74442@-10-9 Prudential Private Placement Investors, Inc. ...........................................3(a) .........No
23 ..76111#-10-2 Residential Services Corporation of America ............................................3(d) .........No
4 ...74437#-10-4 The Prudential Investment Corporation ..................................................3(b) .........No
16 ..74390*-10-3 The Prudential Real Estate Affiliates, Inc. ............................................3(b) .........Yes
21/23..91204*-10-3 U.S. High Yield Management Company .....................................................3(a) .........No
21 ..74446@-10-5 Prudential Assigned Settlement Services, Inc. ..........................................3(a) .........No
2 ...000000-00-0 Prudential Funding Corporation .........................................................3(b) .........No
7 ...PHDENT-17-8 Prudential Health and Dental Group Holdings, Inc. ......................................3(b) .........No
14 ..000000-00-0 Pvrudential Direct, Inc. ...............................................................3(a) .........No
17 ..000000-00-0 Prudential, Inc. .......................................................................3(a) .........No
19 ..000000-00-0 The Prudential Bank and Trust Company ..................................................3(a) .........No
19 ..000000-00-0 The Prudential Savings Bank, F.S.B. ....................................................3(a) .........No
22 ..000000-00-0 Hochman and Baker ......................................................................3(a) .........Yes
- -----------------------------------------------------------------------------------------------------------------------------------
000000-00-0 Pru Investment Planning, Inc. ..........................................................3(a) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
12 ..000000-00-0 Prudential International Insurance Holdings, Ltd. ......................................3(b) .........No
- -----------------------------------------------------------------------------------------------------------------------------------
1599999 - Common Stock - Other Affiliates
1699999 - Total Common Stocks
1799999 - Total Preferred and Common Stocks
- -----------------------------------------------------------------------------------------------------------------------------------
Amount of insurer's capital and surplus from the prior year's annual statement $...8,536,314,197
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Stock of Such Company Owned
by Insurer on Statement Date
-----------------------------
If Yes,
Amount of
CUSIP Description Such
Identifica- Name of Subsidiary, Controlled or Intangible Statement Number of % of
TAB # tion Affiliated Company Assets Value Shares Outstanding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
18 ..74429#-12-0 Prudential of America Life Ins. Co. (Canada) A .........................16,000,000 ......160,000.000 ...100.0
18 ..74429#-13-8 Prudential of America Life Ins. Co. (Canada) B ..........................8,875,000 .......88,750.000 ...100.0
18 ..74429#-14-6 Prudential of America Life Ins. Co. (Canada) C .........................10,000,000 ......100,000.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
0499999 - Preferred Stock - Alien Insurer 34,875,000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
23 ..000000-00-0 Prudential Realty Securities ..............................................126,000 ..........126.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
0699999 - Preferred.Stock.-.Investment.Subsidiary 126,000 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
23 ..74438*-11-5 Prudential Timber Investments, Inc. .......................................875,461 ............7.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
0799999 - Preferred Stock - Other Affiliates 875,461 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
0899999 - Total Preferred Stocks 35,876,461 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
10 ..37465@-10-8 Gibraltar Casualty Company ......................................................0 ........2,000.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
1099999 - Common Stock - U.S. P&C Insurer 0 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
3 ...74408#-10-9 Pruco Life Insurance Company ..........................................888,713,262 ......250,000.000 ...100.0
7 ...74445@-10-6 Prudential HealthCare and Life Insurance Co. of America.................11,756,421 ......500,000.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
1199999 - Common Stock - U S LAH Insurer 900,469,683 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
12 ..T7415#-10-9 Prumerica Life, S.p.A. .................................................18,668,137 ...20,000,000.000 ...100.0
18 ..74429#-10-4 Prudential of America Life Ins. (Canada) Series.1 .....................-13,678,798 .......25,000.000 ...100.0
18 ..74429#-11-2 Prudential of America Life Ins. (Canada) Series.2 ........................-683,653 .......12,500.000 ....50.0
12 ..Y7443@-10-1 The Prudential Life Insurance Company of Korea, Ltd. ...................24,271,950 ....2,640,000.000 ...100.0
12 ..J7443#-10-6 The Prudential Life Insurance Company, Ltd. ...........................353,984,196 ......100,000.000 ...100.0
12 ..AMPRU1-23-2 The Prumerica Life Insurance Company, Inc. ..............................8,057,809 ...24,999,995.000 ...100.0
12 ..POLAND-12-8 Prumerica Towarzystwo Ubezpieczen na Zycie, S.A. ........................2,321,303 ....1,000,000.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
1299999 - Common Stock - Alien Insurer 392,940,944 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
11 ..74408@-10-1 PRUCO, Inc. ............................................10,968,701 ..1,625,418,725 ...........94.000 ...100.0
14 ..744400-10-2 Prudential Select Holdings, Inc. .......................................14,367,333 .......44,977.000 ...100.0
12 ..000000-00-0 Prudential International Insurance Holdings, Ltd .......................24,196,950 ..........100.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
1399999 - Common Stock - Non-Insurer Which Controls Insurer 10,968,701 1,663,983,008 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
23 ..BREE00-07-9 BREE Investors Inc. .....................................................3,665,491 ............1.000 ....50.0
7 ...42223@-10-1 Health Ventures Partner, Inc. ..........................................34,150,662 ........1,000.000 ...100.0
5 ...69337*-10-9 PIC Realty Canada, Ltd. .................................................1,991,361 ....2,561,003.000 ...100.0
23 ..74430*-10-5 Prudential Mortgage Asset Corporation II ...................................39,847 ..........500.000 ....50.0
23 ..744355-2#-4 Prudential Realty Securities, Inc. ....................................567,999,538 ...........92.000 ...100.0
23 ..74390@-10-1 Prudential Realty Securities II, Inc. ..................................73,724,554 ..........132.000 ....87.0
1 ...GATWAY-00-5 Gateway Holdings, Inc. .................................................67,378,937 ..........810.000 ...100.0
23 ..26244*-10-1 Dryden Holdings, Inc. ..................................................86,590,268 ..........234.000 ...100.0
23 ..26243*-10-2 Dryden Finance, Inc. ...................................................53,072,599 ..........278.000 ...100.0
23 ..37475X-10-5 Gibraltar Properties, Inc. .............................................46,271,772 ........1,000.000 ...100.0
23 ..78487@-10-6 SVIIT Holdings, Inc. ..................................................154,915,156 ........1,000.000 ...100.0
23 ..78457#-10-0 SMP Holdings, Inc. .....................................................62,169,950 ..........500.000 ...100.0
8 ...000000-00-0 Prudential Human Resources Management Co., Inc. ........................44,299,292 ..........100.000 ...100.0
23 ..000000-00-0 PIC Realty Corporation. .................................3,962,915 ....161,392,166 ..........236.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
1499999 - Common Stock.- Investment.Subsidiary 3,962,915 1,357,661,593 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
23 ..69332#-10-0 PGR Advisors I, Inc. ....................................5,361,774 .....11,212,107 ..........100.000 ...100.0
23 ..PGA100-AB-0 PGA European Holdings, Inc. .............................................7,908,927 ..........100.000 ...100.0
23 ..71953K-69-9 PIC Holdings, Ltd. ........................................920,735 .....81,717,485 ...32,810,256.000 ...100.0
23 ..PLA100-12-9 Prudential Latin American Investments, Ltd. ...............................420,519 ..........100.000 ...100.0
23 ..PPC100-12-8 Prudential Private Capital Management ...........................................0 ............1.000 .....1.0
11 ..74408@-10-1 PRUCO, Inc. ...........................................................998,691,529 ...........94.000 ...100.0
14 ..744400-10-2 Prudential Select Holdings, Inc. ..........................878,990 ......6,182,572 .......44,977.000 ...100.0
21 ..74445#-10-4 Prudential Direct Distributors, Inc. .......................................23,624 ..........100.000 ...100.0
6 ...744299-20-7 Prudential Global Funding ..............................................14,782,185 ..........100.000 ...100.0
23 ..74442@-10-9 Prudential Private Placement Investors, Inc. ...............................43,336 .......40,000.000 ...100.0
23 ..76111#-10-2 Residential Services Corporation of America ............................15,957,974 ........1,000.000 ...100.0
4 ...74437#-10-4 The Prudential Investment Corporation ..................................60,857,633 ...........83.000 ...100.0
16 ..74390*-10-3 The Prudential Real Estate Affiliates, Inc. ...............337,938 .....48,758,329 ...........99.000 ...100.0
21/23 .91204*-10-3 U.S. High Yield Management Company ..........................................1,000 ..........100.000 ...100.0
21 ..74446@-10-5 Prudential Assigned Settlement Services, Inc. .............................123,281 ..........100.000 ...100.0
2 ...000000-00-0 Prudential Funding Corporation .........................................27,055,371 ..........100.000 ...100.0
7 ...PHDENT-17-8 Prudential Health and Dental Group Holdings, Inc. ......................20,101,877 ..........100.000 ...100.0
14 ..000000-00-0 Pvrudential Direct, Inc. ................................................3,561,102 ..........150.000 ...100.0
17 ..000000-00-0 Prudential, Inc. ..............................................................500 ..........500.000 ...100.0
19 ..000000-00-0 The Prudential Bank and Trust Company .................................104,648,698 ......203,996.000 ...100.0
19 ..000000-00-0 The Prudential Savings Bank, F.S.B. ....................................41,657,253 .......10,000.000 ...100.0
22 ..000000-00-0 Hochman and Baker ......................................13,275,489 ......1,724,511 ..........800.000 ....80.0
- ------------------------------------------------------------------------------------------------------------------------------------
000000-00-0 Pru Investment Planning, Inc. ...........................................2,938,296 ........6,000.000 ...100.0
- ------------------------------------------------------------------------------------------------------------------------------------
12 ..000000-00-0 Prudential International Insurance Holdings, Ltd. .........................594,979 ..........100.000
- ------------------------------------------------------------------------------------------------------------------------------------
1599999 - Common Stock - Other Affiliates 20,774,926 1,448,963,088 XXX XXX
1699999 - Total Common Stocks 35,706,542 5,764,018,316 XXX XXX
1799999 - Total Preferred and Common Stocks 35,706,542 5,799,894,777 XXX XXX
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Company
CUSIP Listed in Section 1
Identifica- Which Controls
TAB # tion Name of Lower-tier Company Lower-tier Company
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
23 ...000000-00-0 ...PRICOA Investment Company ............................................PIC Holdings, Ltd
23 ...000000-00-0 ...PRICOA Mezzanine Investment Co. ......................................PIC Holdings, Ltd.
24 ...000000-00-0 ...Prudential Capital and Investment Services, Inc. .....................PRUCO, Inc.
13 ...000000-00-0 ...Lapine Holding Company ...............................................PRUCO, Inc.
23 ...000000-00-0 ...Prudential Asia Investments, Ltd .....................................PRUCO, Inc.
23 ...000000-00-0 ...Prudential Asia Investments, Ltd .....................................Prudential Investment Company
12 ...000000-00-0 ...Prudential-Bradesco Seguros, S.A. ....................................Prudential International Insurance
Holdings, Ltd.
- ------------------------------------------------------------------------------------------------------------------------------------
0199999 - Preferred Stock
- ------------------------------------------------------------------------------------------------------------------------------------
16 ...000000-00-0 ...ML/MSB Acquisition, Inc ..............................................Prudential Residential Services, L.P.
16 ...000000-00-0 ...PRICOA Relocation Management, Ltd. ...................................Prudential Residential Services, L.P.
16 ...000000-00-0 ...Prudential Community Interaction Consulting, Inc. ....................Prudential Residential Services, L.P.
16 ...000000-00-0 ...Prudential Relocation Canada Ltd. ...................................Prudential Residential Services, L.P.
16 ...000000-00-0 ...Prudential Relocation, Ltd. ..........................................Prudential Residential Services, L.P.
16 ...000000-00-0 ...The Relocation Funding Corporation of America ........................Prudential Residential Services, L.P.
23 ...000000-00-0 ...PRICOA Capital Group, Ltd. ...........................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Funding, Ltd. .................................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Investment Company ............................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Property Investment Management Ltd.............................PIC Holdings, Ltd.
23 ...000000-00-0 ...Euro Invest (General Partner) Ltd. ...................................PIC Holdings, Ltd.
23 ...000000-00-0 ...Industrial Properties (Gen Partner), Ltd. ............................PIC Holdings, Ltd.
23 ...000000-00-0 ...Industrial Properties (Gen Partner) II, Ltd. .........................PIC Holdings, Ltd.
23 ...000000-00-0 ...Northern Retail Properties (General Partner) Ltd. ....................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA P.I.M. (Regulated) Ltd. .......................................PIC Holdings, Ltd.
23 ...000000-00-0 ...South Downs Properties (General Partner) Ltd. ........................PIC Holdings, Ltd.
23 ...000000-00-0 ...South Downs Trading (General Partner) Ltd. ...........................PIC Holdings, Ltd.
23 ...000000-00-0 ...TransEuropean Properties (General Partner) Ltd. ......................PIC Holdings, Ltd.
23 ...000000-00-0 ...TransEuropean Properties (General Partner) II Ltd. ...................PIC Holdings, Ltd.
21/23 ..000000-00-0 ...PRICOA Asset Management, Ltd. ........................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Capital Management ............................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA General Partner Ltd ...........................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Management Partner Ltd. .......................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Mezzanine Funding, Ltd. .......................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Mezzanine Investment Co........................................PIC Holdings, Ltd.
23 ...000000-00-0 ...Argus General Partner, Ltd............................................PIC Holdings, Ltd.
23 ...000000-00-0 ...Argus Capital Limited.................................................PIC Holdings, Ltd.
23 ...000000-00-0 ...Argus Capital International Ltd. .....................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Property PLC ..................................................PIC Holdings, Ltd.
23 ...000000-00-0 ...PRICOA Property Private Equity Ltd. ..................................PIC Holdings, Ltd.
16 ...000000-00-0 ...Prudential Resources Management Asia, Limited ........................PRUCO, Inc.
23 ...000000-00-0 ...BREE Investments Ltd. ................................................PRUCO, Inc.
23 ...000000-00-0 ...Capital Agricultural Property Services, Inc. .........................PRUCO, Inc.
23 ...000000-00-0 ...Flor-Ag Corporation ..................................................PRUCO, Inc.
22 ...000000-00-0 ...Pruco Securities Corporation .........................................PRUCO, Inc.
23 ...000000-00-0 ...Prudential Agricultural Credit, Inc. .................................PRUCO, Inc.
13/24 ..000000-00-0 ...Prudential Capital and Investment Services, Inc. .....................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Group Inc. - Series A ..........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Group Inc. - Series B ..........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities (Germany) Inc. ...........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Management GmbH .....................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Management GmbH & Co. KG. ...........................PRUCO, Inc.
13 ...000000-00-0 ...BraeLoch Successor Corporation .......................................PRUCO, Inc.
13 ...000000-00-0 ...BraeLoch Holdings, Inc. ..............................................PRUCO, Inc.
13 ...000000-00-0 ...Graham Resources, Inc. ...............................................PRUCO, Inc.
13 ...000000-00-0 ...Graham Depository Company II .........................................PRUCO, Inc.
13 ...000000-00-0 ...Graham Energy, Ltd. ..................................................PRUCO, Inc.
13 ...000000-00-0 ...Graham Exploration, Ltd. .............................................PRUCO, Inc.
13 ...000000-00-0 ...Graham Royalty, Ltd. .................................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Global Markets ......................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache International (Hong Kong) Ltd. ......................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Finance (Hong Kong) Ltd. ............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache Futures (Hong Kong) Ltd. ............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache Nominees (Hong Kong) Ltd. ...........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache Securities (Hong Kong) Ltd. .........................PRUCO, Inc.
13 ...000000-00-0 ...PB Financial Services, Inc. ..........................................PRUCO, Inc.
13 ...000000-00-0 ...P-B Finance Ltd. .....................................................PRUCO, Inc.
13 ...000000-00-0 ...PGR Advisors, Inc. ...................................................PRUCO, Inc.
13 ...000000-00-0 ...PBML Custodian Limited ...............................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Capital Funding BV ..................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Energy Corp. ........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Energy Production, Inc. .............................PRUCO, Inc.
13 ...000000-00-0 ...Commodity Admin Services, Inc. .......................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Commodities de Mexico, S, de RL de CV .....................PRUCO, Inc.
13 ...000000-00-0 ...Mexico Commodity Funding Corp. .......................................PRUCO, Inc.
13 ...000000-00-0 ...Mexico Commodity Sourcing Corp. ......................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Commodities de Mexico, S, de RL de CV .....................PRUCO, Inc.
13 ...000000-00-0 ...PSI. Partners Inc. ...................................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache International Banking Corporation ...................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache International Bank Ltd. .............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Holdings Limited ....................................PRUCO, Inc.
</TABLE>
C-7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Company
CUSIP Listed in Section 1
Identifica- Which Controls
TAB # tion Name of Lower-tier Company Lower-tier Company
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
13 ...000000-00-0 ...PBI Investment Management Limited ....................................PRUCO, Inc.
13 ...000000-00-0 ...PBI Management Limited ...............................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Limited .............................................PRUCO, Inc.
13 ...000000-00-0 ...PBI Fund Managers Limited ............................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Nominees Limited ....................................PRUCO, Inc.
13 ...000000-00-0 ...Saffron Nominees Limited .............................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache International, (U.K.) Ltd. ..........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache International Ltd. ..................................PRUCO, Inc.
13 ...000000-00-0 ...Circle (Nominees) Limited. ...........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Forex, (U.K.) Ltd. ..................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache International Trust Co. (Cayman) ....................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache Corp. Director Services, Inc. .......................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache Corp. Trustee Services, Inc. ........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Investor Services Inc. ..............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Investor Services II, Inc. ..........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Leasing Inc. ........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Program Services Inc. ...............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Properties Inc. .....................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities, (Australia) Ltd. ........................PRUCO, Inc.
13 ...000000-00-0 ...Bache Nominees Ltd. ..................................................PRUCO, Inc.
13 ...000000-00-0 ...Corcarr Funds Management Limited .....................................PRUCO, Inc.
13 ...000000-00-0 ...Corcarr Nominees Pty. Limited ........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Bache Funds Management, Ltd ...............................PRUCO, Inc.
13 ...000000-00-0 ...Divsplit Nominees Pty. Limited .......................................PRUCO, Inc.
13 ...000000-00-0 ...PruBache Nominees Pty. Limited .......................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Trade Services Inc. .................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Transfer Agent Services, Inc. .......................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Capmark Inc. ...................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Credit Corp. ...................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Municipal Derivatives, Inc. ....................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Secured Financing Corporation. .................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Structured Assets, Inc. ........................PRUCO, Inc.
13 ...000000-00-0 ...Seaport Futures Management, Inc. .....................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities (Taiwan) Co., Ltd. .............................PRUCO, Inc.
13 ...000000-00-0 ...Vector Securities International, Inc. ................................PRUCO, Inc.
13 ...000000-00-0 ...XBW Acquisition Corporation ..........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Incorporated ...................................PRUCO, Inc.
13 ...000000-00-0 ...Lapine Holding Company ...............................................PRUCO, Inc.
13 ...000000-00-0 ...Lapine Development Corporation .......................................PRUCO, Inc.
13 ...000000-00-0 ...Lapine Technology Corporation ........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Investments Fund Management, L.L.C. .......................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Mutual Fund Distributors, Inc. ............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Mutual Fund Services, L.L.C. ..............................PRUCO, Inc.
13 ...000000-00-0 ...Bache & Co. (Lebanon) S.A.L. .........................................PRUCO, Inc.
13 ...000000-00-0 ...Bache & Co. S.A. de C.V. (Mexico) ....................................PRUCO, Inc.
13 ...000000-00-0 ...Bache Insurance Agency Inc. ..........................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities (Japan) Ltd. ...................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Futures Asia Pacific Ltd. ...........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities Agencia de Valores S.A. ..................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities Asia Pacific Ltd. ........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities (Holland) Inc. ...........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities (Monaco) Inc. ............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities (Switzerland) Inc. .......................PRUCO, Inc.
13 ...000000-00-0 ...Prudential-Bache Securities (U.K.) Inc. ..............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities (Brazil) LTDA ..................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities (Chile) Inc. ...................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities CMO Issuer Inc. ................................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities Futures Management Inc. ........................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities (Argentina) Inc. ...............................PRUCO, Inc.
13 ...000000-00-0 ...Prudential Securities (Uruguay) S.A. .................................PRUCO, Inc.
13 ...000000-00-0 ...Wexford Clearing Services Corporation ................................PRUCO, Inc.
23 ...000000-00-0 ...Prudential Equity Investors, Inc. ....................................PRUCO, Inc.
15 ...000000-00-0 ...Prudential Property and Casualty Holdings, Inc. ......................PRUCO, Inc.
15 ...000000-00-0 ...Prudential Property and Casualty Insurance ...........................PRUCO, Inc.
15 ...000000-00-0 ...Prudential Commercial Insurance Company ..............................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Insurance Company .................................PRUCO, Inc.
15 ...000000-00-0 ...Merastar Corporation .................................................PRUCO, Inc.
15 ...000000-00-0 ...Merastar Insurance Company ...........................................PRUCO, Inc.
15 ...000000-00-0 ...Prudential Insurance Brokerage, Inc. .................................PRUCO, Inc.
15 ...000000-00-0 ...The Prudential Property and Casualty General Agency, Inc. ............PRUCO, Inc.
15 ...000000-00-0 ...The Prudential Property and Casualty of New Jersey Holdings, Inc. ...PRUCO, Inc.
15 ...000000-00-0 ...The Prudential Property and Casualty Insurance Co. of New Jersey .....PRUCO, Inc.
15 ...000000-00-0 ...The Prudential General Insurance Company of New Jersey ...............PRUCO, Inc.
15 ...000000-00-0 ...The Prudential Commercial Insurance Co. of New Jersey ................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of Florida, Inc. ...........................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of Kentucky, Inc. ..........................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of Massachusetts, Inc. .....................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of Mississippi, Inc. .......................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of Nevada, Inc. ............................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of Wyoming, Inc. ...........................PRUCO, Inc.
15 ...000000-00-0 ...Prudential General Agency of New Mexico, Inc. ........................PRUCO, Inc.
</TABLE>
C-8
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Company
CUSIP Listed in Section 1
Identifica- Which Control
TAB # tion Name of Lower-tier Company Lower-tier Company
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
15 ...000000-00-0 ...Prudential General Agency of Ohio, Inc. ..............................PRUCO, Inc.
15 ...000000-00-0 ...The.Prudential Property and Casualty New Jersey Insurance ............PRUCO, Inc.
23 ...000000-00-0 ...Prudential Realty Partnerships, Inc. .................................PRUCO, Inc.
20/23 ..000000-00-0 ...Prudential Trust Company .............................................PRUCO, Inc.
20/23 ..000000-00-0 ...PTC Services, Inc. ...................................................PRUCO, Inc.
7 ....000000-00-0 ...Prudential Uniformed Services Administrators, Inc. ...................PRUCO, Inc.
19 ...000000-00-0 ...PBT Home Equity Holdings .............................................PRUCO, Inc.
3 ....000000-00-0 ...Pruco Life Insurance Company of New Jersey ...........................Pruco Life Insurance Company
3 ....000000-00-0 ...The Prudential Life Insurance Company of Arizona .....................Pruco Life Insurance Company
14 ...000000-00-0 ...Prudential Select Life Insurance Company of America ..................Prudential Select Holdings, Inc.
23 ...000000-00-0 ...Private Label Mortgage Services Corporation ..........................Residential Services Corp of America
23 ...000000-00-0 ...Residential Information Services, Inc. ...............................Residential Services Corp of America
23 ...000000-00-0 ...Securitized Asset Sales, Inc. ........................................Residential Services Corp of America
23 ...000000-00-0 ...PHMC Services Corporation ............................................Residential Services Corp of America
23 ...000000-00-0 ...The Prudential Home Mortgage Company, Inc. ...........................Residential Services Corp of America
23 ...000000-00-0 ...The Prudential Home Mortgage Securities Co., Inc. ....................Residential Services Corp of America
21/23 ..000000-00-0 ...Gateway Holdings, S.A. ...............................................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Amicus Investment Company ............................................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Global Income Fund Management Company, S.A. ..........................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Prumerica Global Asset Management Company, S.A. ......................The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Home Building Investors, Inc. .............................The Prudential Investment Corporation
21/23 ..000000-00-0 ...The Prudential Asset Management Company, Inc. ........................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Enhanced Investment Technologies, Inc. ...............................The Prudential Investment Corporation
21 ...000000-00-0 ...PCM International, Inc. ..............................................The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Asia Investments Limited ..................................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Prudential Asia Management Ltd. (BVI) ................................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Prudential Asia Fund Management Ltd. .................................The Prudential Investment Corporation
21/23 ..000000-00-0 ...Prudential Asia Fund Managers (HK) Ltd. ..............................The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Asset Management Ltd. (BVI) ...............................The Prudential Investment Corporation
23 ...000000-00-0 ...PAMA (Indonesia) Limited .............................................The Prudential Investment Corporation
23 ...000000-00-0 ...PAMA (Singapore) Private Ltd. ........................................The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Asset Management Asia H.K.Ltd. ............................The Prudential Investment Corporation
23 ...000000-00-0 ...PT PAMA Indonesia ....................................................The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Asia Infrastructure Investors Ltd. ........................The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Asia Infrastructure Investors (H.K.) Ltd. .................The Prudential Investment Corporation
23 ...000000-00-0 ...Asian Infrastructure Mezzanine Capital Management Co., Ltd. ..........The Prudential Investment Corporation
23 ...000000-00-0 ...Prudential Timber Investments, Inc. ..................................The Prudential Investment Corporation
23 ...000000-00-0 ...Texas Rio Grande Other Asset Group Company, Inc. .....................The Prudential Investment Corporation
21/23 ..000000-00-0 ...The Prudential Investment Advisory Company, Ltd. .....................The Prudential Investment Corporation
23 ...000000-00-0 ...The Prudential Property Company, Inc. ................................The Prudential Investment Corporation
23 ...000000-00-0 ...The Prudential Realty Advisors, Inc. .................................The Prudential Investment Corporation
16 ...000000-00-0 ...Countrywide International Realty, Ltd. ...............................Prudential Real Estate Affiliates, Inc.
16 ...000000-00-0 ...Prudential Referral Services, Inc. ...................................Prudential Real Estate Affiliates, Inc.
16 ...000000-00-0 ...The Prudential Real Estate Financial Services of America, Inc. .......Prudential Real Estate Affiliates, Inc.
16 ...000000-00-0 ...Preferred Coastal Realty, Inc. .......................................Prudential Real Estate Affiliates, Inc.
16 ...000000-00-0 ...Real Estate Connecticut, Inc. ........................................Prudential Real Estate Affiliates, Inc.
16 ...000000-00-0 ...Prudential Homes Corporation .........................................Prudential Real Estate Affiliates, Inc.
16 ...000000-00-0 ...Prudential Texas Residential Services Corporation. ...................Prudential Real Estate Affiliates, Inc.
7 ....000000-00-0 ...Prudential Dental Maintenance Organization of California, Inc. .......Prudential Health and Dental Group
Holdings, Inc.
7 ....000000-00-0 ...Prudential HealthCare Group Inc. .....................................Prudential Health and Dental Group
Holdings, Inc.
8 ....000000-00-0 ...Human Resource Finance Company, Inc. .................................Prudential Human Resources
Management Co.,, Inc.
12 ...000000-00-0 ...Prudential-Bradesco Seguros, S.A. ....................................Prudential International Insurance
Holdings, Ltd.
12 ...000000-00-0 ...Gibraltar Servicos Ltda. .............................................Prudential International Insurance
Holdings, Ltd.
12 ...000000-00-0 ...Prudential Seguros, S.A. .............................................Prudential International Insurance
Holdings, Ltd.
12 ...000000-00-0 ...PruServicos Participacoes, S.A. ......................................Prudential International Insurance
Holdings, Ltd.
14 ...000000-00-0 ...Prudential Direct Insurance Agency of Alabama, Inc. ..................Prudential Direct, Inc.
14 ...000000-00-0 ...Prudential Direct Insurance Agency of Massachusetts, Inc. ............Prudential Direct, Inc.
14 ...000000-00-0 ...Prudential Direct Insurance Agency of New Mexico, Inc. ...............Prudential Direct, Inc.
14 ...000000-00-0 ...Prudential Direct Insurance Agency of Ohio, Inc. .....................Prudential Direct, Inc.
14 ...000000-00-0 ...Prudential Direct Insurance Agency of Wyoming, Inc. ..................Prudential Direct, Inc.
23 ...000000-00-0 ...PBT Mortgage Corporation .............................................PIC Realty Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
0299999 - Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
0399999 Total
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement Date
------------------------------------------
Amount of Intangible
CUSIP Assets Included in
Identifica- Amount Shown in
TAB # tion Column 5, Section 1 Number of Shares % of Outstanding
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
23 ...000000-00-0 ........................... ............82,132,601.000 ................100.0
23 ...000000-00-0 ........................... .............4,282,789.000 ................100.0
24 ...000000-00-0
13 ...000000-00-0 ........................... .............7,499,999.000 ................100.0
23 ...000000-00-0 .....................1.000 .................50.0
23 ...000000-00-0 .....................1.000 .................50.0
12 ...000000-00-0 .................5,372.000 .................99.0
- --------------------------------------------------------------------------------------------------------------
0199999 - Preferred Stock 0 XXX XXX
- --------------------------------------------------------------------------------------------------------------
16 ...000000-00-0 .................1,000.000 ................100.0
16 ...000000-00-0 ....................99.000 ................100.0
16 ...000000-00-0 .................1,000.000 ................100.0
16 ...000000-00-0 .................1,000.000 ................100.0
16 ...000000-00-0 ....................49.000 ................100.0
16 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 .............6,751,000.000 ................100.0
23 ...000000-00-0 ............11,213,375.000 ................100.0
23 ...000000-00-0 ................15,000.000 ................100.0
23 ...000000-00-0 ....................920,735 .....................2.000 ................100.0
23 ...000000-00-0 ................49,998.000 .................99.0
23 ...000000-00-0 ................30,000.000 .................75.0
23 ...000000-00-0 ................49,998.000 .................99.0
23 ...000000-00-0 ................40,000.000 .................80.0
23 ...000000-00-0 ................10,000.000 ................100.0
23 ...000000-00-0 ....................99.000 .................99.0
23 ...000000-00-0 ....................99.000 .................99.0
23 ...000000-00-0 ................40,000.000 ................100.0
23 ...000000-00-0 ................30,000.000 .................75.0
21/23 ..000000-00-0 .............1,500,000.000 ................100.0
23 ...000000-00-0 ...............100,000.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 ...............873,985.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 ................50,000.000 ................100.0
23 ...000000-00-0 .....................2.000 ................100.0
23 ...000000-00-0 .....................2.000 ................100.0
23 ...000000-00-0 ................49,998.000 ................100.0
23 ...000000-00-0 .....................2.000 ................100.0
16 ...000000-00-0 .................9,999.000 ................100.0
23 ...000000-00-0 .....................1.000 .................50.0
23 ...000000-00-0 ...................995.000 ................100.0
23 ...000000-00-0 ....................50.000 ................100.0
22 ...000000-00-0 ...................995.000 ................100.0
23 ...000000-00-0 ...................999.000 .................99.9
13/24 ..000000-00-0 ....................99.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ....................57.020 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ................50,000.000 ................100.0
13 ...000000-00-0 .....................0.000 ..................0.0
13 ...000000-00-0 ...............330,000.000 ................100.0
13 ...000000-00-0 .............7,758,803.000 ................100.0
13 ...000000-00-0 .............7,734,234.000 ................100.0
13 ...000000-00-0 .................1,000.000 ................100.0
13 ...000000-00-0 ....................90.000 ................100.0
13 ...000000-00-0 ...................130.000 ................100.0
13 ...000000-00-0 ....................20.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 .................1,502.000 ................100.0
13 ...000000-00-0 .....................3.000 ................100.0
13 ...000000-00-0 .................1,500.000 ................100.0
13 ...000000-00-0 .................1,750.000 ................100.0
13 ...000000-00-0 ...............550,000.000 ................100.0
13 ...000000-00-0 ....................50.000 ................100.0
13 ...000000-00-0 .....................3.000 ................100.0
13 ...000000-00-0 .................1,000.000 ................100.0
13 ...000000-00-0 .............5,000,000.000 ................100.0
13 ...000000-00-0 ................40,000.000 ................100.0
13 ...000000-00-0 .....................1.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ....................50.000 ................100.0
13 ...000000-00-0 .................2,999.000 .................99.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 .....................1.000 ..................1.0
13 ...000000-00-0 .....................1.000 ................100.0
13 ...000000-00-0 .................1,000.000 ................100.0
13 ...000000-00-0 ............35,000,000.000 ................100.0
13 ...000000-00-0 .............3,010,000.000 ................100.0
</TABLE>
C-10
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement Date
------------------------------------------
Amount of Intangible
CUSIP Assets Included in
Identifica- Amount Shown in
TAB # tion Column 5, Section 1 Number of Shares % of Outstanding
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
13 ...000000-00-0 .............4,051,000.000 ................100.0
13 ...000000-00-0 ...............300,000.000 ................100.0
13 ...000000-00-0 ............12,200,000.000 ................100.0
13 ...000000-00-0 ................25,000.000 ................100.0
13 ...000000-00-0 ....................11.000 ................100.0
13 ...000000-00-0 .....................9.000 ................100.0
13 ...000000-00-0 ............41,400,211.000 ................100.0
13 ...000000-00-0 .............7,500,000.000 ................100.0
13 ...000000-00-0 .....................2.000 ................100.0
13 ...000000-00-0 .............3,000,000.000 ................100.0
13 ...000000-00-0 ...................500.000 ................100.0
13 ...000000-00-0 .................1,000.000 ................100.0
13 ...000000-00-0 .................1,000.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................500.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 .....................1.000 ................100.0
13 ...000000-00-0 ................10,000.000 ................100.0
13 ...000000-00-0 .....................4.000 ................100.0
13 ...000000-00-0 ................50,050.000 ................100.0
13 ...000000-00-0 .....................4.000 ................100.0
13 ...000000-00-0 .....................4.000 ................100.0
13 ...000000-00-0 .....................4.000 ................100.0
13 ...000000-00-0 .....................2.000 ................100.0
13 ...000000-00-0 .................1,000.000 ................100.0
13 ...000000-00-0 ................10,000.000 ................100.0
13 ...000000-00-0 ....................20.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ....................99.000 ................100.0
13 ...000000-00-0 ................46,350.000 ................100.0
13 ...000000-00-0 ............19,999,994.000 .................99.9
13 ...000000-00-0 ....................10.000 ................100.0
13 ...000000-00-0 ....................10.000 ................100.0
13 ...000000-00-0 ...................664.000 ................100.0
13 ...000000-00-0 ............12,500,000.000 .................71.0
13 ...000000-00-0 .............4,650,000.000 ................100.0
13 ...000000-00-0 .....................1.000 ................100.0
13 ...000000-00-0 .....................0.000 ..................0.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 .....................0.000 ..................0.0
13 ...000000-00-0 .................2,000.000 ................100.0
13 ...000000-00-0 ....................96.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...............200,000.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...............150,000.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................200.000 ................100.0
13 ...000000-00-0 ...............750,000.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
13 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
15 ...000000-00-0 ....................10.000 ................100.0
15 ...000000-00-0 ...................800.000 ................100.0
15 ...000000-00-0 .................2,000.000 ................100.0
15 ...000000-00-0 .................2,000.000 ................100.0
15 ...000000-00-0 .................10,968,701 ...............100,000.000 ................100.0
15 ...000000-00-0 ................25,000.000 ................100.0
15 ...000000-00-0 ................25,000.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 .....................1.000 ................100.0
15 ...000000-00-0 ...................400.000 ................100.0
15 ...000000-00-0 ...................240.000 ................100.0
15 ...000000-00-0 ...................240.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
</TABLE>
C-11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Stock in Lower-tier Company Owned
Indirectly by Insurer on Statement Date
------------------------------------------
Amount of Intangible
CUSIP Assets Included in
Identifica- Amount Shown in
TAB # tion Column 5, Section 1 Number of Shares % of Outstanding
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15 ...000000-00-0 ...................100.000 ................100.0
15 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
20/23 ..000000-00-0 ...............300,000.000 ................100.0
20/23 ..000000-00-0 ...................100.000 ................100.0
7 ....000000-00-0 ...............500,000.000 ................100.0
19 ...000000-00-0 .................4,000.000 ................100.0
3 ....000000-00-0 ...............400,000.000 ................100.0
3 ....000000-00-0 ...............200,000.000 ................100.0
14 ...000000-00-0 .............2,500,000.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 .................1,000.000 ................100.0
21/23 ..000000-00-0 ................20,000.000 ................100.0
21/23 ..000000-00-0 .................1,000.000 ................100.0
21/23 ..000000-00-0 .................5,000.000 ................100.0
21/23 ..000000-00-0 .................2,000.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
21/23 ..000000-00-0 ....................84.000 ................100.0
21/23 ..000000-00-0 ....................98.000 ................100.0
21 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 .............6,300,000.000 ................100.0
21/23 ..000000-00-0 ...............200,000.000 ................100.0
21/23 ..000000-00-0 ...................180.000 ................100.0
21/23 ..000000-00-0 ....................20.000 ................100.0
23 ...000000-00-0 .............1,500,000.000 ................100.0
23 ...000000-00-0 .................7,500.000 .................75.0
23 ...000000-00-0 .............1,000,000.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 ...................650.000 .................65.0
23 ...000000-00-0 ...............800,000.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 ................42,500.000 .................85.0
23 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
21/23 ..000000-00-0 .................5,000.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
23 ...000000-00-0 ...................100.000 ................100.0
16 ...000000-00-0 ....................337,938 ...................100.000 ................100.0
16 ...000000-00-0 .................1,000.000 ................100.0
16 ...000000-00-0 ...................100.000 ................100.0
16 ...000000-00-0 ...................100.000 ................100.0
16 ...000000-00-0 ...................100.000 ................100.0
16 ...000000-00-0 .....................1.000 ................100.0
16 ...000000-00-0 .................1,000.000 ................100.0
7 ....000000-00-0 .................1,000.000 ................100.0
7 ....000000-00-0 .................1,000.000 ................100.0
8 ....000000-00-0 ...................100.000 ................100.0
12 ...000000-00-0 ................54,772.000 .................48.0
12 ...000000-00-0 .................1,020.000 .................51.0
12 ...000000-00-0 ...............422,168.000 ................100.0
12 ...000000-00-0 ...............100,000.000 ................100.0
14 ...000000-00-0 ...................150.000 ................100.0
14 ...000000-00-0 ...................150.000 ................100.0
14 ...000000-00-0 ...................150.000 ................100.0
14 ...000000-00-0 ....................90.000 .................90.0
14 ...000000-00-0 ...................150.000 ................100.0
23 ...000000-00-0 .................2,250.000 ................100.0
- -------------------------------------------------------------------------------------------------------------.
0299999 - Common Stock ....12,227,374 ....................XXX ....................XXX
- --------------------------------------------------------------------------------------------------------------
0399999 Total .............12,227,374 ....................XXX ....................XXX
- --------------------------------------------------------------------------------------------------------------
</TABLE>
C-12
<PAGE>
ITEM 25. INDEMNIFICATION
Article VI, paragraph (4) of Registrant's Articles of Incorporation provides
that "each director and each officer of the Corporation shall be indemnified by
the Corporation to the full extent permitted by the General Laws of the State of
Maryland and as provided in the by-laws of the Corporation." Article VIII of the
Registrant's Articles of Incorporation provides, in pertinent part, that "no
provision of these Articles of Incorporation shall be effective to (a) require a
waiver of compliance with any provision of the Securities Act of 1933, as
amended, or the Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange Commission thereunder
or (b) protect or purport to protect any director or officer of the Corporation
against any liability to the Corporation or its security holders to which he
would otherwise by subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office."
Paragraph 6 of both the Investment Advisory Agreement and the Supplemental
Investment Advisory Agreement between Registrant and Prudential provides that
"Prudential will not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except for a loss resulting from willful misfeasance, bad
faith, or gross negligence in the performance of its duties on behalf of the
Fund or from reckless disregard of its obligation and duties under this
Agreement."
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.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Prudential Investment Corporation (PIC) is the investment unit of Prudential and
actively engages in the business of giving investment advice. The officers and
directors of Prudential and PIC who are engaged directly or indirectly in
activities relating to the registrant have no business, profession, vocation, or
employment of a substantial nature other than with Prudential and PIC, and have
not had such other connections during the past two years.
The business and other connections of Prudential's Directors are listed in the
Post-Effective Amendment No.22 to the Registration Statement of The Prudential
Variable Appreciable Account, Registration No. 33-20000, filed on April __,
2000, the text of which is hereby incorporated by reference.
C-13
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Prudential Investment Management Services LLC (PIMS) is the distributor for
the following open-end management companies: Cash Accumulation Trust, COMMAND
Money Fund, COMMAND Government Fund, COMMAND Tax-Free Fund, Global Utility Fund,
Inc., Nicholas-Applegate Fund, Inc. (Nicholas-Applegate Growth Equity Fund),
Prudential Balanced Fund, Prudential California Municipal Fund, Prudential
Diversified Bond Fund, Inc., Prudential Diversified Funds, Prudential Emerging
Growth Fund, Inc., Prudential Equity Fund, Inc., Prudential Equity Income
Fund, Prudential Europe Growth Fund, Inc., Prudential Global Genesis Fund, Inc.,
Prudential Global Total Return Fund, Inc., Prudential Government Income Fund,
Inc., Prudential Government Securities Trust, Prudential High Yield Fund, Inc.,
Prudential High Yield Total Return Fund, Inc., Prudential Index Series Fund,
Prudential Institutional Liquidity Portfolio, Inc., Prudential International
Bond Fund, Inc., Prudential Mid-Cap Value Fund, Prudential MoneyMart Assets,
Inc., Prudential Municipal Bond Fund, Prudential Municipal Series Fund,
Prudential National Municipals Fund, Inc., Prudential Natural Resources Fund,
Inc., Prudential Pacific Growth Fund, Inc., Prudential Real Estate Securities
Fund, Prudential Sector Funds, Inc., Prudential Small-Cap Quantum Fund, Inc.,
Prudential Small Company Value Fund, Inc., Prudential Special Money Market Fund,
Inc., Prudential Structured Maturity Fund, Inc., Prudential Tax-Free Money Fund,
Inc., Prudential Tax-Managed Funds, Prudential 20/20 Focus Fund, Prudential
World Fund, Inc., The Prudential Investment Portfolios, Inc., Strategic Partners
Series, Target Funds and The Target Portfolio Trust.
PIMS is also distributor of the following unit investment trusts: Separate
Accounts; Prudential's Gibraltar Fund, Inc., The Prudential Variable Contract
Account-2, The Prudential Variable Contract Account-10, The Prudential Variable
Contract Account-11, The Prudential Variable Contract Account-24, The Prudential
Variable Contract GI-2, The Prudential Discovery Select Group Variable Contract
Account, The Pruco Life Flexible Premium Variable Annuity Account, The Pruco
Life of New Jersey Flexible Premium Variable Annuity Account, The Prudential
Individual Variable Contract Account and The Prudential Qualified Individual
Variable Contract Account.
<TABLE>
<CAPTION>
(b) NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
---------------- ---------------- ---------------
<S> <C> <C>
Robert F. Gunia*** President None
Jean D. Hamilton* Executive Vice President None
John R. Strangfeld, Jr.*** Executive Vice President None
William V. Healey*** Sr. Vice President, Secretary and Chief Legal
Officer None
Margaret M. Deverell*** Sr. Vice President, Comptroller and Chief
Financial None
C. Edward Chaplin * Treasurer None
Kevin B. Frawley ** Sr. Vice President and Chief Compliance Officer None
</TABLE>
* Principal Business Address: 751 Broad Street, Newark, NJ 07102
** Principal Business Address: 213 Washington Street, Newark, NJ 07102
*** Principal Business Address: 100 Mulberry Street, Newark, NJ 07102
(c) Not applicable.
C-14
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, or other documents required to be maintained by Section 31
(a) of the 1940 Act and the rules promulgated thereunder are maintained by the
Registrant, 751 Broad Street, Newark, New Jersey 07102-3777; the Registrant's
Investment Advisor, The Prudential Insurance Company of America, 751 Broad
Street, Newark, New Jersey 07102-3777, the Registrant's Accounting Agent,
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, MO
64105-1716 or the Registrant's Custodian, Investors Fiduciary Trust Company,
127 West 10th Street, Kansas City, MO 64105-1716.
The Fund has entered into Sub-Advisory Agreements with Jennison Associates LLC,
466 Lexington Avenue, New York, New York 10017; Prudential Investment
Corporation, 751 Broad Street, Newark, New Jersey 07102; Franklin Advisers,
Inc., 777 Mariners Island Blvd., San Mateo, California 94404; The Dreyfus
Corporation, 200 Park Avenue, New York, NY 10266; and Pacific Investment
Management Company, 840 Newport Center Drive, Newport Beach, California 92660.
ITEM 29. MANAGEMENT SERVICES
Not Applicable.
ITEM 30. UNDERTAKINGS
Not Applicable.
C-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company
Act, the Fund certifies that it meets all of the requirements for effectiveness
of this registration statement under rule 485(b) under the Securities Act and
has duly caused this registration statement to be signed on its behalf by the
undersigned, duly authorized, in the City of Newark, and State of New Jersey, on
the 27th day of April, 2000.
THE PRUDENTIAL SERIES FUND, INC.
By: /s/ *
----------------------------
John R. Strangfeld
President and Director
Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 37 to the Registration Statement has been signed below by the
following persons in the capacities and on the date indicated.
SIGNATURE AND TITLE DATE
- ------------------- ----
/s/ * April 27, 2000
- ---------------------------------
John R. Strangfeld
President and Director
/s/ Grace C. Torres April 27, 2000
- ---------------------------------
Grace C. Torres
Treasurer and Principal Financial
and Accounting Officer
*By: /s/ Lee D. Augsburger
--------------------------
Lee D. Augsburger
(Attorney-in-Fact)
/s/* April 27, 2000
- ---------------------------------
Saul K. Fenster
Director
/s/* April 27, 2000
- ---------------------------------
W. Scott McDonald, Jr.
Director
/s/* April 27, 2000
- ---------------------------------
Joseph Weber
Director
C-16
<PAGE>
EXHIBIT INDEX PAGE
(a) Articles of Restatement of The Prudential Series Fund, Inc.
[September 1, 1999]
(b) By-Laws of the Prudential Series Fund, Inc.
[February 29, 2000]
(g) (1) (5) Supplement to Custody Agreement between The Prudential Series Fund,
Inc., Prudential's Gibraltar Fund and Investors Fiduciary Trust Company
dated August 19, 1998.
(g) (3) (i) Custodian Agreement between Investors Fiduciary Trust Company and
The Prudential Insurance Company of America
(g) (3) (ii) Assignment of Custodian Agreement from Investors Fiduciary Trust
Company to State Street effective January 1, 2000.
(g) (3) (iii) First Amendment to Custody Agreement between The Prudential
Insurance Company of America and Investors Fiduciary Trust Company
dated December 1, 1996.
(g) (6) (i) Special Custody Agreement between The Prudential Series Fund, Inc.,
Natural Resources Portfolio, Goldman, Sachs & Co., and Investors
Fiduciary Trust Company.
(g) (6) (ii) Assignment of Special Custody Agreement effective January 1, 2000.
(g) (6) (iii)First Amendment of Custody Agreement between The Prudential Series
Fund, Inc. and Prudential's Gibraltar Fund and State Street Bank and
Trust.
(h) (3) (a) Investment Accounting Agreement between The Prudential Series
Fund, Inc., Prudential's Gibraltar Fund and Investor Fiduciary
Trust Company dated December 31, 1994.
(b) First Amendment to Investment Accounting Agreement between The
Prudential Series Fund, Inc., Prudential's Gibraltar Fund and
Investors Fiduciary Trust Company dated June 20, 1995.
(h) (3) (c) Second Amendment to Investment Accounting Agreement between The
Prudential Series Fund, Inc. and Prudential's Gibraltar Fund and
State Street Bank and Trust.
(4) (a) Code of Ethics for The Prudential Insurance Company of America
(b) Code of Ethics for The Prudential Series Fund, Inc.
(c) Code of Ethics for Prudential Investment Management Services LLC.
(d) Code of Ethics for Franklin Advisers, Inc.
(e) Code of Ethics for The Dreyfus Corporation
(f) Code of Ethics for Pacific Investment Management Company
(g) Code of Ethics for The Prudential Investment Corporation
(h) Code of Ethics for Jennison Associates LLC
(5) (a) Fund Participation Agreement between Great-West Life & Annuity
Insurance Company, The Prudential Series Fund, Inc., The Prudential
Insurance Company of America, Prudential Investment Management Services
LLC and Charles Schwab & Co., Inc.
(5) (b) Fund Participation Agreement between First Great-West Life & Annuity
Insurance Company, The Prudential Series Fund, Inc., The Prudential
Insurance Company of America, Prudential Investment Management Services
LLC and Charles Schwab & Co., Inc.
(5) (c) Fund Participation Agreement between The Ohio National Life
Insurance Company, The Prudential Insurance Company of America, The
Prudential Series Fund, Inc. and Prudential Investment Management
Services LLC.
(6) Procedural Agreement between Merrill Lynch Futures, Inc., The Prudential
Series Fund, Inc. and Investors Fiduciary Trust Company.
(7) (a) Pledge Agreement between Goldman, Sachs & Co., The Prudential Series
Fund, Inc. and Investors Fiduciary Trust Company.
(b) Pledge Agreement between Lehman Brothers Inc., The Prudential Series
Fund, Inc. and Investors Fiduciary Trust Company.
(c) Pledge Agreement between J.P. Morgan Futures Inc., The Prudential
Series Fund, Inc. and Investors Fiduciary Trust Company.
(d) Pledge Agreement between PaineWebber Inc., The Prudential Series
Fund, Inc. and Investors Fiduciary Trust Company.
(e) Pledge Agreement between Credit Suisse First Boston Corp., The
Prudential Series Fund, Inc. and Investors Fiduciary Trust Company.
(j) (1) Consent of PricewaterhouseCoopers LLP Independent accountants.
(j) (2) Power of Attorney.
C-17
ARTICLES OF RESTATEMENT
OF
THE PRUDENTIAL SERIES FUND, INC.
The Prudential Series Fund, Inc., a Maryland corporation (hereinafter
called the Corporation), certifies as follows:
(1) The Corporation desires to restate its Charter as currently in effect.
(2) The provisions set forth in these Articles of Restatement are all the
provisions of the Charter currently in effect.
(3) The restatement of the Charter has been approved by a majority of the
entire Board of Directors of the Corporation.
(4) The Charter is not amended by these Articles of Restatement.
(5) The post office address of the principal office of the Corporation in
this State is as stated in Article IV below.
(6) The name of the Corporation's current resident agent in this State and
its post office address are as stated in Article IV below.
(7) The number of Directors of the Corporation and their names are as
stated in Article VI below.
Accordingly, pursuant to Section 2-608 of the Corporations and Associations
Article of the Annotated Code of Maryland, the Corporation hereby restates its
Charter as follows:
ARTICLE I
[Reserved - Incorporator language omitted]
ARTICLE II
NAME
The name of the Corporation is THE PRUDENTIAL SERIES FUND, INC.
<PAGE>
2
ARTICLE III
PURPOSE AND POWERS
The purpose or purposes for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it are as
follows:
(1) To conduct and carry on the business of an investment company of the
management type.
(2) To hold, invest and reinvest its assets in securities, and in
connection therewith to hold part or all of its assets in cash.
(3) To issue and sell shares of its own capital stock in such amounts and
on such terms and conditions, for such purposes and for such amount or
kind of consideration now or hereafter permitted by the General
Corporation Law of the State of Maryland and by these Articles of
Incorporation, as its Board of Directors may determine, provided,
however, that the value of the consideration per share to be received
by the Corporation upon the sale or other disposition of any shares of
its capital stock shall be not less than the net asset value per share
of such capital stock outstanding at the time of such event.
(4) To redeem, purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any
manner and to the extent now or hereafter permitted by the General
Corporation Law of the State of Maryland and by these Articles of
Incorporation.
(5) To do any and all such further acts or things and to exercise any and
all such further powers or rights as may be necessary, incidental,
relative, conducive, appropriate or desirable for the accomplishment,
carrying out or attainment of any of the foregoing purposes or
objects.
The Corporation shall be authorized to exercise and enjoy all the powers,
rights and privileges granted to, or conferred upon, corporations by the General
Corporation Law of the State of Maryland now or hereinafter in force, and the
enumeration of the foregoing shall not be deemed to exclude any powers, rights
or privileges so granted or conferred.
<PAGE>
3
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in this
State is c/o Prentice Hall Corporate Services, 2 Hopkins Plaza, 1300 Mercantile
Bank and Trust Building, Baltimore Maryland 21201. The name of the resident
agent of the Corporation in this State is Prentice Hall Corporate Services, and
the post office address of the resident agent is 2 Hopkins Plaza, 1300
Mercantile Bank and Trust Building, Baltimore, Maryland 21201.
ARTICLE V
CAPITAL STOCK
The total number of shares of capital stock which the Corporation has
authority to issue is TWO BILLION FIVE HUNDRED MILLION (2,500,000,000) shares of
the par value of One Cent ($0.01) per share and of the aggregate par value of
Twenty Five Million Dollars ($25,000,000). The shares of the Corporation are
divided among seventeen classes of capital stock (each, a "Series"), each of
which is further divided into two classes (each, a "Class"), each Series and
Class comprising the number of shares and having the designations indicated,
subject, however, to the authority to increase and decrease the number of shares
of any Series or Class hereinafter granted to the Board of Directors:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
CLASS I CLASS II
SERIES SHARES SHARES
------ --------- ---------
<S> <C> <C>
Money Market Portfolio Capital Stock 170,000,000 5,000,000
Diversified Bond Portfolio Capital Stock 170,000,000 5,000,000
Equity Portfolio Capital Stock 295,000,000 5,000,000
Flexible Managed Portfolio Capital Stock 370,000,000 5,000,000
Conservative Balanced Portfolio Capital Stock 370,000,000 5,000,000
Zero Coupon Bond-2000 Portfolio Capital Stock 10,000,000 5,000,000
Zero Coupon Bond-2005 Portfolio Capital Stock 10,000,000 5,000,000
High Yield Bond Portfolio Capital Stock 195,000,000 5,000,000
Stock Index Portfolio Capital Stock 170,000,000 5,000,000
Equity Income Portfolio Capital Stock 170,000,000 5,000,000
Natural Resources Portfolio Capital Stock 30,000,000 5,000,000
Global Portfolio Capital Stock 70,000,000 5,000,000
Government Income Portfolio Capital Stock 65,000,000 5,000,000
Prudential Jennison Portfolio Capital Stock 110,000,000 5,000,000
Small Capitalization Stock Portfolio Capital Stock 70,000,000 5,000,000
Diversified Conservative Growth Portfolio Capital Stock 70,000,000 5,000,000
20/20 Focus Portfolio Capital Stock 70,000,000 5,000,000
</TABLE>
<PAGE>
4
Any unissued shares of capital stock not allocated to a particular Class of
a particular Series may be issued in any existing Class of any existing Series,
or in any new Class of any new or existing Series, each comprising such number
of shares and having such designations, such powers, preferences and rights and
such qualifications, limitations and restrictions as shall be fixed and
determined from time to time by resolution or resolutions providing for the
issuance of such stock adopted by the Board of Directors, to whom authority so
to fix and determine the same is hereby expressly granted. In addition, the
Board of Directors is hereby expressly granted authority to increase or decrease
the number of shares of any Class of any Series, but the number of shares of any
Class shall not be decreased by the Board of Directors below the number of
shares thereof then outstanding.
The holder of each share of stock of the Corporation shall be entitled to
one vote for each full share, and a fractional vote for each fractional share of
stock, irrespective of the Class or Series, then standing in his name on the
books of the Corporation. On any matter submitted to a vote of stockholders, all
shares of the Corporation then issued and outstanding and entitled to vote shall
be voted in the aggregate and not by Series or Class except that (1) when
otherwise expressly required by the Maryland General Corporation Law or the
Investment Company Act of 1940, as amended, shares shall be voted by individual
Series or Class; (2) only shares of the respective Series or Class are entitled
to vote on matters concerning only that Series or Class; and (3) fundamental
investment policies may be changed, with respect to any Series, if such change
is approved by a majority (as defined under the Investment Company Act of 1940)
of the capital stock of such Series.
Each Class of each Series of stock of the Corporation shall have the
following powers, preferences or other special rights, and the qualifications,
restrictions, and limitations thereof shall be as follows:
(1) The shares of each Class, when issued, will be fully paid and
non-assessable, have no preference, preemptive, conversion, exchange,
or similar rights, except as set forth in (2) below, and will be
freely transferable.
(2) The consideration received by the Corporation for the sale of capital
stock of a Class of a Series shall become part of the assets of that
Series. Each share of each Class of a Series shall represent an equal
proportionate interest in that Class, and each share of any Class
shall be equal to each other share of that Class. Each Series shall
have no interest in the assets of any other Series. Each share of each
Class of a Series shall represent the same interest in the Series and
have the same powers, rights, and preferences, except that:
(i) expenses related to the distribution of, and other identified
expenses that should properly be allocated to, the shares of a
particular Class shall be borne solely by such Class;
<PAGE>
5
(ii) the bearing of such expenses solely by shares of each Class shall
be appropriately reflected (in the manner determined by the Board
of Directors) in the net asset value, dividends, distribution and
liquidation rights of the shares of such Class;
(iii) the Class II stock shall be subject to a distribution fee
pursuant to Rule 12b-1 under the Investment Company of 1940, as
amended, and an administration fee as determined by the Board of
Directors from time to time;
(iv) each Class shall have exclusive voting rights on any matter
submitted to shareholders that, in the judgment of the Board of
Directors (which shall be conclusive), relates solely to its
shareholders; and
(v) each Class shall have separate voting rights on any matter
submitted to shareholders in which, in the judgment of the Board
of Directors (which shall be conclusive), the interests of one
Class differ from the interests of any other Class.
(3) The Board of Directors may from time to time declare and pay dividends
or distributions, in stock or in cash, on any or all Classes of any or
all Series of stock, the amount of such dividends and distributions
and the payment of them being wholly in the discretion of the Board of
Directors.
(i) Dividends or distributions on shares of any Class of stock shall
be paid only out of earned surplus or other lawfully available
assets belonging to such Class.
(ii) Inasmuch as one goal of the Corporation is to qualify as a
"regulated investment company" under the Internal Revenue Code of
1954, as amended, or any successor or comparable statute thereto,
and Regulations promulgated thereunder, and inasmuch as the
computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books of
the Corporation, the Board of Directors shall have the power in
its discretion to distribute in any fiscal years as dividends,
including dividends designated in whole or in part as capital
gains distributions, amounts sufficient in the opinion of the
Board of Directors to enable the Corporation to qualify as a
regulated investment company and to avoid liability for the
Corporation for Federal income tax in respect of that year. In
furtherance, and not in limitation of the foregoing, in the event
that a Class of shares has a net capital loss for a fiscal year,
and to the extent that a net capital loss for a fiscal year
offsets net capital gains from one or more of the other Classes,
the amount to be deemed available
<PAGE>
6
for distribution to the Class or Classes with the net capital
gain may be reduced by the amount offset.
(4) The assets belonging to any Class of a Series of stock shall be
charged with the liabilities in respect to such Class and Series, and
shall also be charged with their share of the general liabilities of
the Corporation in proportion to the asset values of the respective
Class. The determination of the Board of Directors shall be conclusive
as to the amount of liabilities or the amount of any general assets of
the Corporation, as to whether such liabilities or assets are
allocable to one or more Series or Classes, and as to the allocation
of such liabilities or assets to a given Series or Class or among
several Series or Classes.
(5) With the approval of a majority of the stockholders of each of the
affected Classes of capital stock, the Board of Directors may transfer
the assets of any Class to another Class in that Series or to a Class
in another Series. Upon such a transfer, the Corporation shall issue
shares of capital stock representing interests in the Class to which
the assets were transferred in exchange for all shares of capital
stock representing interests in the Class from which the assets were
transferred. Such shares shall be exchanged at their respective net
asset values.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING, AND REGULATING
CERTAIN POWERS OF THE CORPORATION AND
OF THE DIRECTORS AND STOCKHOLDERS
(1) The number of Directors of the Corporation is five (5), which number
may be increased or decreased pursuant to the by-laws of the
Corporation but shall never be less than three (3). The names of the
current Directors are:
John R. Strangfeld
E. Michael Caulfield
Saul K. Fenster
W. Scott McDonald, Jr.
Joseph Weber
(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock,
whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, subject to such limitations as
may be set forth in these Articles of Restatement, in the by-laws of
the Corporation, in the General Corporation Law of the State of
Maryland, or in the Investment Company Act of 1940, as amended.
<PAGE>
7
(3) No holder of stock of the Corporation shall, as such holder, have any
right to purchase or subscribe for any shares of the capital stock of
the Corporation or any other security of the Corporation which it may
issue or sell (whether out of the number of shares authorized by these
Articles of Restatement, or out of any shares of the capital stock of
the Corporation acquired by it after the issue thereof, or otherwise)
other than such rights, if any, as the Board of Directors, in its
discretion, may determine.
(4) Each director and each officer of the Corporation shall be indemnified
by the Corporation to the full extent permitted by the General Laws of
the State of Maryland and as provided in the by-laws of the
Corporation.
(5) The Board of Directors of the Corporation may make, alter or repeal
from time to time any of the by-laws of the Corporation except any
particular by-law which is specified as not subject to alteration or
repeal by the Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.
ARTICLE VII
REDEMPTION
Each holder of shares of capital stock of the Corporation shall be entitled
to require the Corporation to redeem all or any part of the shares of capital
stock of the Corporation standing in the name of such holder on the books of the
Corporation, and the Corporation shall redeem all shares of such capital stock
tendered to it for redemption at the redemption price of such shares as in
effect from time to time as may be determined by the Board of Directors of the
Corporation in accordance with the provisions hereof, subject to the right of
the Board of Directors of the Corporation to suspend the right of redemption of
shares of capital stock of the Corporation or postpone the date of payment of
such redemption price in accordance with provisions of applicable law. The
redemption price of shares of capital stock of the Corporation shall be the net
asset value thereof as determined by the Board of Directors of the Corporation
from time to time in accordance with the provisions of applicable law, less such
redemption fee or other charge, if any as may be fixed by resolution of the
Board of Directors of the Corporation. Payment of the redemption price shall be
made in cash by the Corporation at such time and in such manner as may be
determined from time to time by the Board of Directors of the Corporation,
except that capital stock of any Class of any Series may be redeemed in kind
with the assets of the Class if the Board of Directors deems such action
desirable.
<PAGE>
8
ARTICLE VIII
DETERMINATION BINDING
Any determination made in good faith, so far as accounting matters are
involved, in accordance with accepted accounting practice by or pursuant to the
direction of the Board of Directors, as to the amount of assets, obligations or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time of or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which such reserves
or charges shall have been created shall have been paid or discharged or shall
be then or thereafter required to be paid or discharged), as to the price of any
security owned by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposition of securities or
shares of capital stock of the Corporation, and any reasonable determination
made in good faith by the Board of Directors as to whether any transaction
constitutes a purchase of securities on "margin," a sale of securities "short,"
or an underwriting of the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of, any securities,
shall be final and conclusive, and shall be binding upon the Corporation and all
holders of its capital stock, past, present and future, and shares of the
capital stock of the Corporation are issued and sold on the condition and
understanding, evidenced by the purchase of shares of capital stock or
acceptance of share certificates, that any and all such determinations shall be
binding as aforesaid. No provision of these Articles of Incorporation shall be
effective to (a) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation, or order of the Securities and
Exchange Commission thereunder or (b) protect or purport to protect any director
or officer of the Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
ARTICLE IX
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
<PAGE>
9
ARTICLE X
AMENDMENT
The Corporation reserves the right from time to time to make any amendment
of its charter, now or hereafter authorized by law, including any amendment
which alters the contract rights, as expressly set forth in its charter, of any
outstanding stock.
IN WITNESS WHEREOF, THE PRUDENTIAL SERIES FUND, INC., has caused the
foregoing Articles of Restatement to be signed on its behalf by its Chairman and
its corporate seal to be hereunto affixed and attested by its Secretary.
Dated the _______ day of September, 1999.
THE PRUDENTIAL SERIES FUND, INC.
By:
----------------------------------
Name: John R. Strangfeld
Title: Chairman
Attest:
- -----------------------------------
Lee Augsburger
Secretary
THE UNDERSIGNED, Chairman of the Board of THE PRUDENTIAL SERIES FUND, INC.,
who executed on behalf of said Corporation the foregoing Articles of
Restatement, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said Corporation, the foregoing Articles of
Restatement to be the corporate act of said Corporation and further certifies
that, to the best of his knowledge, information, and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
--------------------------------------
Name: John R. Strangfeld
Title: Chairman
Amended Through 02/29/2000
BY-LAWS
OF
THE PRUDENTIAL SERIES FUND, INC.
ARTICLE I
Section 1. Principal Offices. The principal office of the Corporation
shall be in the City of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office of
the Corporation shall be at 3003 North Central Avenue, City of Phoenix, State of
Arizona.
Section 3. Other Offices. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Stockholders
Section 1. Annual Meetings. Annual meetings of the stockholders of the
Corporation shall be held on such day in September of each year as shall be
designated by the Board of Directors; provided, however, than no annual meeting
of the stockholders shall be held in any year in which none of the following is
required to be acted on by stockholders under the Investment Company Act of
1940: (i) election of directors, (ii) approval of an investment advisory
agreement, (iii) ratification of the selection of independent public
accountants, and (iv) approval of a distribution
<PAGE>
2
agreement. Any business of the Corporation may be transacted at an annual
meeting without being specifically designated in the notice, except such
business as is specifically required by statute to be stated in the notice.
Section 2. Special Meetings. Special meetings of the stockholders, unless
otherwise provided by law or by the Articles of Incorporation, may be called for
any purpose or purposes by a majority of the Board of Directors, the Chairman of
the Board, the President, or on the written request of the holders of at least
25% of the outstanding capital stock of the Corporation entitled to vote at such
meeting.
Section 3. Place of Meetings. Any annual or special meeting of the
stockholders shall be held at such place within the United States as the Board
of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice. Notice of the place, date
and time of the holding of each annual and special meeting of the stockholders
and the purpose or purposes of each special meeting shall be given personally or
by mail, not less than ten nor more than sixty days before the date of such
meeting, to each stockholder entitled to vote at such meeting and to each other
stockholder entitled to notice of the meeting. Notice by mail shall be deemed to
be duly given when deposited in the United States mail addressed to the
stockholder at his address as it appears on the records of the Corporation, with
postage thereon prepaid.
Notice of any meeting of stockholders shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice
<PAGE>
3
which is filed with the records of the meeting. When a meeting is adjourned to
another time and place, unless the Board of Directors, after the adjournment,
shall fix a new record date for an adjourned meeting, or the adjournment is for
more than thirty days, notice of such adjourned meeting need not be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockholders, the holders of a
majority of the shares of stock of the Corporation entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided by statute or by the
Articles of Incorporation or these By-Laws. In the absence of a quorum no
business may be transacted, except that the holders of a majority of the shares
of stock present in person or by proxy and entitled to vote may adjourn the
meeting from time to time, without notice other than announcement thereat,
except as otherwise required by these By-Laws, until the holders of the
requisite amount of shares of stock shall be so present. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called. The absence from
any meeting, in person or by proxy, of holders of the number of shares of stock
of the Corporation in excess of a majority thereof which may be required by the
laws of the State of Maryland, the Investment Company Act of 1940, as amended,
or other applicable statute, the Articles of Incorporation, or these By-Laws,
for action upon any given matter shall not prevent action at such meeting upon
any other matter or matters which may properly come before the meeting if there
shall be present
<PAGE>
4
thereat, in person or by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such other matter or matters.
Section 6. Organization. At each meeting of the stockholders, the Chairman
of the Board (if one has been designated by the Board), or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, shall act as chairman
of the meeting. The Secretary, or in his absence or inability to act any
Assistant Secretary or any person appointed by the chairman of the meeting,
shall act as secretary of the meeting and keep the minutes thereof.
Section 1. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute or the Articles
of Incorporation, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every share of such stock standing in his name on the record of
stockholders of the Corporation as of the record date determined pursuant to
Section 9 of this Article or if such record date shall not have been so fixed,
then at the latter of (i) the close of business on the day on which notice of
the meeting is mailed or (ii) the thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by such
<PAGE>
5
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Articles of Incorporation or these By-laws,
any corporate action to be taken by vote of the stockholders shall be authorized
by a majority of the total votes cast at a meeting of stockholders by the
holders of shares present in person or represented by proxy and entitled to vote
on such action.
If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 9. Fixing of Record Date. The Board of Directors may fix, in
advance, a record date not more than sixty nor less than ten days before the
date then fixed for the holding of any meeting of the stockholders. All persons
who were holders of record of shares at such time, and no others, shall be
entitled to vote at such meeting and any adjournment thereof.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint
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6
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
number of each, the number of shares represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote in fairness to all stockholders. On request of the chairman of
the meeting or any stockholder entitled to vote thereat, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the Articles of Incorporation, any action
required to be taken at any annual or special meeting of stockholders, or any
action which may be taken at any annual or special meeting of such stockholders,
may be taken without a meeting, without prior notice and without a vote, if the
following are filed with the records of stockholders meetings: (i) an unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and (ii) a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote thereat.
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7
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Articles of
Incorporation, the business and affairs of the Corporation shall be managed by
the Board of Directors. The Board may exercise all the powers of the Corporation
and do all such lawful acts and things as are not by statute or the Articles of
Incorporation directed or required to be exercised or done by the stockholders.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three nor more than fifteen. Any vacancy created
by an increase in directors may be filled in accordance with Section 6 of this
Article III. No reduction in the number of directors shall have the effect of
removing any directors from office prior to the expiration of his term unless
such director is specifically removed pursuant to Section S of this Article III
at the time of such decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors shall be elected by
written ballot at each annual meeting of stockholders held pursuant to Section 1
of Article II of these By-laws or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification until the next annual meeting of stockholders, whenever it may be
held, and until his successor shall have been elected and shall have qualified,
or until his death, or until he shall
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8
have resigned, or have been removed as hereinafter provided in these By-laws, or
as otherwise provided by statute or the Articles of Incorporation.
Section 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal. Holders of not less than two-thirds of the outstanding
capital stock of the Corporation may remove a director through a declaration in
a writing filed with the Corporation or by vote cast in person or by proxy at a
meeting called for that purpose. The Board of Directors shall promptly call a
meeting of stockholders for the purpose of voting upon the question of removal
of any director when requested in writing to do so by the holders of not less
than 10% of the Corporation's outstanding capital stock.
Whenever ten or more stockholders who hold in the aggregate either shares
having a net asset value of at least $25,000 or at least 1% of the outstanding
shares of capital stock, whichever is less, shall advise the Board of Directors
in writing that they wish to communicate with other stockholders with a view to
a request for a meeting for the purpose of removing any director from office,
and such advice is accompanied by a form of communication and request which they
wish to transmit, the Board shall within five business days after receiving such
advice either afford such persons access to a list of the names and addresses of
persons having voting
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9
rights or inform them as to the approximate number of such persons and the
approximate cost of mailing the proposed form of communication and request.
If the Board elects to provide the information regarding the approximate
number of stockholders and the approximate cost of mailing to them the proposed
communication and form of request, the Board, upon the written request of those
desiring such a mailing, accompanied by a tender of the material to be mailed
and of the reasonable expenses of mailing, shall, with reasonable promptness,
mail such material to all stockholders at their addresses of record, unless
within five business days after such tender the Board shall mail to the persons
requesting the mailing and file with the U.S. Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by a least a majority of the directors to the effect that in
their opinion either such material contains untrue statements of fact or omits
to state facts necessary to make the statements contained therein not
misleading, or would be in violation of applicable law, and specifying the basis
of such opinion.
Section 6. Vacancies. Any vacancies in the Board, whether arising from
death, resignation, removal, or increase in the number of directors or any other
cause, shall be filled by a vote of the majority of the Board of Directors then
in office even though such majority is less than a quorum, provided that no
vacancies shall be filled by action of the remaining directors, if after the
filling of said vacancy or vacancies, less than a majority of the directors then
holding office shall have been elected by the stockholders of the Corporation.
In the event that at any time there is a vacancy in any office of a director,
which vacancy may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as
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10
promptly as possible, and in any event within sixty days, for the purpose of
filling said vacancy or vacancies, unless the United States Securities and
Exchange Commission shall by order extend such period. Any director elected or
appointed to fill a vacancy shall hold office only until the next annual meeting
of stockholders of the Corporation, whenever it may be held, and until a
successor shall have been chosen and qualified or until his earlier death,
resignation or removal.
Section 7. Place of Meetings. Meetings of the Board may be held at such
place as the Board may from time to time determine or as shall be specified in
the notice of such meeting.
Section 8. Regular Meetings. Regular meetings of the Board may be held
without notice at such time and place as may be determined by the Board of
Directors.
Section 9. Special Meetings. Special meetings of the Board may be called
by two or more directors of the Corporation or by the Chairman of the Board or
the President.
Section 10. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held as soon as practicable after the meeting of
stockholders at which the directors were elected. No notice of such annual
meeting shall be necessary if held immediately after the adjournment, and at the
site, of the meeting of stockholders. If not so held, notice shall be given as
hereinafter provided for special meetings of the Board of Directors.
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11
Section 11. Notice of Special Meetings. Notice of each special meeting of
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid,
addressed to him at his residence or usual place of business, at least three
days before the day on which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice or who shall attend such meeting. Except as
otherwise specifically required by these By-laws, a notice or waiver of notice
of any meeting need not state the purposes of such meeting.
Section 13. Quorum and Voting. One-third, but not less than two, of the
members of the entire Board shall be present in person at any meeting of the
Board in order to constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by statute, the Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
other applicable statute, the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board; provided,
however, that the approval of any contract with an investment advisor, or
principal underwriter, as such terms are defined in the Investment Company Act
of 1940, as amended, which the Corporation enters into or any renewal or
amendment thereof, the approval of the fidelity bond
<PAGE>
12
required by the Investment Company Act of 1940, as amended, and the selection of
the Corporation's independent public accountants shall each require the
affirmative vote of a majority of the directors who are not parties to any such
contract or interested persons of any such party. In the absence of a quorum at
any meeting of the Board, a majority of the directors present thereat may
adjourn such meeting to another time and place until a quorum shall be present
thereat. Notice of the time and place of any such adjourned meeting shall be
given to the directors who were not present at the time of the adjournment and,
unless such time and place were announced at the meeting at which the
adjournment was taken, to the other directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution adopted by a
majority of the entire Board, designate a Chairman of the Board, who shall
preside at each meeting of the Board. In the absence or inability of the
Chairman of the Board to preside at a meeting, the President, or, in his absence
or inability to act, another person chosen by a majority of the directors
present, shall act as chairman of the meeting and preside thereat. The
Secretary, or in his absence or inability to act any Assistant Secretary or any
person appointed by the chairman of the meeting, shall act as secretary of the
meeting and keep the meeting and keep the minutes thereof.
Section 15. Written Consent of Directors in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in
<PAGE>
13
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
Section 16. Compensation. Directors may receive compensation for services
to the Corporation in their capacities as directors or otherwise in such manner
and in such amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the Investment Company Act
of 1940, as amended. The Board, however, may delegate the duty of management of
the assets and the administration of its day to day operation to an individual
or corporate management company and/or investment adviser pursuant to a written
contract or contracts which have obtained the requisite approvals, including the
requisite approvals of renewals thereof, of the Board of Directors and/or the
stockholders of the Corporation in accordance with the provisions of the
Investment Company Act of 1940, as amended.
ARTICLE IV
Committees
Section 1. Executive Committee. The Board may, by resolution adopted
<PAGE>
14
by a majority of the entire Board, designate an Executive Committee consisting
of two or more of the directors of the Corporation, which committee shall have
and may exercise all the powers and authority of the Board with respect to all
matters other than:
(a) the submission to stockholders of any action requiring authorization
of stockholders pursuant to statute or the Articles of Incorporation;
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for serving on the Board
or on any committee of the Board, including the Executive Committee;
(d) the approval or termination of any contract with an investment adviser
or principal underwriter, as such terms are defined in the Investment Company
Act of 1940, as amended, or the taking of any other action required to be taken
by the Board of Directors by the Investment Company Act of 1940, as amended;
(e) the amendment or repeal of these By-laws or the adoption of new
By-laws;
(f) the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board; and
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15
(g) the declaration of dividends and issuance of capital stock of the
Corporation.
The Executive Committee shall keep written minutes of its proceedings and shall
report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more other committees of the Board, each such committee to consist of
such number of directors and to have such powers and duties as the Board of
Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two, of the members of
any committee shall be present in person at any meeting of such committee in
order to constitute a quorum for the transaction of business at such meeting and
the act of a majority present shall be the act of such committee. The Board may
designate a chairman of any committee and such chairman or any two members of
any committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. The Board shall
have the power at any time to change the membership of any committee, to fill
all vacancies, to designate alternate members to replace any absent or
disqualified member, or
<PAGE>
16
to dissolve any such committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in whole or in part of
persons who are not directors of the Corporation; provided, however, that no
such committee shall have or may exercise any authority or power of the Board in
the management of the business or affairs of the Corporation.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation
shall be a Chairman of the Board and a President, each of whom shall be a
director of the Corporation, and a Secretary and a Treasurer, each of whom shall
be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents, a Comptroller and such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of Chairman of the Board and
President and the offices of President and Vice President, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity. Such
officers shall be elected by the Board of Directors each year at its first
meeting held after the annual meeting of stockholders, each to hold office until
the meeting of the Board following the next annual meeting of the stockholders
and until his successor shall have been duly elected and shall have qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-laws. The Board may from time to time elect, or
delegate to the Chairman of the Board or the President the power to appoint,
such officers (including one or more Assistant Vice Presidents,
<PAGE>
17
one or more Assistant Treasurers and one or more Assistant Secretaries) and such
agents, as may be necessary or desirable for the business of the Corporation.
Such other officers and agents shall have such duties and shall hold their
offices for such terms as may be prescribed by the Board or by the appointing
authority.
Section 2. Resignation. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-laws for the regular election or appointment to such office.
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18
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his control.
Section 6. Bonds or other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require. The Corporation shall also maintain a bond
issued by a reputable fidelity insurance company in accordance with Section
17(g) of the Investment Company Act of 1940, as amended, and Rule 17g-1
thereunder.
Section 7. Chairman of the Board of Directors. The Chairman of the Board
shall preside at all meetings of the Board of Directors and of the stockholders
at which he is present. He shall be chief executive officer of the Corporation.
Subject to the Board of Directors, he shall have general supervision of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. He shall have such other authority
and duties as the Board of Directors shall from time to time determine.
Section 8. The President. The President shall have such power and duties
as the Board of Directors shall from time to time determine. In the absence or
disability of the Chairman of the Board, he shall perform the duties and
exercise the powers of the Chairman of the Board.
Section 9. Vice- President. Each Vice President shall have such powers and
perform such duties as the Board of Directors or the Chairman of the Board may
from time to time prescribe.
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19
Section 10. Comptroller. The Comptroller shall exercise all the powers and
perform all the duties usual to such office, including supervising the accounts
of the Corporation, having supervision over and responsibility for the books,
records, accounting and system of accounting and auditing in each office of the
Corporation. The Comptroller shall also have such other authority and perform
such other duties as may be provided in the By-laws, or as shall be assigned to
him by the Chairman of the Board, the President or the Board of Directors.
Section 11. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds and
securities of the Corporation, except those which the Corporation has placed in
the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934)
pursuant to a written agreement designating such bank or trust company or member
of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in books
belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit of
the Corporation;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
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20
(e) disburse the funds of the Corporation and supervise the investment of
its funds as ordered or authorized by the Board, taking proper vouchers
therefore; and
(f) in general, perform all the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the Board
or the Chairman of the Board.
Section 12. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of the By-laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
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21
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
or the Chairman of the Board.
Section 13. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any director.
ARTICLE VI
Indemnification
(a) The Corporation shall indemnify present and former directors,
officers, employees and agents of the Corporation (each, a "Covered Person")
against judgments, fines, settlements and expenses to the fullest extent
authorized, and in the manner permitted, by applicable federal and state law.
(b,) The Corporation shall advance the expenses of Covered Persons who are
parties to any Proceeding to the fullest extent authorized, and in the manner
permitted, by applicable federal and state law. For purposes of this paragraph,
"Proceeding" means any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative.
(c) Pursuant and subject to paragraphs (a) and (b), the Corporation shall
indemnify each Covered Person against, or advance the expenses of any Covered
Person for, the amount of any deductible provided in any liability insurance
policy maintained by the Corporation.
ARTICLE VII
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing
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22
the number of shares of stock of the Corporation owned by him, provided,
however, that certificates for fractional shares will not be delivered in any
case. The certificates representing shares of stock shall be signed by or in the
name of the Corporation by the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer and sealed with the seal of the Corporation. Any or all of
the signatures or the seal on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate shall be issued, it may be
issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still in office at the date of issue.
Section 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed twelve months and the
consideration received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by
power-of-attorney duly executed and filed with the Secretary or with a transfer
agent or transfer clerk, and on surrender of the certificate or
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23
certificates, if issued, for such shares properly endorsed or accompanied by a
duly executed stock transfer power and the payment of all taxes thereon. Except
as otherwise provided by law, the Corporation shall be entitled to recognize the
exclusive right of a person in whose name any share or shares stand on the
record of stockholders as the owner of such share or shares for all purposes,
including, without limitation, the rights to receive dividends or other
distributions, and to vote as such owner, and the Corporation shall not be bound
to recognize any equitable or legal claim to or interest in any such share or
shares on the part of any other person.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost or destroyed or which shall have been mutilated, and
the Board may, in its discretion require such owner or his legal representatives
to give to the Corporation a bond in such sum, limited or unlimited, and in such
form and with such surety or sureties, as the Board in its absolute discretion
shall determine, to
<PAGE>
24
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such certificate, or issuance
of a new certificate. Anything herein to the contrary notwithstanding, the
Board, in its absolute discretion, may refuse to issue any such new certificate,
except pursuant to legal proceedings under the laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and Distributions. The
Board may fix, in advance, a date not more than sixty days preceding the date
fixed for the payment of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Corporation, or for the
delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
Section 7. Registered Owner of Stock. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise provided by the
laws of Maryland.
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25
Section 8. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during usual business hours the
Corporation's By-laws, minutes of the proceedings of its stockholders, annual
statements of its affairs, and voting trust agreements on file at its principal
executive office.
Section 9. Involuntary Redemption of Shares. Subject to policies
established by the Board of Directors, the Corporation shall have the right to
involuntarily redeem shares of its common stock if at any time the value of a
stockholder's investment in the Corporation is less than $500.
ARTICLE VIII
Seal
The seal of the Corporation shall be circular in form and shall bear, in
addition to any other emblem or device approved by the Board of Directors, the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Maryland". Said seal may be used by causing it or a facsimile thereof
to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the 31st day of December in each year.
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26
ARTICLE X
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the Investment Company Act of 1940, as amended, and the general rules and
regulations thereunder.
ARTICLE XI
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock certificates, bonds or
other securities at any time owned by the Corporation may be held on behalf of
the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by Article XIV of these By-laws and pursuant
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27
to authorization by the Board and, when so authorized to be held on behalf of
the Corporation or sold, transferred or otherwise disposed of, may be
transferred from the name of the Corporation by the signature of the Chairman of
the Board, the President or a Vice President or the Treasurer or the Assistant
Treasurer or the Secretary or the Assistant Secretary.
ARTICLE XII
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and
ratified by the stockholders in accordance with the provisions of the Investment
Company Act of 1940, as amended.
ARTICLE XIII
Annual Statement
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as maybe directed by the Board. A report to
the stockholders based upon each such examination shall be mailed to each
stockholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be available at
the annual meeting of stockholders and be placed
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28
on file at the Corporation's principal office in the State of Maryland. Each
such report shall show the assets and liabilities of the Corporation as of the
close of the annual or quarterly period covered by the report and the securities
in which the funds of the Corporation were then invested. Such report shall also
show the Corporation's income and expenses for the period from the end of the
Corporations preceding fiscal year to the close of the annual or quarterly
period covered by the report and any other information required by the
Investment Company Act of 1940, as amended, and shall set forth such other
matters as the Board or such firm of independent public accounts shall
determine.
ARTICLE XIV
Fundamental Policies
Section 1. Policies Applicable to all Funds.
(a) It is the fundamental policy of the Corporation to follow the
investment objectives for a Fund that are set forth in the Prospectus contained
in the Registration Statement of the Corporation, or Post-Effective Amendment
thereto, at the time such Registration Statement, or Post-Effective Amendment,
setting forth such objectives for such Fund initially is declared effective.
(b) It is the fundamental policy of the Corporation not to:
1. Buy or sell real estate and mortgages, although the Portfolios may buy
and sell securities that are secured by real estate and securities of real
estate investment trusts and of other issuers that engage in real
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29
estate operation. Buy or sell commodities or commodity contracts, except that
the Common Stock and High Dividend Stock Portfolios may purchase and sell stock
index futures contracts, that the Stock Index Portfolio may purchase and sell
stock index futures contracts and related options, that the Aggressively Managed
Flexible Portfolio may purchase and sell stock index futures contracts and
interest rate futures contracts and related options, and that the Bond and
Conservatively Managed Flexible Portfolios may purchase and sell interest rate
futures contracts and related options.
2. Buy or sell the securities of other investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 5% of the Fund's total assets (taken at
current value) would be invested in such securities, or except as part of a
merger, consolidation or other acquisition.
3. Acquire securities for the purpose of exercising control or management
of any company except in connection with a merger, consolidation, acquisition or
reorganization.
4. Make short sales of securities or maintain a short position, except
that the Common Stock, High Dividend Stock, and Natural Resources Portfolios may
make short sales against the box. Collateral arrangements entered into by the
Common Stock or High Dividend Stock Portfolios with respect to futures contracts
and the writing of options on equity securities and stock
<PAGE>
30
indices are not deemed to be short sales. Collateral arrangements entered into
by the Stock Index Portfolio with respect to futures contracts and related
options and the writing of options on stock indices are not deemed to be short
sales. Collateral arrangements entered into by the Natural Resources Portfolio
with respect to the writing of options on equity securities and stock indices
are not deemed to be short sales. Collateral arrangements entered into by the
Aggressively Managed Flexible Portfolio with respect to futures contracts and
related options and the writing of options on debt securities, equity securities
and stock indices are not deemed to be short sales. Collateral arrangements
entered into by the Bond and Conservatively Managed Flexible Portfolios with
respect to futures contracts and related options and the writing of options on
debt securities are not deemed to be short sales.
5. Purchase securities on margin or otherwise borrow money or issue senior
securities except that a Portfolio, in accordance with its investment objectives
and policies, may enter into reverse repurchase agreements and purchase
securities on a when-issued and delayed delivery basis, within the limitations
set forth in the Appendix to the Prospectus; and except that the Bond, High
Yield Bond, Common Stock, High Dividend Stock, Aggressively Managed Flexible,
Conservatively Managed Flexible and Natural Resources Portfolios may purchase
securities on a when-issued or delayed delivery basis. The Fund may also obtain
such short-term credit as it needs for the clearance of securities transactions,
and may borrow from a bank, for the account of any Portfolio, as a temporary
measure to facilitate redemptions (but not for leveraging or investment) or to
exercise an option, an amount that does not exceed 5% of the value of the
Portfolio's total assets (including the amount owed as a result of the
borrowing) at the time the
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31
borrowing is made. Investment securities will not be purchased while borrowings
are outstanding. Interest paid on borrowings will not be available for
investment. Collateral arrangements entered into by the Common Stock or High
Dividend Stock Portfolios with respect to futures contracts and the writing of
options on equity securities and stock indices are not deemed to be the issuance
of a senior security or the purchase of a security on margin. Collateral
arrangements entered into by the Stock Index Portfolio with respect to futures
contracts and related options and the writing of options on stock indices are
not deemed to be the issuance of a senior security or the purchase of a security
on margin. Collateral agreements entered into by the Natural Resources Portfolio
with respect to the writing of options on equity securities or stock indices are
not deemed to be the issuance of a senior security or the purchase of a security
on margin. Collateral arrangements entered into by the Aggressively Managed
Flexible Portfolio with respect to futures contracts and related options and the
writing of options on debt securities, equity securities and stock indices are
not deemed to be the issuance of a senior security or the purchase of a security
on margin. Collateral arrangements entered into by the Bond or Conservatively
Managed Flexible Portfolios with respect to futures contracts and related
options and the writing of options on debt securities are not deemed to be the
issuance of a senior security or the purchase of a security on margin.
6. Enter into reverse repurchase agreements if, as a result, the
Portfolio's obligations with respect to reverse repurchase agreements would
exceed 10% of the Portfolio's net assets (defined to mean total assets at market
value less liabilities other than reverse repurchase agreements).
7. Pledge or mortgage assets, except that not more than 10% of the
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32
value of any Portfolio may be pledged (taken at the time the pledge is made) to
secure borrowings made in accordance with paragraph 5 above, and that a
Portfolio may enter into reverse repurchase agreements in accordance with
paragraph 6 above. Collateral arrangements entered into by the Common Stock or
High Dividend Stock Portfolios with respect to futures contracts and the writing
of options on equity securities or stock indices are not deemed to be the pledge
of assets. Collateral arrangements entered into by the Stock Index Portfolio
with respect to futures contracts and related options and the writing of options
on stock indices are not deemed to be the pledge of assets. Collateral
arrangements entered into by the Natural Resources Portfolio with respect to the
writing of options on equity securities or stock indices are not deemed to be
the pledge of assets. Collateral arrangements entered into by the Aggressively
Managed Flexible Portfolio with respect to futures contracts and related options
and the writing of options on debt securities, equity securities or stock
indices are not deemed to be the pledge of assets. Collateral arrangements
entered into by the Bond or Conservatively Managed Flexible Portfolios with
respect to futures contracts and related options and the writing of options on
debt securities are not deemed to be the pledge of assets.
8. Lend money, except that loans of up to 10% of the value of each
Portfolio may be made through the purchase of privately placed bonds,
debentures, notes and other evidences of indebtedness of a character customarily
acquired by institutional investors that may or may not be convertible in stock
or accompanied by warrants or rights to acquire stock. Repurchase agreements and
the purchase of publicly traded debt obligations are not considered to be
"loans" for this purpose and may be entered into or
<PAGE>
33
purchased by a Portfolio in accordance with its investment objectives and
policies.
9. Underwrite the securities of other issuers, except where the Fund may
be deemed to be an underwriter for the purposes of certain federal securities
laws in connection with the disposition of portfolio securities and with loans
that a Portfolio may make pursuant to paragraph 8 above.
10. Make an investment unless, when considering all its other investments,
75% of the value of a Portfolio's assets would consist of cash, cash items,
obligations of the United States Government, its agencies or instrumentalities,
and other securities. For purposes of this restriction, "other securities" are
limited for each issuer to not more than 5% of the value of a Portfolio's assets
and to not more than 10% of the issuer's outstanding voting securities held by
the Fund as a whole.
11. Purchase securities of a company in an industry if as a result of the
purchase a Portfolio's holdings of securities issued by companies in that
industry would exceed 25% of the value of the Portfolio, except that this
restriction does not apply to purchases of obligations issued or guaranteed by
the U.S. Government, its agencies and instrumentalities, or issued by domestic
banks. For purposes of this restriction, neither finance companies as a group
nor utility companies as a group are considered to be a single industry, and
will be grouped instead according to their services; for example, gas, electric,
and telephone utilities will each be considered a separate industry.
12. Invest in securities (including repurchase agreements maturing in more
than 7 days) that are subject to legal or contractual restrictions on
<PAGE>
34
resale or for which no readily available market exists, or in the securities of
issuers (other than U.S. Government agencies or instrumentaliies) having a
record, together with predecessors, of less than three years' continuous
operation, if, regarding all such securities, more than 10% of the Portfolio's
total assets would be invested in them.
Section 2. Policies Applicable to Particular Funds.
The Corporation has adopted the following fundamental policies with
respect to the Money Market Portfolio: The Money Market Portfolio may not:
1. Invest in oil and gas interests, common stock, preferred stock,
warrants or other equity securities.
2. Write or purchase any put or call option or combination of them.
3. Invest in any security with a remaining maturity in excess of one
year, except that securities held pursuant to repurchase agreements may have a
remaining maturity of more than one year.
ARTICLE XV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
regular meeting of the stockholders or at any special meeting of the
stockholders at which a quorum is present or represented, provided that notice
of the proposed amendment, alteration or repeal be contained in the notice of
such special meeting. These By-laws, except Article XIV hereof, may also be
amended, altered or repealed by the affirmative vote of a
<PAGE>
35
majority of the Board of Directors at any regular or special meeting of the
Board of Directors. The By-laws, or any of them, set forth in Article XIV of
these By-laws, may be amended, altered or repealed only by the affirmative vote
of a majority of the outstanding shares (as defined below) of capital stock of
each Fund affected by such amendment, at a regular meeting or special meeting of
the stockholders, the notice of which contains the proposed amendment,
alteration or repeal. For the purpose of amending Article XIV of these By-laws,
a majority of the outstanding shares shall be the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares. A certified
copy of these By-laws, as they may be amended from time to time, shall be kept
at the principal office of the Corporation in the State of Maryland.
Notwithstanding any other provisions of this Article XV, Section 2 of Article
XIV hereof may be amended by the affirmative vote of a majority of the Board of
Directors at any regular or special meeting of the Board of Directors to set
forth a restriction applicable only to a particular Fund or particular Funds of
the Corporation provided such amendment is adopted prior to the time of a
Registration Statement of the Corporation, or Post-Effective Amendment thereto,
setting forth the investment objectives of such Fund or Funds initially is
declared effective.
The Prudential Insurance Company of America
Custody Agreement
THIS CUSTODY AGREEMENT ("Agreement"), dated as of September 16, 1996 is
entered into by and between INVESTORS FIDUCIARY TRUST COMPANY, a Missouri trust
company, having its trust office located at 127 West 10th Street, Kansas City,
Missouri 64105 ("Custodian"), and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a
New Jersey corporation, having its principal office and place of business at
Prudential Plaza, Newark, New Jersey 07101 ("Client").
WHEREAS, Client desires to arrange for the custody of certain assets
belonging to separate accounts (each a "Separate Account" and collectively, the
"Separate Accounts") established and maintained by Client, which Separate
Accounts are registered as management, investment companies with the Securities
and Exchange Commission, with Custodian, and Custodian desires to provide such
custodial services, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
Custodian and Client agree as follows:
1. Definitions. The following terms, as used herein, shall have the
following meanings:
1.1. "Authorized Instruction" means a written, oral or electronic
communication accepted by Custodian in good faith that has been transmitted
subject to, and in accordance with, the Security Procedures or by such other
method as may be acceptable to, and approved in writing by, each of Custodian
and Client.
1.2. "Authorized Persons" means those persons who have been designated
and duly authorized by Client pursuant to all necessary corporate or other
action (which designation and authorization shall be evidenced by appropriate
documentation delivered to Custodian, upon which Custodian may conclusively
rely) to act on behalf of Client in connection with this Agreement and the
transactions contemplated hereby. A person so designated shall continue to be an
Authorized Person hereunder until such time as Client has delivered to Custodian
written notice of the revocation and termination of the authority of such person
to act for Client hereunder.
1.3. "Cash Account" has the meaning given at Section 5 of this
Agreement.
1.4. "Securities Account" has the meaning given at Section 3 of this
Agreement.
1.5. "Security Procedure" means, for any specified method of
<PAGE>
communication, a procedure approved in writing by Custodian and Client for the
purpose of (i) verifying that an Authorized Instruction given pursuant to such
method of communication is that of Client, and/or (ii) detecting error in the
transmission or content of such Authorized Instruction.
1.6. "Securities Depository" means any of the securities depositories
or clearing systems listed at Schedule 1.6 hereto, as amended from time to time
in accordance with Sections 4.3.2 and 15 hereof.
1.7. "Security" means any share, stock, bond, debenture, note,
certificate of indebtedness, warrant, option or other security or other non-cash
investment property (whether represented by a certificate or by a book-entry on
the records of the issuer or other entity responsible for recording such
book-entries) that is from time to time held for the account of Client, directly
or indirectly, through a Securities Depository or by Custodian pursuant to this
Agreement.
2. Representations, Warranties and Covenants.
2.1. Authority. Client and Custodian each represent and warrant to the
other, as of the date hereof and continuing through termination of this
Agreement, that the execution, delivery and performance by them of this
Agreement (i) are within their respective corporate, trust and other
constitutive powers; (ii) have been duly authorized by all necessary corporate,
trust and other actions required by their respective constitutive documents;
(iii) require no action by or in respect of, or filing with, any governmental
body, agency or official; and (iv) do not contravene or constitute a default
under (a) any provision of applicable law or regulation, (b) their respective
constitutive documents, or (c) any agreement, judgment, injunction, order,
decree or other instrument by which they or their respective properties or
operations are bound.
2.2. Transfers. As of the date hereof and continuing through
termination of this Agreement, Custodian represents and warrants to Client that
Custodian shall hold, maintain and, as applicable, transfer all Securities in
the possession, custody or control of Custodian hereunder free and clear of any
proprietary or equitable interest of Custodian, except as otherwise agreed in
writing by Custodian and Client.
2.3. Margin. As of the date hereof and continuing through termination
of this Agreement, Client represents to Custodian that Client will not incur any
credit, advance or overdraft, with respect to any Cash Account (as hereinafter
defined) to purchase or carry any margin stock, as defined in Regulation U of
the Board of Governors of the Federal Reserve System, 12 C.F.R. Chapter II, as
amended.
2.4. Custodian Financial Condition. Custodian hereby represents and
warrants to Client that Custodian has, at the date hereof, a net worth of not
less than $20,000,000. During the term hereof, Custodian shall (i) regularly
furnish Client with true,
2
<PAGE>
correct and complete copies of Custodian's quarterly and annual financial
statements, when and as rendered, and (ii) provide Client with such other
interim financial statements and information pertaining to Custodian's then
current financial condition as reasonably may be requested by Client from time
to time for the purpose of confirming Custodian's continued solvency, net worth
and qualification to act hereunder.
3. Securities Accounts.
3.1. Establishment of the Securities Accounts. Client hereby
establishes with Custodian a securities account for each Separate Account
identified at Schedule 3.1 hereto (each a "Securities Account" and
collectively, the "Securities Accounts") in the manner and on the terms
specified herein.
3.2. Ownership and Identification. All Securities held directly or
indirectly in the Securities Accounts shall be held by Custodian for the
exclusive account and benefit of Client, and beneficial ownership of the
Securities shall at all times remain vested in Client. The books and records of
Custodian shall so identify the Securities and the Securities Accounts.
Custodian shall cause Client's interest in the Securities to be evidenced by a
credit to the Securities Accounts on the books of Custodian. Custodian shall
segregate on its books and records any securities which are held by it for
Custodian's own account from those securities (including the Securities) held by
it for the account of others. Notwithstanding anything stated in Section 8 of
this Agreement to the contrary, Custodian shall not be responsible for the
title, validity or genuineness of any Securities or evidence of the title
receive by it.
3.3. Right to Withdraw. Client shall at all times, and from time to
time, have the continuing, unqualified and unlimited right to withdraw all or
any portion of the Securities from the Securities Accounts immediately upon
demand; provided however, that any Securities designated in writing by Client as
being required to meet the deposit requirements of those insurance regulatory
authorities having jurisdiction (each, a "Regulatory Authority") shall, to the
extent required by law, be deemed held by Custodian under and subject to the
control of such Regulatory Authority, and shall not be withdrawn, or otherwise
disposed of, by or at the direction of Client without the prior written approval
of such Regulatory Authority, in a form reasonably acceptable to Custodian.
4. Terms of Custody.
4.1. Authority to Hold Securities. Subject to the terms and conditions
of this Agreement, Client hereby authorizes Custodian to hold Securities
received, from time to time, for the account of Client. Custodian may hold the
Securities directly or indirectly through Securities Depositories and
Sub-Custodians qualifying under Section 1.6 and this Section 4.
4.2. Directly Held Securities. Certificated Securities held hereunder
may be
3
<PAGE>
registered in the name of Custodian or a Sub-Custodian (as defined below) and
shall be maintained and held in vaults of Custodian's sub-custodian, State
Street Bank and Trust Company ("State Street"), located in Boston,
Massachusetts, or State Street's agent, Chemical Bank, located in New York, New
York or, in the case of certificated securities to be held outside the United
States, of the applicable foreign Sub-Custodian listed in Schedule 4.4.1.
4.3. Securities Depositories. Entities qualified to act as Securities
Depositories hereunder shall be limited to the following: (i) a depository that
provides for long-term immobilization of securities, or a clearing corporation
that is also a depository, in each case approved by, or registered with, the
Securities and Exchange Commission ("SEC") pursuant to Section 17A of the
Securities Exchange Act of 1934, as amended; (ii) with respect to Treasury bill
and securities, a Federal Reserve Bank utilizing a book-entry system pursuant to
Subpart 0 of Treasury Circular No. 300 (or the book-entry regulations of Federal
agencies in substantially the same form), 31 C.F.R. Part 306 and Subpart B of 31
C.F.R. Part 350; (iii) an "eligible foreign custodian" that is a securities
depository ("Foreign Depository") under Rule 17f-5(c)(2) promulgated under the
Investment Company Act of 1940 (generally, an "SEC Rule"); (iv) as applicable,
such other entities (each, an "Other Entity") which Client determines are
approved to act as a qualified depository by the Regulatory Authorities,
provided that any such Other Entity located in the United States has been
registered with, or approved by, the SEC.
4.3.1. Schedule 1.6 Depositories. Client and Custodian herewith
stipulate and agree that the entities listed at Schedule 1.6 are qualified to
act as Securities Depositories under this Section 4.3.
4.3.2. Additional Depositories. If Custodian wishes to engage a
Securities Depository hereunder and such Securities Depository is not listed at
Schedule 1.6 (each, an "Additional Depository"), the engagement of such
Additional Depository shall be subject to, and shall require, Client's prior
written approval. Upon such approval, the Additional Depository shall be listed
by amendment to Schedule 1.6, in accordance with Section 15 hereof.
4.3.3. Foreign Depositories. With respect to Foreign
Depositories, Custodian shall continuously monitor the eligibility of the
Foreign Depositories and if, at any time, Custodian determines that any Foreign
Depository no longer satisfies the requirements of SEC Rule 17F-5(c)(2),
Custodian shall promptly provide written notice to Client and will act upon
Authorized Instructions.
4.3.4. Ownership and Identification. Custodian shall require each
Securities Depository to identify Securities held by the Securities Depository
as being held for the account of Custodian for its customers to the extent
permitted by the rules and procedures of such Securities Depository.
4
<PAGE>
4.3.5 No Commingling. Securities held by Custodian in accounts
with Securities Depositories hereunder shall not be commingled with securities
or other assets held by such Security Depository for the beneficial account and
interest of Custodian.
4.3.6. Securities Depository Liens. Custodian hereby represents,
warrants and covenants that it will permit a Securities Depository to hold
Securities hereunder, only if, and continuing for so long as (i) the Securities
are not subject to any right, charge, security interest, lien or claim of any
kind in favor of the Securities Depository or its creditors, including a
receiver, trustee in bankruptcy or similar authority, other than for final
settlement of Securities Transactions and (ii) beneficial ownership of the
Securities is freely transferable without the payment of money or value, in
either case other than for safe custody or administration.
4.3.7. Agency. A Securities Depository engaged under this Section
4.3 shall at all times be deemed the agent of Custodian. Custodian's deposit of
Securities with a Securities Depository shall not relieve Custodian of any of
Custodian's duties, obligations, responsibilities or liabilities under this
Agreement except as provided in Section 8.1.
4.4. Sub-custodian. To the extent permitted by law, Custodian is
authorized to engage State Street as a Sub-Custodian hereunder as well as
additional sub-custodians (which may be sub-custodians of State Street) to hold
Securities and cash necessary to effect Securities transactions in any
jurisdiction where a Security is required or otherwise directed by Client to be
held if Custodian does not have facilities for the deposit of Securities in such
jurisdiction (each, a "Sub-Custodian"), and to permit such Sub-Custodians to use
Securities Depositories in accordance with Section 4.3 hereof, as necessary for
such purpose. Sub-Custodians engaged to hold foreign securities, cash and cash
equivalents in accordance with SEC Rule 17f-5(a) shall be limited to "eligible
foreign custodian" under SEC Rule 17f-5(c)(2)(each a "Foreign Sub-Custodian").
4.4.1. Approval Required. Sub-Custodians engaged by Custodian
under this Section 4.4 shall be subject to, and shall require the prior written
approval of, Client. All Sub-Custodians approved at the time of this Agreement's
execution shall be listed in Schedule 4.4.1.
4.4.2. Ownership and Identification. All Securities held by a
Sub-Custodian hereunder shall be identified (i) on Custodian's books, as
belonging to Client and located at the Sub-Custodian, and (ii) on the
Sub-Custodian's books, as belonging to Custodian or State Street, as applicable,
for the account and beneficial interest of Custodian's customers or State
Street's customers, as applicable.
4.4.3. Commingled Accounts. Custodian may permit a Sub-Custodian
to commingle the Securities of Client with Securities of other sub-custodial
accounts held by the Sub-Custodian for the account of Custodian and other
customers of the Sub-Custodian; provided however, that under no circumstances
shall any such sub-custodial account
5
<PAGE>
commingle Securities of Client with securities or other assets beneficially
owned by Custodian or such Sub-Custodian.
4.4.4. Agency. A Sub-Custodian engaged under this Section 4.4
shall at all times be deemed the agent of Custodian. Custodian's engagement of a
Sub-Custodian shall not relieve Custodian of any of Custodian's duties,
obligations, responsibilities or liabilities under this Agreement except as
provided in Section 8.1. Upon request of Client, Custodian shall be willing to
contract with Sub-Custodians designated by Client and reasonable acceptable to
Custodian ("Special Purpose Sub-Custodian") for purposes of (i) effecting
third-party repurchase transactions with banks, brokers, dealers, or other
entities through the use of a common custodian or sub-custodian, or (ii)
providing depository and clearing agency services with respect to certain
variable rate demand note Securities, or (iii) for other reasonable purposes
specified by Client.
4.4.5. Foreign Sub-Custodians. With respect to Foreign
Sub-Custodians, Custodian shall continuously monitor the eligibility of the
Foreign Sub-Custodian and if, at any time, Custodian determines that any Foreign
Sub-Custodian no longer satisfies the requirements of SEC Rule 17f-5(c)(2),
Custodian shall promptly provide written notice to Client and will act upon
Authorized Instructions.
4.5. Use of Nominees. Custodian, a Securities Depository and/or a
Sub-Custodian acting hereunder may register Securities in the names of their
respective nominees. Client shall have the right to approve use of a nominee
hereunder, which approval shall not be withheld unreasonably. Use of a nominee
shall require that either (i) Custodian provide Client with an affidavit from an
officer of Custodian describing the legal structure of the nominee, and
identifying the nominee's officers, directors or partners, as applicable
("Nominee Affidavit") or (ii) that the parties hereto specify any nominees'
legal structure in Schedule 4.5 to this Agreement. Custodian shall follow the
instructions of Client with respect to any required filing of a Nominee
Affidavit with the Regulatory Authorities. Client agrees to hold Custodian, any
Sub-Custodian, any Securities Depository and their respective approved nominees
harmless from any liability incurred solely by virtue of being shareholder of
record of any Securities.
4.5.1. Street Name. Client may direct Custodian to maintain or
cause a Sub-Custodian to maintain Securities in so-called "street name";
provided, however, that notwithstanding anything herein to the contrary,
Custodian and any such Sub-Custodian shall be obligated only to utilize best
efforts to timely collect income due to Client on such Securities and to notify
Client of relevant corporate actions, including, without limitation, pendency of
calls, maturities, and tender and exchange offers.
4.6. Fungibility. Securities held by Custodian hereunder, directly or
indirectly through a Securities Depository, may be treated as fungible with
other identical securities of the same issue pursuant to the provisions of the
Uniform Commercial Code of the State of New York (or other applicable laws).
6
<PAGE>
4.7. No Hypothecation. Except as provided in Section 6.8, Custodian
shall have no power to deliver, assign, pledge, lend, hypothecate or otherwise
dispose of any Security to any person or entity, except pursuant to an
Authorized Instruction.
4.8. No Release or Discharge. Except as expressly provided herein,
none of the terms or conditions contained in this Section 4 or in Sections 8 and
9 hereof shall be construed, operate or be effective to limit, release or
discharge in any manner Custodian's duties, obligations, responsibilities and
liabilities to Client in connection with Custodian's direct or indirect holding
of Securities hereunder, whether in definitive or book-entry form.
5. Cash Accounts. Client hereby authorized and instructs Custodian, as an
agent of Client, to establish and deposit accounts with State Street to be used
in connection with transactions relating to the Securities (the "Cash
Accounts"). The Cash Accounts shall be custodial accounts under this Agreement,
and shall be subject to all the terms, conditions and other provisions of this
Agreement.
5.1. Ownership and Identification. All cash held in the Cash Accounts
shall be held by Custodian for the benefit of Client and the books and records
of Custodian shall so identify the Cash Accounts.
6. Instructions by Client.
6.1. In General. Client shall give Authorized Instructions with
respect to cash and Securities only to Custodian. If Custodian, in the exercise
of the standard of care described in Section 8.1 below, is uncertain as to the
appropriate action to be taken in any circumstances, upon Custodian's request,
Client shall give Custodian Authorized Instructions as to the action to be
taken. Securities held by a Securities Depository shall be subject only to the
instructions of Custodian or the applicable Sub-Custodian.
6.2. Binding Effect. Custodian shall promptly follow and comply with,
and shall instruct all Sub-Custodians and Securities Depositories holding
Securities hereunder to promptly follow and comply with, all lawful Authorized
Instructions given by Client under and in accordance with this Agreement.
Custodian shall not be required to follow or comply with, nor shall Custodian be
required to instruct a Sub-Custodian or Securities Depository to follow or
comply with, any Authorized Instruction (i) that would violate any applicable
law, decree, regulation or order of any government, Regulatory Authority or
other governmental body or agency (including any court or tribunal), or that
otherwise would be contrary to any term, condition or provision of this
Agreement; or (ii) that could make Custodian, any Sub-Custodian or Securities
Depository, or the nominee of any of them, liable for the payment of money on
its own account, unless Client, as a prerequisite to the taking of such action,
provides Custodian and any applicable Sub-Custodians and Securities Depositories
an Indemnity in an amount and form satisfactory to it or them.
6.3. Delivery of Securities. Securities shall be transferred,
exchanged or
7
<PAGE>
delivered by Custodian, to the extent sufficient Securities are actually held in
the Securities Accounts and available for delivery, only (i) as specified by an
Authorized Instruction; (ii) in exchange for, or upon conversion into, other
Securities or cash pursuant to a plan of merger, consolidation, reorganization,
recapitalization or readjustment; (iii) upon conversion of Securities pursuant
to their terms into other Securities; or (iv) upon termination of this
Agreement.
6.4. Contractual Settlements. Subject to the provisions of Section 9,
Custodian shall settle all purchases and sales of Securities hereunder (i) in
accordance with Customer's Authorized Instructions, and (ii) on an "actual
settlement" or "good on delivery" basis.
6.5. Reporting of Certain Matters. Custodian shall promptly deliver to
Client upon receipt all written information (including, without limitation,
pendency of calls and maturities of Securities and expirations of rights in
connection therewith, calls for voting or the exercise of rights or other
specific action intended to be transmitted to holders of the Securities, proxy
statements, proxy forms, prospectuses and other corporate reports) received from
issuers of, or otherwise in respect of, the Securities held under this
Agreement. With respect to tender or exchange offers, Custodian shall promptly
deliver to Client upon receipt all written information received from issuers of
the Securities whose tender or exchange is sought and from the party (or the
party's agents) making the tender or exchange offer. If Client desires to take
action with respect to any tender offer, exchange offer or other similar
transaction, Client will so instruct Custodian (i) as to Securities held in the
United States, one (1) day prior to the date on which such action is due; and
(ii) as to Securities held outside the United States, two (2) day prior to the
day by which Custodian must provide instructions to any Sub-Custodian; provided,
however, that in the event special requirements applicable to any such
transaction require earlier delivery of instructions from Client, Custodian
shall notify Client thereof and Client shall provide instructions to Custodian
in sufficient time to provide Custodian a reasonable time to act thereon.
6.6. Securities Matters. Unless and until Custodian receives an
Authorized Instruction to the contrary, Custodian shall hold, administer and
manage the Securities in accordance with this Section 6.6.
6.6.1. Dividends and Distributions. Except as set forth in
Schedule 6.6.1 hereto, Custodian shall credit to Client's account all dividends,
interest and other payments made under, and all stock dividends, rights and
other similar distributions made, issued or received with respect to, the
Securities on the date that such payments, dividends or distributions are due,
regardless of whether such payments, dividends or distributions have been
received by Custodian on such date. If such dividends, payments or distributions
subsequently are not received, Custodian shall track the non-receipt and make
whatever reasonable claim may be necessary to enforce collection; provided,
however that if any such dividend, payment or distribution is not received
within a reasonable time, upon prior written notice to Client, Custodian may
reverse the credit made to Client's account; and provided
8
<PAGE>
further, however, that nothing herein shall obligate Custodian to initiate or
appear and participate in any legal action or bankruptcy or other insolvency
proceeding necessary to enforce any claim.
6.6.2. Presentation for Payment. Custodian shall present for
payment all coupons and other income items held by Custodian which call for
payment upon presentation, all maturing Securities and those called for
redemption, and deposit cash received upon such payments in the applicable Cash
Account; provided, however, that in the case of Securities which are called for
redemption or otherwise become payable prior to their stated maturity, Custodian
shall be considered to have acted timely hereunder if Custodian presents the
same for payment promptly upon obtaining actual knowledge thereof or when
Custodian, in the exercise of the standard of care described by Section 8.1,
should have obtained knowledge thereof.
6.6.3. Ownership Certificates. Custodian shall execute in the
name of Client such ownership and other certificates as may be required to
obtain payment or exercise rights in respect of the Securities; provided,
however, that Custodian shall not be authorized to exercise voting rights held
in respect of the Securities other than as directed in writing by Client.
6.6.4. Voting of the Securities. Custodian shall, upon receipt of
Authorized Instructions from Client, execute and deliver, or cause its
Sub-Custodians, Securities Depositories, or its or their nominees (as
applicable), to execute and deliver such proxies or other authorizations as may
be required to vote the Securities in accordance with such Authorized
Instructions. Except as permitted by such Authorized Instructions, neither
Custodian nor any of its Sub-Custodians, Securities Depositories, or its or
their nominees (as applicable) shall exercise any power to vote the Securities,
or execute any proxy, power of attorney, or other similar instrument voting any
of such Securities, or give any consent, approval, or waiver with respect
thereto, or take any other similar action.
6.6.5. Mail to Client. Custodian shall accept and open all mail
directed to Client in care of Custodian, and shall promptly forward all such
materials to Client.
6.6.6. Disclosures to Issuers. Except as otherwise required by
applicable law, Custodian shall not disclose Client's name, address and
Securities position to the issuers of the Securities when and as such issuers
request.
6.6.7. Withholding Taxes. As part of the custodial services
rendered hereunder, Custodian shall investigate and advise Client with respect
to available means and methods for the elimination at source, or for the
reclaim, of withholding taxes assessed in connection with the transactions
contemplated hereby. Custodian shall, from time to time, make such filings with
the governmental authorities as may be required to eliminate or secure the
refund of such withholding taxes upon receipt from Client, in completed form, of
all
9
<PAGE>
forms, documents, instruments, proofs and supporting information required to be
filled in connection therewith. In performing its duties under this section,
unless otherwise informed by Client, Custodian shall be entitled to apply
categorical treatment of Client according to the nationality of Client, the
particulars of its organization and other relevant details supplied by Client.
Client shall inform Custodian in writing of any change in the organization,
domicile or other relevant fact concerning tax treatment of Client and if Client
is or becomes the beneficiary of any special ruling or treatment not applicable
to the general nationality and category of entity of which Client is a part
under general laws and treaty provisions.
6.6.8. Routine Matters. Custodian will, or will instruct its
Sub-Custodians, Securities Depositories or its or their nominees, as applicable,
to attend to all routine and mechanical matters in connection with the sale,
exchange, substitution, purchase, transfer of other dealings with Securities,
except as otherwise expressly provided in this Agreement or as directed by
Client from time to time in Authorized Instructions.
6.7. Partial Offers. If Custodian, whether by nominee or otherwise,
holds Securities that are commingled and fungible with securities of the same
issue belonging to others (such that the specific Securities held for the
account of Client are not identifiable), and an offer of partial redemption,
partial payment or other action affecting less than all of such securities is
received (collectively, "Partial Offer"), Custodian shall select the securities
eligible to participate in the Partial Offer on any fair, equitable and
non-discriminatory basis that it customarily uses to make such selections. If
such fungible Securities are held by a Securities Depository or Sub-Custodian
and a Partial Offer is received, any method of selection customarily used by the
Securities Depository or Sub-Custodian, as applicable, shall be acceptable to
select the securities eligible to participate in such Partial Offer; provided
however, that Custodian shall use its best efforts to cause such selection to be
made on a fair, equitable and non-discriminatory basis.
6.8. Payments. Custodian shall make payments only to the extent that
sufficient cash is available in the applicable Cash Account or otherwise, and
only (i) as specified in an Authorized Instruction, or (ii) upon the termination
of this Agreement. Custodian or State Street may make payments, from time to
time, on behalf of Client when sufficient cash is not available in the
applicable Cash Account, but shall have no obligation to make such payments. Any
such credit, advance or overdraft shall be repaid by Client on Custodian's
demand together with the overdraft charge specified in Schedule 10 from the date
advanced until the date repaid. As security for any advance made by Custodian or
State Street to pay for Securities purchased by Client pursuant to an Authorized
Instruction, Client hereby grants Custodian and State Street a lien on and
security interest in all Securities at any time held from the account of client,
including without limitation all Securities acquired with the amount advanced.
Should Client fail to promptly repay the advance and related overdraft charges,
Custodian and State Street, as applicable, shall be entitled to utilize
available cash and to dispose of Securities pursuant to applicable law to the
extent necessary to obtain reimbursement of the amount advanced and related
overdraft charges. Custodian shall promptly notify Client of the amount of any
such overdraft and of the amount of cash and
10
<PAGE>
any Securities of any such overdraft and of the amount of cash and any
Securities debited from the Securities Accounts to repay any such advance and
related overdraft charges.
7. Reporting.
7.1. Statements~. Custodian shall mail, or cause to be mailed, or
transmit electronically to Client, or with Client's permission, make available
to Client electronically, on not less than a monthly basis, statements of the
Securities Accounts and Cash Accounts. The statements shall list the Securities
and the cash balances of the accounts. Custodian shall promptly correct any
errors or omissions in such statements of which it becomes aware and shall
furnish Client with prompt notice of the correction.
7.2. New Jersey Report. Custodian shall periodically file a report
with respect to the Securities held by it under this Agreement as required, and
in the form prescribed, by Section 11:19-2.4 of the New Jersey Administrative
Code.
7.3. Access to Records. Upon demand, Custodian shall allow Client,
Client's advisors, accountants, counsel and other authorized representatives,
and the Regulatory Authorities such access to the records of Custodian relating
to the Securities Accounts, the Cash Accounts and the transactions contemplated
hereby as may be required under the circumstances. Custodian shall cooperate
with all such requests and records inspections on a best efforts basis but shall
be reimbursed by Client for all reasonable expenses and employee time invested
in any such inspection outside of normal and routine periodic reviews.
7.4. Accounting Control System Reports. Custodian shall provide Client
with any report concerning the internal accounting control systems of a
Securities Depository holding Securities hereunder to which Custodian has access
and with annual reports on Custodian's own systems of internal accounting
control.
7.5. Other information. Custodian shall maintain records sufficient to
verify the related information reported in Client's annual and quarterly
statutory financial statements as filed with the State of New Jersey and the
National Association of Insurance Commissioners. Custodian further agrees (i) to
provide, on request, affidavits in the forms shown at Schedule 7.5 hereto as
required by Circular Letter 1977-2 of The New York State Insurance Department
(Attachments B, C and D thereto) or in such other substantially equivalent forms
as may be reasonably acceptable to Client and the New York State Insurance
Department in order for such securities to be recognized as admitted assets for
statutory reporting purposes; (ii) to provide similar affidavits required by the
Regulatory Authorities of other jurisdictions; and (iii) to provide such
additional reporting information to Client regarding the Securities and the
transactions contemplated hereby as may be requested from time to time by
Client.
8. Custodian Responsibilities and Indemnification.
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<PAGE>
8.1. Standard of Care. Custodian shall exercise the standard of care
that a professional custodian engaged in the banking or trust company industry
and having professional expertise in financial and securities processing
transactions and custody functions would observe with respect to the subject
matter of this Agreement. Custodian shall be liable to Client for losses of
Securities or other property in the Securities Accounts and the Cash Accounts
which result from (i) breach of this Agreement, or (ii) the negligence or
willful misconduct of Custodian and any Securities Depository or Sub-Custodian
acting hereunder or any of their respective officers, employees, agents or
nominees except that Custodian shall be responsible to Client for any loss,
damage or expense suffered or incurred by Client resulting from the actions or
omissions of any Securities Depository or Special Purpose Sub-Custodian only to
the same extent such entity is responsible to Custodian. Client shall be
entitled to review and participate in the negotiation of contracts with
Sub-Custodians. Custodian shall pursue, or cause its Sub-Custodian to pursue,
available rights and remedies against any Securities Depository or Special
Purpose Sub-Custodian responsible for any loss, damage or expense suffered or
incurred by Client with all reasonable business efforts. Client shall be
subrogated to such rights and remedies, to the extent allowable under applicable
law, at Client's option. Notwithstanding the foregoing, Custodian shall be
strictly liable for any loss of Securities resulting from fire, robbery,
burglary, theft or other disappearance.
8.2. Replacements. In the event of loss of, or damage to, a Security
held hereunder, for which Custodian is responsible under the terms hereof,
Custodian, on demand by Client, will promptly replace such lost or damaged
Security with securities identical in kind and quality, together with all rights
and privileges pertaining thereto. If Custodian is unable to replace the
Security, Custodian shall pay Client a cash amount equal to the fair market
value of the Security as of the date of the discovery of the loss or damage.
8.3. Insurance. Custodian represents, warrants and covenants that it
has in force at the date hereof, and shall maintain in force during the full
term of this Agreement, insurance with respect to the Securities covering such
risks and in such amounts as Custodian maintains with respect to securities held
for its own account and for the account of other customers.
8.4. Indemnification of Client. Custodian shall indemnify, defend and
hold Client harmless of, from and against any loss, damage, claim, demand or
liability, including, without limitation, reasonable costs and attorneys' fees
(collectively, "Losses"), incurred by Client to the extent resulting from (1)
Custodian's breach of this Agreement, (ii) Custodian's negligence or (iii)
Custodian's willful misconduct. Custodian's obligation to indemnify Client
hereunder is conditioned upon Custodian's receipt from Client of (a) prompt
written notice of the claim or matter in respect of which indemnity is sought;
provided, however, that failure or delay in giving such notice shall not relieve
Custodian of its obligations hereunder except to the extent Custodian is
prejudiced thereby; (b) cooperation of Client, on a best efforts basis, in the
defense and settlement of any matter involving a third party claim; and (c)
Client's tender to Custodian of the right to control, defend and settle, in
Custodian's
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<PAGE>
sole discretion, any matter involving a third party claim. Under no
circumstances shall Custodian be liable to Client for indirect, special or
consequential damages, irrespective of whether or not Custodian was apprised of
the likelihood of such damages.
8.5. Reliance by Custodian. Notwithstanding anything in this Agreement
to the contrary, but provided that Custodian has otherwise exercised the
standard of care described in Section 8.1:
(a) Custodian may conclusively assume that any procedure agreed upon, approved
or directed by Client, its accountants or other advisors does not conflict with
or violate any requirements of its articles of incorporation, bylaws, any
prospectus, any applicable law, rule or regulation of the type described in
Section 8.6(b), or any order, decree or agreement by which Client may be bound;
(b) Custodian shall rely upon Client to notify Custodian of any statutes,
rules, regulations, requirements or policies which relate to Client, and of any
changes therein, which may materially impact Custodian's performance of its
responsibilities hereunder or its related operational policies and procedures in
a manner different from United States domiciled insurance companies in general;
(c) Custodian may conclusively rely upon the advice, opinion and statements of
the Authorized Persons, and Client's accountants, auditors and counsel;
(d) Custodian may conclusively rely upon any advice, notice, request, consent,
certificate or other document or instrument reasonable believed by it to be
genuine and to be signed by the proper party or parties; and
(e) Custodian shall not be responsible or liable for the failure or delay in
performance of its obligations hereunder, or any entity for which it is
responsible hereunder, arising out of or caused, directly or indirectly, by
circumstances beyond the affected entity's reasonable control, including,
without limitation, governmental or exchange action, statute, ordinance, ruling,
regulation or direction; war, strike, riot, emergency, civil disturbances,
terrorism, vandalism, explosions, labor disputes, freezes, floods, tornados,
telecommunications system failures, revolutions or insurrections. Custodian
agrees to implement and maintain reasonable back-up and disaster recovery
procedures and plans designed to minimize any loss of data or service
interruption by all reasonable practicable steps.
9. Limitations to Custodian Duties.
9.1. Payment and Delivery Instructions. Client stipulates and
acknowledges that in some securities markets, securities deliveries and payments
may not be, or are not customarily, made simultaneously. Accordingly, Client
agrees that, notwithstanding the giving of Authorized Instructions to deliver
Securities against payment or to pay for
13
<PAGE>
Securities against delivery, Custodian may make or accept payment for, or may
deliver, Securities in such form, at such time and in such manner as shall be in
accordance with the customs prevailing in the relevant market or among
professional custodians engaged in the banking or trust company industry and
having professional expertise in financial and securities processing
transactions and custody services.
9.2. Reversals. Client stipulates and acknowledges that in some
securities markets, and under certain cash clearing systems, deliveries of
securities and cash may be reversed under certain circumstances. Accordingly,
Client agrees that credits of Securities to the Securities Accounts and cash to
the Cash Accounts will be provisional and subject to reversal if, in accordance
with local practice in the market, the delivery of the Security or cash giving
rise to the credit is reversed.
10. Fees. As compensation for the services rendered hereunder, Client shall
pay Custodian a fee calculated in accordance with Schedule 10 hereto.
11. No Liens. Except as provided in Section 6.8, no charge or lien against
any Cash Account or Securities Account shall be permitted for any reason,
including, but not limited to, due and unpaid Custodian fees under Section 10 or
any other expense or loss incurred by Custodian in performing hereunder, unless
Client has first approved such charge or lien by Authorized Instruction.
12. Idemnification of Custodian. Client shall indemnify, defend and hold
Custodian harmless of, from and against any Losses incurred by Custodian to the
extent resulting from (i) Client's breach of this Agreement, (ii) the invalidity
of any communication that Custodian believes in good faith and in accordance
with the standard of care required by Section 8.1 hereof to have been an
Authorized Instruction or a properly executed and genuine document, (iii) any
action taken or omitted to be taken, in accordance with standard of care
required by Section 8.1 hereof, by Custodian in reliance on an Authorized
Instruction or other document or information provided to it by Client, (iv)
Client's negligence, or (v) Client's willful misconduct. Client's obligation to
indemnify Custodian hereunder is conditioned upon Client's receipt from
Custodian of (a) prompt written notice of the claim or matter in respect of
which indemnity is sought; provided, however that failure or delay in giving
such notice shall not relieve Client of its obligations hereunder except to the
extent Client is prejudiced thereby; (b) cooperation of Custodian, on a best
efforts basis, in the
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<PAGE>
defense and settlement of any matter involving a third-party claim; (c)
Custodian's tender to Client of the right to control, defend and settle, in
Client's sole discretion, any matter involving a third-party claim. Under no
circumstances shall Client be liable to Custodian for indirect, special or
consequential damages, irrespective of whether or not Client was apprised of the
likelihood of such damages.
13. Termination. This Agreement may be terminated by either party upon the
giving of not less than sixty (60) days prior written notice. This Agreement may
be terminated immediately for cause. Terminations "for cause" shall be limited
to (i) material breach, (ii) fraud, (iii) gross negligence, (iv) insolvency, and
(v) the commencement of bankruptcy proceedings against a party. Upon termination
of this Agreement, Client shall, by Authorized Instruction, notify Custodian of
the name of the person or entity to whom all Securities and cash shall be
delivered or paid. Custodian shall promptly deliver all Securities and cash,
along with all records not otherwise in the possession of Client pertaining
thereto (including, but not limited to, those records pertaining to Securities
held in book-entry form, by Federal Reserve banks or retained by the issuer) to
the person or entity so specified. Regardless of whether the termination is
initiated by Client or Custodian, Custodian's responsibilities under this
Agreement shall continue until a successor custodian's appointment becomes
effective and all Securities and cash have been transferred.
14. Notices. Except as otherwise specified herein, any notice or other
communication to Custodian is to be addressed to it at 127 West Tenth Street,
Kansas City, Missouri 64105 Attention: Custody Department or to such other
address as may be specified by Custodian from time to time. Any notice or other
communication to Client shall be addressed to it at 2 Gateway Center, Newark,
New Jersey 07102, Attention: James Quinn or to such other address as may be
specified by Client from time to time. Notices given hereunder shall be
effective upon receipt.
15. Amendments and Waivers. An amendment or waiver of any term of this
Agreement shall be effective only if in writing and signed by the party to be
bound. The waiver by either party of the breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
16. Successors and Assigns. This Agreement shall bind the successors and
permitted assigns of the parties. Neither party may assign any of its rights or
obligations under this Agreement without the prior written consent of the other.
17. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to its
conflicts of law rules.
18. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall constitute an original, and all of which taken
together shall comprise one and the same instrument.
15
<PAGE>
19. Headings. The section headings used herein are for reference only and
shall not affect the interpretation of any provision of this Agreement.
20. Integration. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and supersedes any and all
prior agreements and understandings, oral or written, relating thereto.
21. Confidentiality. The parties shall not disclose to any other party, but
shall keep confidential, the terms and conditions of this Agreement and any
amendment hereof, except to the extent required by an or regulatory authorities.
22. Security Procedures. Client acknowledges that it has been fully
informed of the risks associated with the various methods of communication for
transmitting Authorized Instructions to Custodian. Custodian has recommended
that Client transmit Authorized Instructions to Custodian using one or more
specified methods of communication and has recommended a type of Security
Procedure for each such method. Client hereby agrees that the Security
Procedures selected by it shall be deemed commercially reasonable even if such
Security Procedures offer less protection than those recommended by Custodian.
If Client elects to transmit Authorized Instructions to Custodian by a method of
communication for which no Security Procedure has been agreed, Client agrees to
be bound by any such Authorized Instruction that Custodian believes in good
faith to have been given by an Authorized Person. Client shall (i) not disclose,
or permit any Authorized Person to disclose, except on a "need to know" basis,
any aspects of any Security Procedure, (ii) notify Custodian immediately if the
confidentiality of any Security Procedure is compromised and (iii) act to
prevent the Security Procedures from being further compromised. Client and
Custodian have entered into a separate agreement concerning Authorized
Instructions which constitute "payment orders" under Article 4A of the Uniform
Commercial Code (the "Article 4A Agreement"). With respect to such Authorized
Instructions, this Agreement and the Article 4A Agreement shall be construed
cumulatively, but in the event of any conflict or inconsistency between them,
the terms of the Article 4A Agreement shall control. With respect to Authorized
Instructions communicated orally to Custodian, (i) Custodian shall be entitled
to rely thereon if Custodian reasonable believes they are communicated by an
Authorized Person, (ii) Custodian may in its discretion tape record the
communication, (iii) Client shall confirm the same through a written or
electronic Authorized Instruction by no later than the next business day, and
(iv) Custodian shall not be responsible hereunder for actions taken or omitted
reasonably and in good faith based on any oral communication prior to receipt of
and a reasonable time to act on the written or electronic confirming Authorized
Instruction.
23. Severability. In the event any of the terms or provisions of this
Agreement shall be held to be unenforceable, the remaining terms and provisions
shall be unimpaired
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<PAGE>
and the unenforceable term or provision shall be replaced by such enforceable
term or provision as comes closest to the intention underlying the unenforceable
term or provision.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.
INVESTORS FIDUCIARY TRUST THE PRUDENTIAL INSURANCE
COMPANY COMPANY OF AMERICA
By: Allen A. Strain By: James J. Quinn
Title: FVP Title: Vice President and
Assistant Treasurer
17
<PAGE>
SCHEDULE 1.6
Securities Depositories
Country Central Depository
United States Depository Trust Company
Participants Trust Company
Federal Reserve Bank
<PAGE>
SCHEDULE 3.1
Securities Accounts
Variable Contract Account -2 ("VCA-2") - YF1A
Variable Contract Account -10 ("VCA-lO") - YF1E
Variable Contract Account -11 (`VCA-ll") - YC1A
<PAGE>
SCHEDULE 4.4.1
Sub-Custodians
Country Subcustodian
United States State Street Bank and Trust
Chase Manhattan Bank (F/K/A Chemical Bank)
(Physical)
<PAGE>
LIST OF NOMINEES
Except where otherwise noted, each Nominee is a domestic corporation wholly
owned by the local Subcustodian.
Australia Westpac Custodian Nominees Ltd.
Austria None
Belgium None
Denmark None
Finland None
France None
Germany None
Hong Kong Horsford Nominees Ltd. (physical)/HKSCC Nominees Ltd.,
for CCASS (depository)(1)
Ireland Bank of Ireland Nominees Ltd.
Italy None
Japan None
Malaysia Cartaban (M) Nominees Sdn Berhad.
Netherlands None
New Zealand ANZ Nominees Ltd.
Norway None
Singapore DBS Nominees Pty Ltd.
Spain None
Sweden Skandinaviska Enskilda Banken, as nominee(2)
Switzerland None
United Kingdom State Street London Nominees Ltd.
United States CEDE & Co.(Depository Trust Co. securities), a New York
limited purpose trust company
MBSCC & Co. (Participants Trust Co. securities), a New
York limited purpose trust company
IFTCO (domestic certificated securities), a Missouri
general partnership composed of officers of the Custodian
Note: In countries where "None" is listed, securities are held through a central
securities depository that does not employ nominees. In such countries,
securities are registered in the name of the beneficial owner (Switzerland only)
or securities are held in bearer form.
(1) H.K. Corporation is owned by the central depository in Hong Kong.
(2) Subcustodian bank (Swedish Banking Corporation) with designation as
nominee
<PAGE>
Foreign Income Availability Schedule 6.6.1
State Street Bank Sub-custodian
Income will be credited contractually on pay day in the markets noted with
Contractual Income Policy. The markets noted with Actual income policy will be
credited income when it is received.
<TABLE>
<CAPTION>
Market Income Policy Market Income Policy Market Income Policy
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
Argentina Actual India Actual South Africa Actual
Australia Contractual Indonesia Actual South Korea Actual
Austria Contractual Ireland Actual Spain Contractual
Bangladesh Actual Israel Actual Sri Lanka Actual
Belgium Contractual Italy Contractual Swaziland Actual
* Bolivia Actual Ivory Coast Actual Sweden Contractual
Botswana Actual Japan Contractual Switzerland Contractual
Brazil Actual * Jamaica Actual Taiwan Actual
Canada Contractual Jordan Actual Thailand Actual
Chile Actual Kenya Actual * Trinidad & Actual
Tobago
China Actual Malaysia Actual * Tunisia Actual
Colombia Actual Mauritius Actual Turkey Actual
Cyprus Actual Mexico Actual United Kingdom Contractual
Czech Republic Actual Morocco Actual United States See Attached
Denmark Contractual Namibia Actual Uruguay Actual
Ecuador Actual Netherlands Contractual Venezuela Actual
Egypt Actual New Zealand Contractual Zambia Actual
**Euroclear Contractual/Actual Norway Contractual Zimbabwe Actual
Euro CDs Actual Pakistan Actual
Finland Contractual Peru Actual
France Contractual Philippines Actual
Germany Contractual Poland Actual
Ghana Actual Portugal Contractual
Greece Actual * Russia Actual
Hong Kong Contractual Singapore Contractual
Hungary Actual Slovak Republic Actual
* Market is not 17F-5 eligible
** For Euroclear, contractual income paid only in markets listed with Income
Policy of Contractual.
</TABLE>
<PAGE>
United States Income Availability Schedule 6.6.1
Income Type DTC FED PTC Physical
================================================================================
Dividends Contractual N/A N/A Actual
Fixed Rate Interest Contractual Contractual N/A Actual
Variable Rate Interest Contractual Contractual N/A Actual
GNMA I N/A N/A Contractual PD +1 N/A
GNMA II N/A N/A Contractual PD *** N/A
Mortgages Actual Contractual Contractual Actual
Maturities Actual Contractual N/A Actual
Exceptions to the above Contractual Income Policy include securities that are:
* Involved in a trade whose settlement either failed, or is pending over the
record date, (excluding the United States);
* On loan under a self directed securities lending program other than IFTC`s
own vendor lending program;
* Known to be in a condition of default, or suspected to present a risk of
default or payment delay;
* In the asset categories, without limitation, of Private Placements,
Derivatives, Options, Futures, CMOs, and Zero Coupon Bonds.
* Securities whose amount of income and redemption cannot be calculated in
advance of payable date, or determined in advance of actual collection,
examples include ADRs;
* Payments received as the result of a corporate action, not limited to, bond
calls, mandatory or optional puts, and tender offers.
*** For GNMA II securities, if the 19th day of the month is a business day,
Payable/Distribution Date is the next business day. If the 19th is not a
business day, but the 20th is a business day. Payable/Distribution date is the
first business day after the 20th. If both the 19th and 20th are not business
days, Payable/Distribution will be the next business day thereafter.
SSBJune 25, 1996
<PAGE>
SCHEDULE 7.5
Affidavit Forms
ATTACHMENT B
CUSTODIAN AFFIDAVIT
(For use by a custodian bank where securities entrusted to its care and have not
been re-deposited elsewhere.)
STATE OF
S.S.:
COUNTY OF
__________________, being duly sworn deposes and says that he is of ___________,
a banking corporation organized under and pursuant to the laws of the
_____________ with the principal place of business at ______________
(hereinafter called the "bank");
That his duties involve supervision of activities of the bank as custodian
and records relating thereto;
That the bank is custodian for certain securities of_____________ having a
place of business at ________ (hereinafter called the "insurance company")
pursuant to an agreement between the bank and the insurance company;
That the schedule attached hereto is a true and complete statement of
securities (other than those caused to be deposited with The Depository Trust
Company or the Federal Reserve Bank of New York under the Federal Reserve book
entry procedure) which were in the custody of the bank for the account of the
insurance company as of the close of business on ___________; that, unless
otherwise indicated on the schedule, the next maturing and all subsequent
coupons were then either attached to coupon bonds or in the process of
collection; and that, unless otherwise shown on the schedule, all such
Securities were in bearer form or in registered form in the name of the
insurance company or its nominee or a nominee of the bank, or were in the
process of being registered in such form;
That the bank as custodian has the responsibility for the safekeeping of
such securities as that responsibility is specifically set forth in the
agreement between the bank as custodian and the insurance company; and
That, to the best of his knowledge and belief, unless otherwise shown on
the schedule, said securities were the property of said insurance company and
were free of all liens, claims or encumbrances whatsoever.
Subscribed and sworn to
before me this _______ day
of___________,_____,__________________(L.S.)
<PAGE>
SCHEDULE 7.5
Affidavit Forms
ATTACHMENT C
CUSTODIAN AFFIDAVIT
(For use in instances where a custodian bank maintains securities on deposit
with the Depository Trust Company.)
STATE OF
S.S.:
COUNTY OF
_________________, being duly sworn deposes and says that he is __________ of
the ___________, a banking corporation organized under and pursuant to the laws
of the _____________ with its principal place of business at _____________
(hereinafter called the "bank");
That his duties involve supervision of activities of the bank as custodian
and records relating thereto;
That the bank is custodian for certain securities of_________, with a place
of business at _________ (hereinafter called the "insurance company") pursuant
to an agreement between the bank and the insurance company;
That the bank has caused certain of such securities to be deposited with
The Depository Trust Company, 55 Water Street, New York (hereinafter called
"DTC"); and that the schedule attached hereto is a true and complete statement
of the securities of the insurance company of which the bank was custodian as of
the close of business on _____________ and which were so deposited with DTC at
such date;
That the bank as custodian has the responsibility for the safekeeping of
such securities whether in the possession of the bank or deposited with DTC as
that responsibility is specifically set forth in the agreement between the bank
as custodian and the insurance company; and
That, to the best of his knowledge and belief, unless otherwise shown on
the schedule, said securities were the property of said insurance company and
were free of all liens, claims or encumbrances whatsoever.
Subscribed and sworn to
before me this _______ day
of___________,_____,__________________(L.S.)
<PAGE>
SCHEDULE 7.5
Affidavit Forms
ATTACHMENT D
CUSTODIAN AFFIDAVIT
(For use where ownership is evidenced by book entry at Federal Reserve Bank of
New York.)
STATE OF
S.S.:
COUNTY OF
__________________, being duly sworn deposes and says that he is ___________ of
the ___________, a banking corporation organized under and pursuant to the laws
of the ______________ with the principal place of business at _____________
(hereinafter called the "bank");
That his duties involve the supervision of activities of the bank as
custodian and records relating thereto;
That the bank is custodian for certain securities of, with a place of
business at _________ (hereinafter called the "insurance company") pursuant to
an agreement between the bank and the insurance company;
That it has caused certain of such securities to be credited to its
book-entry account with the Federal Reserve Bank of New York under the Federal
Reserve book entry procedure; and that the schedule attached hereto is a true
and complete statement of the securities of the insurance company of which the
bank was custodian as of the close of business on _____________ which were in a
"General" book-entry account maintained in the name of the bank on the books and
records of the Federal Reserve Bank of New York at such date;
That the bank has the same responsibility for the safekeeping of such
securities whether in the possession of the bank or in said "General" book-entry
account as that responsibility is specifically set forth in the agreement
between the bank as custodian and the insurance company; and
That, to the best of his knowledge and belief, unless otherwise shown on
the schedule, said securities were the property of said insurance company and
were free of all liens, claims or encumbrances whatsoever.
Subscribed and sworn to
before me this ______ day
of___________,_____,__________________(L.S.)
[LOGO] 801 Pennsylvania
Kansas City, MO 64105
February 16, 2000 Telephone: (816) 871-4100
Mr. Christopher Sprague, Assistant General Counsel
Prudential Insurance Company of America
Gateway Center 3, 4th Floor
Newark, NJ 07102-5096
Re: The following agreements by and between Investors Fiduciary Trust
Company and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA:
o Custody Agreement dated 9/16/96, as amended 12/1/96 and 6/1/97,
related Funds Transfer Operating Guidelines and Security
Procedures, and Pledge Agreement dated October 29, 1997 with
Goldman, Sachs & Co.
o Investment Accounting Agreement dated 1/2/96, as amended 6/1/97
and 7/1/98
Dear Mr. Sprague
As you are aware, we are completing the acquisition process that began in
1995 when State Street purchased Investors Fiduciary Trust Company. The State
Street/IFTC combination has been truly beneficial, particularly in the areas of
product offerings, technology and customer service. In order to support
continued growth and to meet the changing needs of our clients, we will be
assigning all IFTC custody and fund accounting contracts to State Street Bank
and Trust Company as soon as possible.
We request your agreement to such assignment and to the assumption of all
rights, duties and obligations of the above-referenced contracts by State Street
Bank and Trust Company, effective January 1, 2000. In all respects other than
the assignment to State Street, the terms and conditions of the above-referenced
agreements will remain unchanged.
Please indicate your company's consent to the assignment and assumption by
signing the enclosed copy of this letter and returning it to me in the enclosed
pre-addressed envelope. Thank you for your prompt response, and please do not
hesitate to call me at (816) 871-9313 if I can provide any further information
or be of assistance in any way.
Sincerely,
/s/ JULIE A. ROHLING
- --------------------------------------
Julie A. Rohling
APPROVED AND AGREED TO:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ ???????????????????
-------------------------------
???????????????????
Title: Senior Vice President
---------------------------
Date: March 23, 2000
---------------------------
FIRST AMENDMENT TO CUSTODY AGREEMENT
THIS FIRST AMENDMENT TO CUSTODY AGREEMENT(the "Amendment") is made and entered
into as of December 1, 1996, by and among THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA("Client"), a New Jersey corporation, and INVESTORS FIDUCIARY TRUST
COMPANY, a Missouri trust company("Custodian")
RECITALS:
A. Client and Custodian are parties to that certain custody agreement dated as
of September 16, 1996(the "Agreement") for the custody of certain assets
belonging to Separate Accounts, as defined in the Agreement, which Separate
Accounts are registered as management investment companies.
B. Client and Custodian desire to amend and supplement the Agreement upon the
following terms and conditions.
AGREEMENT:
In consideration of mutual promises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Client and
Custodian hereby agree that the Agreement is amended and supplemented as
follows:
1. Schedule 1.6 shall be replaced in its entirety by the Schedule 1.6 dated
November 29, 1996 attached hereto and incorporated herein by this
reference.
2. Schedule 4.4.1 shall be replaced in its entirety by the Schedule 4.4.1
dated November 19, 1996 attached hereto and incorporated herein by this
reference.
In all other respects, the Agreement is hereby ratified and confirmed and
remains in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized officers to be effective as of the date first above
written.
INVESTOR FIDUCIARY TRUST COMPANY
By: /s/ ALLEN R. STRAIN
---------------------------------
Allen R. Strain
Executive Vice President
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ JAMES J. QUINN
---------------------------------
James J. Quinn
Vice President and
Assistant Treasurer
<PAGE>
SECURITY DEPOSITORY
SCHEUDLE 1.6
COUNTRY SUBCUSTODIAN
- ------- ------------------
United States Depository Trust Company
Participants Trust Company
Federal Reserve Bank
Argentina Caja de Valores s.A.
Australia Austraclear Limited;
Reserve Bank Information and
Transfer system(RITS)
Austria Oesterreichische
Kontrollban KAG
(Wertpapiersammelbank Division)
Belgium Caisse Interprofessionelle
de Depots et de Virements
de Titres S.A.(CIK);
Sanque Nationale de Belgique
Brazil Bolsa de Valores de Sao Paulo
(Bovespa);
Banco Central do Brasil,
Systema Especial de Liquidacao
e Custodia(SELIC)
Canada The Canadian Depository
for Securities Limited
(CDS)
Denmark Vaerdipapircetralen
The Danish Securities Center(VP)
Finland The Central Share Register of
Finland
<PAGE>
COUNTRY CENTRAL DEPOSITORY
- ------- ------------------
France Societe Interprofessionele
pour la Compensation des
Valeurs Mobilieres(SICOVAM);
Banque de France,
Saturne System
Germany The Deutscher Kassenverein AG
Greece The Central Securities Depository
(Apothetirion Titlon A.E.)
Hong Kong The Central Clearing and
Settlement system(CCASS)
Hungary The Central Depository and
Clearing House(Budapest)Ltd.
(KELER Ltd.)
Ireland The Central Bank of Ireland,
The Gilt Settlement Office(GSO)
Italy Monte Titoli S.p.A.;
Banca d'Italia
Japan Japan Securities Depository
Center(JASDEC);
Bank of Japan Net System
Republic of Korea Korea Securities Depository
Malaysia Malaysian Central Depository Sdn.
Bhd.(MCD)
Mexico S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores)
Banco de Mexico
<PAGE>
COUNTRY SUBCUSTODIAN
- ------- ------------------
Netherlands Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
New Zealand New Zealand Central
Securities Depository
Limited(NZCSD)
Norway Verdipapiresntralen -
The Norwegian Registry
of Securites(VPS)
Peru Caja de Valores(CAVAL)
Poland The National Depository
of Securities(Centrum
Krajoweg o Depozytu
Papierow Wartosciowych)
National Bank of Poland
Portugal Central de Valores
Mobiliarios(Central)
Singapore The Central Depository
Liquidacion de Valores s.A.
(SCLV);
Banco de Espana,
Anotaciones en Cuenta
Sri Lanka The Central Depository
System(Pvt) Limited
Sweden Vardepapperscentralen VPC AB,
The Swedish Central Securities
Depository
Switzerland Schweizerische Effekten -
Giro AG(SEGA)
<PAGE>
COUNTRY CENTRAL DEPOSITORY
- ------- ------------------
Taiwan - R.O.C. The Taiwan Securities
Central Depository
Company, Ltd.(TSCD)
Thailand Thailand Securities Depository
Company Limited(TSD)
United Kingdom The Bank of England,
The Central Gilts Office(CGO);
The Central Moneymarkets Office
(CMO)
Euroclear(The Euroclear System)/State Street London Limited
Cedel(Cedel Bank Societe anonyme)/State Street London Limited
<PAGE>
SUBCUSTODIAN
SCHEUDLE 4.4.1
COUNTRY SUBCUSTODIAN
- ------- ------------------
United States State Street Bank and Trust
Chase Manhattan Bank(f/k/a/ Chemical Bank)
(Physical)
Argentina Citibank, N.A.
Australia Westpec Banking
Corporation
Austria GiroCredit Bank
Aktiengesellschaft
der Sparkassen
Belgium Generale Bank
Brazil Citibank, N.A.
Canada Canada Trustco
Mortgage Company
Chile Citibank, N.A.
Colombia Cititrust Colombia S.A.
Sociedad Fiduciaria
Denmark Den Danske Bank
Finland Merita Bank Limited
France Banque Paribas
Germany Dresdner Bank AG(Mutual Funds Only)
Banque Paribas(Duetschland) OGH
(Institutional Funds Only)
Greece National Bank of Greece S.A.
Hong Kong Standard Chartered Bank
Hungary Citibank Budapest Rt.
<PAGE>
COUNTRY CENTRAL DEPOSITORY
- ------- ------------------
India Deutsche Bank AG
Hongkong and Shanghai Banking Corp.
Indonesia Standard Chartered Bank
Ireland Bank of Ireland
Italy Banque Paribas
Japan The Daiwa Bank, Limited
The Sumitomo Trust & Banking Co., Ltd.
The Fuji Bank, Limited
Republic of Korea SEOULBANK
Malaysia Standard Chartered Bank
Malaysia Berhad
Mexico Citibank Mexico, S.A.
Netherlands MeesPierson N.V.
New Zealand ANZ Banking Group
(New Zealand) Limited
Norway Christiania Bank og
KreditKasse
Peru Citibank, N.A.
Philippines Standard Chartered Bank
Poland Citibank Poland S.A.(Mutual Funds Only)
Bank Polska Kasa Opieki, S.A.
(Institutional Funds Only)
Portugal Banco Comercial Portugues
Singapore The Development Bank
of singapore Ltd.
Spain Banco Santander, S.A.
<PAGE>
COUNTRY SUBCUSTODIAN
- ------- ------------------
Sri Lanka The Hongkon and Shanghai
Banking Corporation Limited
Sweden Skandinaviska enskilda
Banken
Switzerland Union Bank of Switzerland(Mutual Funds Only)
Lombard Odier & Cie(Institutional Funds Only)
Taiwan - R.O.C Central Trust of China
Thailand Standard Chartered Bank
United Kingdom State Street Bank and
Trust Company
Venezuela Citibank N.A.
SUPPLEMENT TO CUSTODY AGREEMENT
THIS SUPPLEMENT to the Custody Agreement is made effective the 19 day of
August 1998, by and between THE PRUDENTIAL SERIES FUND, INC. and PRUDENTIAL'S
GIBRALTER FUND (collectively the "Fund") AND INVESTORS FIDUCIARY TRUST COMPANY
("IFTC"). Capitalized terms used in this Supplement without definition have the
respective meanings given to such terms in the Custody Agreement referred to
below.
WITNESSETH:
WHEREAS, the Fund and IFTC entered into a Custody Agreement dated as of
September 12, 1997 (as amended and in effect from time to time, the "Contract");
and
WHEREAS, the Fund appointed IFTC as custodian of the assets of the Fund's
investment portfolio or portfolios (each a "Portfolio" and collectively the
"Portfolios") pursuant to the terms of the Contract; and
WHEREAS, the Fund and IFTC desire to supplement the Contract to reflect
revisions to Rule 17f-5 ("Rule 17f-5") promulgated under the Investment Company
Act of 1940, as amended (the "1940 Act").
NOW THEREFORE, for and in consideration of the foregoing and the mutual
promises contained herein, the parties hereto, intending to be legally bound,
mutually covenant and agree to supplement the Contract, pursuant to the terms
thereof, as follows:
1. SUPPLEMENT OF CONTRACT. A new Section of the Contract is hereby added, as
of the effective date of this Supplement, as set forth below.
2. IFTC AS FOREIGN CUSTODY MANAGER
A. Definitions. Capitalized terms in this new Section have the following
meanings:
"Country Risk" means all factors reasonably related to the systemic risk
of holding Foreign Assets in a particular country including, but not
limited to, such country's political environment; economic and financial
infrastructure (including financial institutions such as any Mandatory
Securities Depositories operating in the country); prevailing or
developing custody and settlement practices; and laws and regulations
applicable to the safekeeping and recovery of Foreign Assets held in
custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1)
of Rule 17f-5, except that the term does not include Mandatory Securities
Depositories.
"Foreign Assets" means any of the Portfolios' investments (including
foreign currencies) for which the primary market is outside the United
States and such cash and cash equivalents in amounts deemed by Fund to be
reasonably necessary to effect the Portfolios' transactions in such
investments.
<PAGE>
"Foreign Custody Manager" or "FCM" has the meaning set forth in section
(a)(2) of Rule 17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used
if the Fund determines to place Foreign Assets in a country outside the
United States (i) because required by law or regulation; (ii) because
securities cannot be withdrawn from such foreign securities depository or
clearing agency; or (iii) because maintaining or effecting trades in
securities outside the foreign securities depository or clearing agency is
not consistent with prevailing or developing custodial or market
practices.
B. Delegation to IFTC as FCM. The Fund, pursuant to resolution adopted by its
Board of Trustees or Directors (the "Board"), hereby delegates to IFTC,
subject to Section (b) of Rule 1 7f-5, the responsibilities set forth in
this new Section with respect to Foreign Assets held outside the United
States, and IFTC hereby accepts such delegation, as FCM of each Portfolio.
It is understood and agreed that IFTC will sub-contract the performance of
its responsibilities hereunder with State Street Bank & Trust Company.
IFTC will be responsible to the applicable Portfolio for any loss, damage
or expense suffered or incurred by such Portfolio resulting from the
actions or omissions of State Street Bank & Trust Company to the same
extent IFTC would be responsible to Fund hereunder if it committed the act
or omission itself. References herein to "FCM" shall include IFTC and
State Street Bank & Trust Company.
C. Countries Covered. The FCM is responsible for performing the delegated
responsibilities defined below only with respect to the countries and
custody arrangements for each such country listed on Schedule A to this
Supplement, which may be amended from time to time by the FCM. The FCM
will list on Schedule A the Eligible Foreign Custodians selected by the
FCM to maintain the assets of each Portfolio. Mandatory Securities
Depositories are listed on Schedule B to this Supplement, which Schedule B
may be amended from time to time by the FCM. The FCM will provide amended
versions of Schedules A and B in accordance with Section G hereof.
Upon the receipt by the FCM of Instructions to open an account, or to
place or maintain Foreign Assets, in a country listed on Schedule A, and
the fulfillment by the Fund of the applicable account opening requirements
for such country, the FCM is deemed to have been delegated by the Board
responsibility as FCM with respect to that country and to have accepted
such delegation. Following the receipt of Instructions directing the FCM
to close the account of a Portfolio with the Eligible Foreign Custodian
selected by the FCM in a designated country, the delegation by the Board
to IFTC as FCM for that country is deemed to have been withdrawn and IFTC
will immediately cease to be the FCM of the Portfolio with respect to that
country.
2
<PAGE>
The FCM may withdraw its acceptance of delegated responsibilities with
respect to a designated country upon written notice to the Fund. Thirty
days (or such longer period as to which the parties agree in writing)
after receipt of any such notice by the Fund, IFTC will have no further
responsibility as FCM to a Portfolio with respect to the country as to
which IFTC's acceptance of delegation is withdrawn.
D. Scope of Delegated Responsibilities.
1. Selection of Eligible Foreign Custodians. Subject to the provisions
of this new Section, the FCM may place and maintain the Foreign
Assets in the care of the Eligible Foreign Custodian selected by the
FCM in each country listed on Schedule A, as amended from time to
time.
In performing its delegated responsibilities as FCM to place or
maintain Foreign Assets with an Eligible Foreign Custodian, the FCM
will determine that the Foreign Assets will be subject to reasonable
care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign
Custodian, after considering all factors relevant to the safekeeping
of such assets, including, without limitation, those set forth in
Rule 17f-5(c)(l)(i) through (iv).
2. Contracts With Eligible Foreign Custodians. The FCM will determine
that the contract (or the rules or established practices or
procedures in the case of an Eligible Foreign Custodian that is a
foreign securities depository or clearing agency) governing the
foreign custody arrangements with each Eligible Foreign Custodian
selected by the FCM will provide reasonable care for the Foreign
Assets held by that Eligible Foreign Custodian based on the
standards applicable to custodians in the particular country. Each
such contract will include the provisions set forth in Rule
17f-5(c)(2)(i)(A) through (F), or, in lieu of any or all of the
provisions set forth in said (A) through (F), such other provisions
that the FCM determines will provide, in their entirety, the same or
greater level of care and protection for the Foreign Assets as the
provisions set forth in said (A) through (F) in their entirety.
3. Monitoring. In each case in which the FCM maintains Foreign Assets
with an Eligible Foreign Custodian selected by the FCM, the FCM will
establish a system to monitor (a) the appropriateness of maintaining
the Foreign Assets with such Eligible Foreign Custodian and (b) the
contract governing the custody arrangements established by the FCM
with the Eligible Foreign Custodian. In the event the FCM determines
that the custody arrangements with an Eligible Foreign Custodian it
has selected are no longer appropriate, the FCM will notify the
Board in accordance with Section G hereof.
E. Guidelines for the Exercise of Delegated Authority. For purposes of this
new Section, the Board will be solely responsible for considering and
determining to accept such Country Risk as is incurred by placing and
maintaining the Foreign Assets in each country for which IFTC is serving
as FCM of a Portfolio, and the
3
<PAGE>
Board will be solely responsible for monitoring on a continuing basis such
Country Risk to the extent that the Board considers necessary or
appropriate. The Fund, on behalf of the Portfolios, and IFTC each
expressly acknowledge that the FCM will not be delegated any
responsibilities under this new Section with respect to Mandatory
Securities Depositories.
F. Standard of Care as FCM of a Portfolio. In performing the responsibilities
delegated to it, the FCM agrees to exercise reasonable care, prudence and
diligence such as a person having responsibility for the safekeeping of
assets of management investment companies registered under the 1940 Act
would exercise.
G. Reporting Requirements. The FCM will report the withdrawal of the Foreign
Assets from an Eligible Foreign Custodian and the placement of such
Foreign Assets with another Eligible Foreign Custodian by providing to the
Board amended Schedules A or B at the end of the calendar quarter in which
an amendment to either Schedule has occurred. The FCM will make written
reports notifying the Board of any other material change in the foreign
custody arrangements of a Portfolio described in this new Section after
the occurrence of the material change.
H. Representations with Respect to Rule 17f-5. The FCM represents to the
Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5.
The Fund represents to IFTC that the Board has determined that it is
reasonable for the Board to rely on IFTC and State Street Bank & Trust
Company to perform the responsibilities delegated pursuant to this
Contract to IFTC and State Street Bank & Trust Company as the FCM of each
Portfolio and that IFTC has been granted the authority by Fund to delegate
to State Street Bank & Trust Company the FCM functions to which IFTC has
been appointed by Fund.
I. Effective Date and Termination of IFTC as FCM. The Board's delegation to
IFTC as FCM of a Portfolio will be effective as of the date of execution
of this Supplement and will remain in effect until terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective thirty days after
receipt by the non-terminating party of such notice. The provisions of
Section C hereof govern the delegation to and termination of IFTC as FCM
of the Fund with respect to designated countries.
Except as specifically superseded or modified herein, the Contract is
hereby ratified and confirmed and remains in full force and effect and will
apply to the services provided hereunder. In the event of any conflict between
the terms of the Contract prior to this.Supplement and this Supplement, the
terms of this Supplement will prevail.
IN WITNESS WHEREOF, each of the parties has caused this Supplement to be
executed in its name and behalf by its duly authorized representative as of the
date first above written.
4
<PAGE>
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
INVESTORS FIDUCIARY TRUST THE PRUDENTIAL SERIES FUND, INC.
COMPANY
By: /s/ Robert G. [ILLEGIBLE] By: /s/ [ILLEGIBLE]
--------------------------- ------------------------------
Title: SENIOR VICE PRESIDENT Title: SECRETARY
------------------------ ---------------------------
PRUDENTIAL's GIBRALTER FUND
By: /s/ [ILLEGIBLE]
------------------------------
Title: SECRETARY
---------------------------
5
<PAGE>
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der Oesterreichischen --
Sparkassen AG
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and Shanghai
Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale de Banque --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano S.A. --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's The Hongkong and Shanghai Banking Corporation --
Republic of Limited Shanghai and Shenzhen branches
China
Colombia Cititrust Colombia S.A.Sociedad Fiduciaria --
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank Plc. Cyprus Offshore Banking Unit --
Czech Ceskoslovenska Obchodni Banka A.S. --
Republic
6
<PAGE>
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Limited --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece,
System for Monitoring
Transactions in Securities
in Book-Entry Form
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
Iceland Icebank Ltd. --
India Deutsche Bank AG; The Hongkong and --
Shanghai Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Societe Generale de Banques en --
Coast Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank, Ltd. --
Japan The Daiwa Bank, Limited; The Fuji Bank
Limited Japan Securities Depository
7
<PAGE>
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic The Hongkong and Shanghai Banking --
of Korea Corporation Limited
Latvia JSC Hansabank-Latvija --
Lebanon British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank Malaysia Berhad --
Mauritius The Hongkong and Shanghai Banking --
Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa
Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group (New Zealand) Limited --
Norway Christiania Bank og Kreditkasse --
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and Shanghai
Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
8
<PAGE>
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
Poland Citibank Poland S.A. --
Bank Polska Kasa Opieki S.A.
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, AO, --
Moscow (as delegate of Credit Suisse
First Boston, Zurich)
Singapore The Development Bank of Singapore Ltd. --
Slovak Ceskoslovenska Obchodna Banka A.S. --
Republic
Slovenia Banka Creditanstalt d.d. --
South Standard Bank of South Africa Limited --
Africa
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai Banking --
Corporation Limited
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland UBS AS --
Taiwan - Central Trust of China --
R.O.C.
Thailand Standard Chartered Bank --
Trinidad Republic Bank Ltd. --
& Tobago
Tunisia Banque Intenationale Arabe de Tunisie --
Turkey Citibank, N.A.; Ottoman Bank --
9
<PAGE>
SCHEDULE A
STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS AND OPTIONAL
DEPOSITORIES
COUNTRY SUBCUSTODIAN OPTIONAL DEPOSITORIES
Ukraine ING Bank, Ukraine --
United State Street Bank and Trust Company, --
Kingdom London Branch
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)/State Street --
London Limited
Cedel, S.A. (Cedel Bank, societe anonyme)/State --
Street London Limited
INTERSETTLE (for EASDAQ Securities)
10
<PAGE>
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
COUNTRY MANDATORY DEPOSITORIES (INCLUDES ENTITIES FOR WHICH USE IS
MANDATORY AS A MATTER OF LAW OR EFFECTIVELY MANDATORY AS A
MATTER OF MARKET PRACTICE)
Argentina -Caja de Valores S.A.
Australia -Austraclear Limited;
-Reserve Bank Information and Transfer System
Austria -Oesterreichische Kontrollbank AG (Wertpapiersammelbank
Division)
Belgium -Caisse Interprofessionnelle de Depots et de Virements de
Titres S.A.;
-Banque Nationale de Belgique
Brazil -Companhia Brasileira de Liquidac, ao e
-Custodia (CBLC)
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use CBLC
-Central de Custodia e de Liquidacao Financeira de Titulos
-Banco Central do Brasil, Sistema Especial de Liquidacao e
Custodia
Bulgaria -Central Depository AD
-Bulgarian National Bank
Canada -The Canadian Depository for Securities Limited
People's Republic -Shanghai Securities Central Clearing and
of China Registration Corporation;
-Shenzhen Securities Central Clearing Co., Ltd.
Croatia Ministry of Finance; - National Bank of Croatia
Czech Republic -Stredisko cennych papiru;
-Czech National Bank
Denmark -Vaerdipapircentralen (The Danish Securities Center)
Egypt -Misr Company for Clearing, Settlement, and Central
Depository
Estonia -Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities Depository
France -Societe Interprofessionnelle pour la Compensation des
Valeurs Mobilieres (SICOVAM)
Germany -The Deutscher Borse Clearing AG
11
<PAGE>
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
COUNTRY MANDATORY DEPOSITORIES (INCLUDES ENTITIES FOR WHICH USE IS
MANDATORY AS A MATTER OF LAW OR EFFECTIVELY MANDATORY AS A
MATTER OF MARKET PRACTICE)
Greece -The Central Securities Depository (Apothetirion Titlon
AE)
Hong Kong -The Central Clearing and Settlement System;
-Central Money Markets Unit
Hungary -The Central Depository and Clearing House (Budapest)
Ltd.(KELER) [Mandatory for Gov't Bonds only; SSB does not
use for other securities]
India -The National Securities Depository Limited
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland, Securities Settlement Office
Israel -The Tel Aviv Stock Exchange Clearing House Ltd.;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Jamaica -The Jamaican Central Securities Depository
Kenya -Central Bank of Kenya
Republic of Korea -Korea Securities Depository Corporation
Latvia -The Latvian Central Depository
Lebanon -The Custodian and Clearing Center of Financial
Instruments for Lebanon and the Middle East (MIDCLEAR)
S.A.L.; - The Central Bank of Lebanon
Lithuania -The Central Securities Depository of Lithuania
Malaysia -Malaysian Central Depository Sdn. Bhd.;
-Bank Negara Malaysia, Scripless Securities Trading and
Safekeeping Systems
Mauritius -The Central Depository & Settlement Co. Ltd.
12
<PAGE>
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
COUNTRY MANDATORY DEPOSITORIES (INCLUDES ENTITIES FOR WHICH USE IS
MANDATORY AS A MATTER OF LAW OR EFFECTIVELY MANDATORY AS A
MATTER OF MARKET PRACTICE)
Mexico -S.D. INDEVAL, S.A. de C.V.(Instituto para el Deposito de
Valores);
Morocco -Maroclear (Pending publication of enabling legislation in
the Moroccan government Gazette)
The Netherlands -Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V. ("NECIGEF") -De Nederlandsche Bank
N.V.
New Zealand -New Zealand Central Securities Depository Limited
Norway -Verdipapirsentralen (the Norwegian Registry of
Securities)
Oman -Muscat Securities Market
Pakistan -Central Depository company of Pakistan Limited
Peru -Caja de Valores y Liquidaciones S.A. (CAVALI)
Philippines -The Philippines Central Depository Inc.
-The Registry of Scripless Securities (ROSS) of the Bureau
of the Treasury
Poland -The National Depository of Securities (Krajowy Depozyt
Papierow Wartos'ciowych);
-Central Treasury Bills Registrar
Portugal -Central de Valores Mobiliarios (Central)
Romania -National Securities Clearing, Settlement and Depository
Co.;
-Bucharest Stock Exchange Registry Division;
Singapore -The Central Depository (Pte)Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
Slovenia -Klirinsko Depotna Druzba d.d.
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y Liquidacion de Valores, S.A.;
-Banco de Espana; Central de Anotaciones en Cuenta
13
<PAGE>
SCHEDULE B
STATE STREET GLOBAL CUSTODY NETWORK MANDATORY DEPOSITORIES
COUNTRY MANDATORY DEPOSITORIES (INCLUDES ENTITIES FOR WHICH USE IS
MANDATORY AS A MATTER OF LAW OR EFFECTIVELY MANDATORY AS A
MATTER OF MARKET PRACTICE)
Sri Lanka -Central Depository System (Pvt) Limited
Sweden -Vardepapperscentralen AB (the Swedish Central Securities
Depository)
Switzerland -Schweizerische Effekten - Giro AG;
-INTERSETTLE
Taiwan - R.O.C. -The Taiwan Securities Central Depository Company, Ltd.
Thailand -Thailand Securities Depository Company Limited
Tunisia - Societe Tunisienne Interprofessionelle de Compensation
et de Depot de Valeurs Mobilieres
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S. (TAKASBANK)
-Central Bank of Turkey
Ukraine -The National Bank of Ukraine
United Kingdom -The Bank of England, The Central Gilts Office;
The Central Moneymarkets Office
Uruguay -Central Bank of Uruguay
Venezuela -Central Bank of Venezuela
Zambia -Lusaka Central Depository Limited
-Bank of Zambia
14
SPECIAl CUSTODY AGREEMENT
(Listed and OTC Options)
AGREEMENT, (hereinafter "Agreement") dated as of NOVEMBER 16, 1998, among
The Prudential Series Fund, Inc., Natural Resources Portfolio ("Customer"),
Goldman, Sachs & Co., a New York limited partnership ("Broker") and Investors"
Fiduciary Trust Company as Custodian hereunder ("Custodian")
WHEREAS, Customer has opened a securities account (the "Account") with
Broker to engage in and place orders for transactions in Options (as hereinafter
defined) as contemplated by the Customer's Option Agreement (covering listed
Options) and the Agreements setting forth the General Terms and Conditions
covering OTC Options on debt and equity securities, respectively, which Customer
has, or may hereafter, enter into with Broker and Customer, which Agreements
require Customer to provide Performance Assurance to Broker to assure compliance
by Broker and Customer with applicable laws and regulations including the margin
regulations of the Board of Governors of the Federal Reserve System and of any
relevant securities exchanges and other self-regulatory associations and as
security for the performance of Customer's obligations in connection with the
issuance and sale of Options by Customer;
WHEREAS, to facilitate the provision and maintenance of adequate
Performance Assurance by Customer, Custodian is prepared to act as custodian
hereunder;
NOW, THEREFORE, be it agreed as follows:
(1) As used herein, the following terms have the following meanings:
"Adequate Performance Assurance" shall mean such Collateral placed in the
Special Custody Account (defined in paragraph 3(a) below) as is adequate under
the Margin Rules, Broker's internal policies, or (subject to compliance with the
Margin Rules) as otherwise established by mutual agreement (in the case of OTC
Options).
"Advice from Broker" means a notice in writing delivered to Customer or
Custodian, as applicable hereunder, or transmitted to them by a facsimile
sending device, except that with respect to the cases listed below it shall mean
notice by telephone to a person designated by Customer in writing as authorized
to receive such advice or, in the event that no such person is available, to any
officer of the Customer: (i) calls for initial or additional Collateral, (ii)
notice that an exercise notice filed with 0CC has been assigned to the Customer,
(iii) notice that Broker has exercised an OTC Option issued by Customer, or (iv)
any notice referred to in paragraph 8 hereof.
"Business Day" means a day on which Custodian, Customer and Broker are open
for business.
"Closing Transaction" means, in the case of Listed Options, the purchase of
an Option of the same series as an Option previously written by a party and
still unexpired or unexercised, or the sale of an Option
<PAGE>
-2-
of the same series as an Option previously purchased by a party and still
outstanding or unexercised and, with respect to OTC Options, means the
repurchase of an unexpired OTC Option by the writer.
"Collateral" shall mean cash, U.S. Government securities, securities
underlying a Call Option or other margin eligible securities acceptable to
Broker which are pledged to Broker as provided herein.
"Exercise Settlement Amount" means (i) in the case of a Call on a market
index option or cash-settled option on a portfolio of securities, the amount by
which the 'aggregate current index price' of the index Option contract or the
Portfolio Value of the portfolio of securities, as the case may be, is less than
the 'aggregate current index value' of the underlying index or the market value
of the portfolio of securities, as the case may be, plus all applicable
commissions and other charges, or (ii) in the case of a Put, the amount by which
the 'aggregate exercise price' of the index Option contract or the Portfolio
Value of the portfolio of securities, as the case may be, is greater than the
'aggregate current index value' of the underlying index or the market value of
the portfolio of securities, as the case may be, plus all applicable commissions
and other charges.
"Insolvency" means that (A) an order, judgment or decree has been entered
under the bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law (herein called
the "Bankruptcy Law") of any jurisdiction adjudicating the Customer insolvent;
or (B) the Customer has petitioned or applied to any tribunal for, or consented
to, the appointment of, or taking possession by, a trustee, receiver, liquidator
or similar official, of the Customer, or commenced a voluntary case under the
Bankruptcy Law of the United States or any proceedings relating to the Customer
under the Bankruptcy Law of any other jurisdiction, whether now or hereinafter
in effect; or (C) any such petition or application has been filed, or any such
proceedings commenced, against the Customer and the Customer by any act has
indicated its approval thereof, consent thereto or acquiescence therein, or an
order for relief has been entered in an involuntary case under the Bankruptcy
Law of the United States, as now or hereafter constituted, or an order, judgment
or decree has been entered appointing any such trustee, receiver, liquidator or
similar official, or approving the petition in any such proceedings, and such
order, judgment or decree remains unstayed and in effect for more than 30 days.
"Instructions from Customer" means a request, direction or certification in
writing signed in the name of the Customer by a person authorized by Customer
and delivered to Custodian or transmitted to it by a facsimile sending device
except that instructions to pledge initial or additional collateral may be given
by telephone and thereafter confirmed in writing signed in the name of Customer
by a person authorized in writing by Customer.
"Option" means the right but not the obligation of one party to buy from
("Call Option") or to sell to ("Put Option") the other party a
<PAGE>
-3-
specific security, market index or foreign currency issued by the Options
Clearing Corporation ("0CC") and traded on a securities exchange ("Listed
Options") or purchased or sold in privately negotiated transactions between
Customer and Broker ("OTC Options")
"Receipt of Payment" means receipt by Custodian, for Customer, of (i) a
certified or official bank check, (ii) a written or telegraphic advice from a
registered clearing agency that funds have been or will be credited to the
account of Custodian, or (iii) transfer of funds from Broker's account
maintained at Custodian. Instructions accompanying such payment shall identify
the Options Account in which the transaction occurred.
"Receipt of Securities" means receipt by Custodian for Customer of (i)
definitive or temporary certificates for securities in good deliverable form or
of foreign currency, as applicable or (ii) a written or telegraphic advice from
a registered clearing agency that securities or foreign currency have been or
will be credited to the account of Custodian. Instructions accompanying such
securities or foreign currency payment advice shall identify the Option Account
in which the transaction occurred.
"Same Day" shall mean no later than 2:00 p.m. (New York time) on the same
day that the Broker notifies Customer that an exercise notice has been assigned
to Customer but only if such notification has been given by Broker by 10:00
a.m.. If such notification is given by Broker to Customer after 10:00 a.m., Same
Day shall mean by 2:00 p.m. the following business day.
(2) Customer agrees to provide and maintain Adequate Performance Assurance
for the Option Account(s) at all times.
(3) (a) Custodian shall open an account on its books entitled "Special
Custody Account for Goldman, Sachs & Co. as Pledgee of The Prudential Series
Fund, Inc., Natural Resources Portfolio ("Special Custody Account") and shall
hold therein for Broker as pledgee upon the terms of this Agreement all
Collateral, all monies or other property paid or distributed with respect
thereto or realized on any sale thereof made pursuant to this Agreement. The
Custodian hereby agrees that any property held in the Special Custody Account
shall be treated as a financial asset for purposes of Revised Article 8 (as
defined below) to the extent the same may be applicable. Customer agrees to
instruct Custodian in Instructions from Customer as to the cash and specific
securities which Custodian is to identify on its books and records as pledged to
Broker as Collateral in the Special Custody Account. Customer agrees that the
value of such cash and securities shall be at least equal in value to what
Broker shall initially and from time to time advise Customer in an Advice from
Broker is necessary to constitute Adequate Performance Assurance.
(b) Customer, Broker and Custodian agree that Collateral will be held in
the Special Custody Account by Custodian as agent of Broker as pledgee, and in
accordance with this the terms of this Agreement, that
<PAGE>
-4-
the Custodian will take such actions with respect to any Collateral (including
without limitation the delivery thereof) as Broker shall direct in an Advice
from Broker in accordance with the terms of this Agreement and that in no event
shall any consent of the Customer be required for the taking of any such action
by Custodian.
(c) Customer hereby grants a continuing security interest to Broker in (i)
the Collateral and any proceeds thereof and (ii) all other property in the
Option(s) Account and the Special Custody Account and any proceeds thereof, to
secure Customer's obligations to Broker under this Agreement. To perfect
Broker's security interest, Custodian will, as a Financial Intermediary as such
term is defined in Section 8-313 of the New York Uniform Commercial Code or as a
Securities Intermediary as defined in Revised Article 8 (with Conforming and
Miscellaneous Amendments to Article 1,4,5,9 and 10) of the Uniform Commercial
Code (1994 Official Text) ("Revised Article 8"), to the extent the same may be
applicable, or in applicable federal law or regulations, hold the Collateral in
the Special Custody Account separate and apart from other property of the
Customer which may be held by Custodian or otherwise register on its books and
records the transfer to Broker of Collateral pledged hereunder as the pledgee
and secured party hereunder in accordance with the terms of this Agreement. Such
security interest will terminate at such time as Collateral is released as
provided herein. Custodian shall have no responsibility for the validity or
enforceability of such security interest.
(4) Custodian will confirm in writing to Broker and Customer within one
Business Day all pledges, releases or substitutions of Collateral and will
supply Customer and Broker with a monthly statement of Collateral in the account
and transactions in the account during the preceding month. Custodian will also
advise Broker or Customer upon request, at any time, of the kind and amount of
Collateral pledged to Broker.
(5) Custodian agrees to release Collateral to Customer from the pledge
hereunder only upon receipt of an Advice from Broker signed by a person
authorized to sign for the Broker as certified in writing by Broker to
Custodian. Broker agrees, upon request of Customer, to provide the Advice to
release Collateral selected by Customer (i) if said Collateral represents an
excess in value of the Collateral necessary to constitute Adequate Performance
Assurance at that time or (ii) against receipt in the Special Custody Account of
substitute Collateral having a value at least equal (with any remaining
Collateral) to Adequate Performance Assurance or (iii) upon termination of the
Account and settlement in full of all transactions therein and any amounts owed
to Broker with respect thereto. It is understood that Broker will be responsible
for valuing Collateral; Custodian at no time has any responsibility for
determining whether the value of Collateral is equal in value to Adequate
Performance Assurance.
(6) Customer represents and warrants to Broker that securities pledged to
Broker shall be in good deliverable form (or Custodian shall
<PAGE>
-5-
have the unrestricted power to put such securities into good deliverable form),
and that the Collateral will not be subject to any liens or encumbrances other
than the lien in favor of Broker contemplated hereby.
(7) The Collateral shall at all times remain the property of the Customer
subject only to the extent of the interest and rights therein of Broker as the
pledgee and secured party thereof. Custodian represents that Collateral will not
be subject to any other lien, charge, security interest, or other right or claim
of the Custodian or any person claiming through Custodian, and Custodian hereby
waives any lien or right of set off it may have with respect to Collateral.
Custodian shall use its best efforts to notify Broker and Customer as soon as
possible if any notice of levy, lien, court order or other process purporting to
affect the Collateral is received by it.
(8) The occurrence of any of the following constitutes a Customer Default
hereunder:
(a) If Broker advises Customer in an Advice from Broker that an
exercise notice filed with 0CC in respect of one or more Listed
Call Options sold by Customer has been assigned to Customer
through Broker and either (i) Customer does not notify Broker by
telephone on the Same Day of Customer's intention to comply with
the exercise notice by delivery of the underlying securities,
foreign currency or, if applicable, its intention to make payment
of the Exercise Settlement Amount, or (ii) the Customer, having
given such notice, fails to make delivery of such securities or
foreign currency or to cause such delivery to be made against
Receipt of Payment of the gross exercise price for such
securities or foreign currency, less applicable commissions or
other charges, or to make or to cause to be made payment of the
Exercise Settlement Amount on behalf of Customer to Broker; or
(b) Broker advises Customer in an Advice from Broker that an exercise
notice filed with 0CC in respect of one or more Listed Put
Options sold by Customer has been assigned to Customer through
Broker, and (i) Customer does not notify Broker by telephone on
the Same Day of Customer's intention to comply with the exercise
notice by making payment of the gross exercise price plus
applicable commissions or other charges against Custodian's
Receipt of Securities underlying the Put, or to pay the Exercise
Settlement Amount, as the case may be, or if (ii) Customer,
having given such notice, fails to make such payment or cause
such payment to be made against Custodian's Receipt of Securities
underlying the Put, or to pay the Exercise Settlement Amount,
as the case may be; or
<PAGE>
-6-
(c) Customer fails to perform any obligation hereunder or under the
Institutional Account Agreement for Listed Options or is in
default under the General Terms and Conditions for OTC Options
including, without limitation, its obligation to maintain
Adequate Performance Assurance as herein provided; or
(d) In the event of Customer's Insolvency,
Broker will immediately notify Customer in an Advice from Broker of such
default on their respective part to be performed or of such Insolvency. No
sooner than 2:00 p.m. New York time on the next Business Day after transmittal
by Broker of such written notice to Customer (which may be given by electronic
facsimile, telegraph or hand delivery), if Customer continues to be in default
or Insolvent at the end of such period, Broker may thereupon close out
transactions in Options, sell any or all property or securities in the Option
Account(s), the Special Custody Account (in which event such Collateral shall be
delivered to Broker as provided in paragraph 10 below), as in Broker's judgment
is necessary for the protection of its or its affiliates' interests. The
foregoing rights and remedies shall be in addition and not a limitation of any
other rights and remedies Broker may have pursuant to the General Terms and
Conditions with respect to OTC Options.
(9) Any sale of Collateral made pursuant to paragraph 8 shall be made in
accordance with the provisions of the New York Uniform Commercial Code in the
principal market for the securities or, if such principal market is closed, such
sale shall be made in a manner commercially reasonable for Collateral. Customer
shall remain liable for any deficiency if sale of such Collateral does not
produce an amount equal to the amount authorized to be reimbursed to Broker
pursuant to paragraph 8 plus reasonable costs and expenses of Broker actually
incurred in the exercise of its rights under this Agreement. Any surplus
resulting from the sale of Collateral shall be transmitted to Custodian for
deposit to the Customer's account at Custodian. Broker shall notify Customer of
any sale of Collateral and any deficiency remaining thereafter in an Advice from
Broker.
(10) Broker hereby covenants, for the benefit of Customer, that Broker will
not instruct Custodian to deliver Collateral free of payment with respect to any
sale of Collateral pursuant to paragraph 8 until after the occurrence of the
events and the expiration of the time periods set forth in paragraph 8. The
foregoing covenant is for the benefit of Customer only and shall in no way be
deemed to constitute a limitation on Broker's right at any time to instruct
Custodian pursuant to an Advice of Broker and Custodian's obligation to act upon
such instructions. Custodian shall not be required to make determination as to
whether such delivery is made in accordance with the provisions of this
Agreement. Custodian will provide prompt telephone notice to an officer of
Customer of receipt by Custodian of Advice from Broker to deliver Collateral.
<PAGE>
-7-
(11) It is understood that all determinations and directions for the
purchase or sale of Options for the account of the Customer pursuant to the
terms of this Agreement shall be made by Customer. The Customer is not relying
upon Broker to make recommendations with respect thereto.
(12) Custodian's duties and responsibilities are set forth in this
Agreement. Custodian will not be responsible for the acts, omissions or solvency
of any broker or agent selected by Customer to effect any transactions for the
Special Custody Account and shall not be liable for any action taken by
Custodian in good faith and without negligence in reliance upon Instructions
from Customer or Advice from Broker as provided herein.
(13) All charges for Custodian's services under this Agreement shall be
paid by Customer.
(14) No amendment of this Agreement shall be effective unless in writing
and signed by a general partner of Broker and by an authorized officer of the
Customer.
(15) Written communications hereunder shall be sent by telecopy facsimile
or telegraphed when required herein, hand delivered or mailed first class
postage prepaid, except that written notice of termination shall be sent by
certified mail, in any such case addressed:
(a) if to Customer, to: Prudential Series Fund, Inc., Natural
Resources Portfolio
100 Mulberry Street
Gateway Center Two, 4th Floor
Newark, NJ 07702
Attention: Trade Support Manager
Fax No.: 973-367-8619
(b) if to Custodian, to: Investors Fiduciary Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105-1716
Attention: Craig Both
Fax No.: 816-871-9780
(c) if to Broker, to: Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Client Services Dept.
Fax No.: 212-902-4852
Phone No.: 212-902-7899
Copies of Custodian's confirmations, statements and advices issued
pursuant to Paragraph 4 should be sent to:
<PAGE>
-8-
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Mark B. Jacobowitz
Phone No.: 212-902-7911
(16) Intentionally Omitted.
(17) Any of the parties hereto may terminate this Agreement by notice in
writing to the other parties hereto; provided, however, that the status of any
Collateral pledged to Broker at the time of such notice shall not be affected by
such termination until the release of such pledge pursuant to applicable rules,
laws and regulations (including Regulations T and X, if applicable), rules of
the 0CC and such national securities exchanges of which Broker may be a member.
(18) Nothing in the Agreement will prohibit Broker, Custodian or Customer
from entering into similar agreements with others in order to facilitate option
contract transaction.
<PAGE>
-9-
(19) Intentionally Omitted.
(20) If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory agency
or body, such invalidity or unenforceability shall attach only to such provision
or condition. The validity of the remaining provisions and conditions shall not
be affected thereby and this Agreement shall be carried out as if any such valid
or unenforceable provision or condition were not contained herein.
(21) This agreement and its enforcement (including, without limitation, the
establishment and maintenance of the Special Custodial Account and all interest,
duties and obligations related thereto) shall be governed by the laws of the
State of New York. This Agreement shall be binding on the parties and any
successor organizations thereof irrespective of any change or changes in
personnel thereof. This Agreement may not be assigned or transferred by any
party hereto without the consent of the other parties except for an assignment
and delegation of all of Broker's rights and obligations hereunder in whatever
form Broker determines may be appropriate to a partnership, corporation, trust
or other organization in whatever form that succeeds to all or substantially all
of Broker's assets and business and that assumes such obligations by contract,
operation of law or otherwise. Upon any such delegation and assumption of
obligations, Broker shall be relieved of and fully discharged from all
obligations hereunder, whether such obligations arose before or after such
delegation and assumption.
Prudential Series Fund, Inc.,
Natural Resources Portfolio:
By: GRACE TORRES
-----------------------------
Title: TREASURER & PRINCIPAL
FINANCIAL & ACCOUNTING OFFICER
GOLDMAN, SACHS & CO.
By: ILLEGIBLE
------------------------------
Title: V.P.
Investors" Fiduciary
Trust Company:
By: JEAN MEYER
------------------------------
Title: V.P..
[LOGO] 801 Pennsylvania
Kansas City, MO 64105
February 16, 2000 Telephone: (816) 871-4100
Mr. Christopher Sprague, Assistant General Counsel
Prudential Insurance Company of America
Gateway Center 3, 4th Floor
Newark, NJ 07102-5096
Re: Custody Agreement by and between Investors Fiduciary Trust Company and THE
PRUDENTIAL SERIES FUND, INC. and PRUDENTIAL'S GIBRALTAR FUND, INC. dated
May 19, 1997, as supplemented August 19, 1998; and the following related
agreements with brokers:
o Pledge Agreement dated August 15, 1997 with Goldman, Sachs & Co.
o Special Custody Agreement dated November 16, 1998 with Goldman, Sachs
& Co.
o Procedural Agreement dated September, 1997 with Merrill Lynch Futures,
Inc.
o Pledge Agreement dated August 29, 1997 with Lehman Brothers Inc.
o Pledge Agreement dated September 25, 1997 with PaineWebber
Incorporated
o Pledge Agreement dated November 11, 1997 with Credit Suisse First
Boston Corporation
o Pledge Agreement dated September, 1997 with J.P. Morgan Futures, Inc.
Investment Accounting Agreement by and between Investors Fiduciary Trust
Company and THE PRUDENTIAL SERIES FUND, INC. and PRUDENTIAL'S GIBRALTAR
FUND, INC. dated December 31, 1994 as amended June 20, 1995
Dear Mr. Sprague
As you are aware, we are completing the acquisition process that began in
1995 when State Street purchased Investors Fiduciary Trust Company. The State
Street/IFTC combination has been truly beneficial, particularly in the areas of
product offerings, technology and customer service. In order to support
continued growth and to meet the changing needs of our clients, we will be
assigning all IFTC custody and fund accounting contracts to State Street Bank
and Trust Company as soon as possible.
We request your agreement to such assignment and to the assumption of all
rights, duties and obligations of the above-referenced contracts by State Street
Bank and Trust Company, effective January 1, 2000. In all respects other than
the assignment to State Street, the terms and conditions of the above-referenced
agreements will remain unchanged.
Please indicate your company's consent to the assignment and assumption by
signing the enclosed copy of this letter and returning it to me in the enclosed
pre-addressed envelope. Thank you for your prompt response, and please do not
hesitate to call me at (816) 871-9313 if I can provide any further information
or be of assistance in any way.
Sincerely,
/s/ JULIE A. ROHLING
- --------------------------------------
Julie A. Rohling
APPROVED AND AGREED TO:
THE PRUDENTIAL SERIES FUND, INC. PRUDENTIAL'S GIBRALTAR FUND, INC.
By: /s/ CHRISTOPHER SPRAGUE By: /s/ CHRISTOPHER SPRAGUE
------------------------------- ------------------------------
Christopher Sprague Christopher Sprague
Title: Ass't Secretary Title: Ass't Secretary
--------------------------- --------------------------
Date: March 23, 2000 Date: March 23, 2000
--------------------------- --------------------------
FIRST AMENDMENT OF CUSTODY AGREEMENT
THIS FIRST AMENDMENT OF CUSTODY AGREEMENT ("Amendment") is made and
entered into to be effective as of March 1, 2000 by and between THE PRUDENTIAL
SERIES FUND, INC. AND PRUDENTIAL'S GIBRALTAR FUND (collectively the "Fund") and
STATE STREET BANK AND TRUST ("State Street").
RECITALS
A. Fund and Investors Fiduciary Trust Company are parties to that certain
Custody Agreement dated May 19, 1997 and supplemented as of August 19,
1998 ("Custody Agreement"), pursuant to which Fund appointed Investors
Fiduciary Trust Company as custodian of its then-existing Portfolios.
B. The Custody Agreement was assigned to State Street effective January 1,
2000.
C. Fund desires to appoint State Street as custodian of additional
portfolios, known as the Stock Index Portfolio, Equity Income
Portfolio, 20/20 Focus Portfolio, Diversified Conservative Growth
Portfolio and Global Portfolio, upon and subject to the terms,
conditions and agreements set forth in the Custody Agreement, and State
Street is willing to accept such appointment.
AGREEMENT
1. Fund hereby appoints State Street as custodian of the portfolios listed
on attached Schedule I and State Street hereby accepts such appointment
and agrees that it will act as the custodian of such Portfolios, upon
and subject to all the terms, conditions and agreements set forth in
the Custody Agreement, incorporated herein by reference.
2. The following provision shall be added to the Custody Agreement: Fund
may appoint State Street as its custodian for additional portfolios
from time to time by written notice, provided that State Street
consents to such addition. Rates or charges for each additional
Portfolio shall be as agreed upon by State Street and Fund in writing.
3. Fund and State Street hereby ratify and confirm the Custody Agreement
and agree that it remains in full force and effect and is binding upon
the parties in accordance with its terms, except as amended hereby.
Each party hereby confirms that except as amended herein all of its
representations and warranties set forth in the Custody Agreement
remain true and correct as of the date of this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers to be effective as of the date and
year first above written.
STATE STREET BANK AND TRUST
COMPANY THE PRUDENTIAL SERIES FUND, INC.
By: By: /s/ C. CHRISTOPHER SPRAGUE
------------------------ ----------------------------
Name: Name: C. Christopher Sprague
---------------------- --------------------------
Title: Title: Assistant Secretary
--------------------- -------------------------
PRUDENTIAL'S GIBRALTER FUND
By: /s/ C. CHRISTOPHER SPRAGUE
----------------------------
Name: C. Christopher Sprague
--------------------------
Title: Assistant Secretary
-------------------------
INVESTMENT ACCOUNTING AGREEMENT
This agreement made and effective as of this 31st day of December, 1994,
by and among THE PRUDENTIAL SERIES FUND INC., a Maryland corporation, and
PRUDENTIAL'S GIBRALTAR FUND, a Delaware corporation, each having its principal
place of business at 213 Washington Street, Newark, New Jersey, 07102 (each a
"Fund"), and INVESTORS FIDUCIARY TRUST COMPANY, a state chartered trust company
organized and existing under the laws of the State of Missouri, having its
principal place of business at 127 West 10th Street, Kansas City, Missouri,
64105 ("IFTC").
WHEREAS, each Fund is registered as an "investment company" under the
Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, IFTC performs certain investment accounting and recordkeeping
service on a computerized accounting system (the "Portfolio Accounting System")
which is suitable for maintaining certain accounting records of the portfolios
of the Funds; and
WHEREAS, each Fund desires to appoint IFTC as investment accounting and
recordkeeping agent for its portfolios as listed on Schedule I hereto, as it may
be amended from time to time ("Portfolios"), and IFTC is willing to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto, intending to be legally bound, mutually covenant and agree
as follows:
1. Appointment of Recordkeeping Agent. Each Fund hereby constitutes and
appoints IFTC as investment accounting and recordkeeping agent for the
Portfolios of such Fund to perform accounting and recordkeeping functions
related to portfolio transactions required of such Fund under Rule 31a of
the 1940 Act and to calculate the net asset value of the Portfolios.
2. Representatives and Warranties of Fund. Each Fund hereby represents,
warrants and acknowledges to IFTC:
A. That it is a corporation duly organized and existing and in good
standing under the laws of its state of organization as set forth
above, and that it is registered under the 1940 Act;
B. That it has the requisite power and authority under applicable law,
its charter or declaration of trust and its bylaws to enter into
this Agreement; that it has taken all requisite action necessary to
appoint IFTC as investment accounting and recordkeeping agent for
its Portfolios; that this Agreement has been duly executed and
delivered by it; and that this Agreement constitutes its legal,
valid and binding obligation, enforceable in accordance with its
terms; and
C. That it has determined to its satisfaction that the Portfolio
Accounting System is
<PAGE>
appropriate and suitable for its needs.
3. Representations and Warranties of IFTC. IFTC hereby represents, warrants
and acknowledges to the Funds:
A That it is a trust company duly organized and existing and in good
standing under the laws of the State of Missouri;
B That it has the requisite power and authority under applicable law,
its charter and its bylaws to enter into and perform this Agreement;
that this Agreement has been duly executed and delivered by IFTC;
and that this Agreement constitutes a legal, valid and binding
obligation of IFTC, enforceable in accordance with its terms; and
C That the accounts and records maintained and preserved by IFTC shall
be the property of the applicable Fund and that it will not use any
information made available to it under the terms hereof for any
purpose other than complying with its duties and responsibilities
hereunder or as specifically authorized by the applicable Fund in
writing.
4. Duties and Responsibilities of the Funds.
A. Each Fund shall turn over to IFTC all of each of its Portfolio's
accounts and records previously maintained which IFTC needs in order
to fully and properly perform its duties hereunder.
B. Each Fund shall provide to IFTC the information necessary to perform
IFTC's duties and responsibilities hereunder in writing or its
electronic or digital equivalent prior to the close of the New York
Stock Exchange on each day on which IFTC prices the Portfolios'
securities and foreign currency holdings.
C. Each Fund shall furnish IFTC with the declaration, record and
payment dates and amounts of any dividends or income and any other
special actions required concerning the securities of such Fund when
such information is not readily available from generally accepted
securities industry services or publications.
D. Each Fund shall pay to IFTC such compensation at such time as may
from time to time be agreed upon in writing by IFTC and such Fund.
The initial compensation schedule is attached as Exhibit A. Each
Fund shall also reimburse IFTC within 30 days for all reasonable
out-of-pocket disbursements, costs and expenses reasonably incurred
by IFTC in connection with services performed for such Fund pursuant
to this Agreement.
E. Each Fund shall notify IFTC of any changes in statutes rules,
regulations,
-2-
<PAGE>
requirements, or policies which may necessitate changes in IFTC's
responsibilities or procedures as they relate to such Fund.
F. Each Fund shall provide to IFTC, as conclusive proof of any fact or
matter which may reasonably be ascertained from such Fund, a
certificate signed by such Fund's president or other officer, or
other authorized individual, as requested by IFTC. Each Funds shall
also provide to IFTC instructions with respect to any matter
concerning this Agreement requested by IFTC. As to each Fund, IFTC
may rely upon any instruction or information furnished by any person
reasonably believed by it to be an officer or agent of such Fund,
and shall not be held to have notice of any change of authority of
any such person until receipt of written notice thereof from such
Fund.
G. Each Fund shall preserve the confidentiality of the Portfolio
Accounting System and prevent its disclosure, except as required by
law, to other than its own employees who reasonably have a need to
know in connection with the use of the Portfolio Accounting System
contemplated hereunder, and each Fund shall take appropriate action
to protect the rights of IFTC and IFTC's licensor in the Portfolio
Accounting System. IFTC's licensor is intended to be and shall be a
third party beneficiary of the Fund's obligations and undertakings
contained in this paragraph.
5. Duties and Responsibilities of IFTC.
A. IFTC shall calculate each Portfolio's net asset value, in accordance
with the applicable Fund's prospectus. IFTC will price the
securities and foreign currency holdings of the Portfolios for which
market quotations are available by the use of outside services
designated by the applicable Fund which are normally used and
contracted with for this purpose; all other securities and foreign
currency holdings will be priced in accordance with such Fund's
instructions.
B. IFTC shall prepare and maintain, with the direction and as
interpreted by the applicable Fund or such Fund's accountants and/or
other advisors, in complete, accurate, and current form, all
accounts and records needed to be maintained as a basis for
calculation of each Portfolio's net asset value, and such other
accounts and records as may be agreed upon by the parties in
writing, and shall preserve such records such records in the manner
and for the periods required by law or such longer period as the
parties may agree upon in writing. Each Fund shall advise IFTC in
writing of all application record retention requirements, other than
those set forth in the 1940 Act.
C. IFTC shall make available to each Fund for inspection or
reproduction within a reasonable time, upon demand, all accounts and
records of such Fund maintained and preserved by IFTC.
-3-
<PAGE>
D. IFTC shall be entitled to rely conclusively on the completeness and
corrections of any and all accounts and records turned over to it by
either Fund.
E. IFTC shall assist each Fund's independent accountants or any
regulatory body in any requested review of such Fund's accounts and
records maintained by IFTC, provide that written instructions to do
so are furnished to IFTC by the applicable Fund or by the treasurer,
the comptroller, any assistant treasurer or any assistant
comptroller of The Prudential Insurance Company of America. IFTC
shall be reimbursed by the applicable Fund of all reasonable
expenses and employee time invested in any such review outside of
routine and normal periodic reviews.
F. Upon receipt from either Fund of any necessary information or
instructions, IFTC shall provide information from the books and
records it maintains for such Fund that such Fund needs for tax
returns, questionnaires, or periodic reports to shareholders and
such other reports and information requests as such Fund and IFTC
shall agree upon from time to time.
G. Additional series or portfolios of each Fund may be added to this
Agreement provided that IFTC consents to such addition. Rates or
charges for each additional series or portfolio shall be as agreed
upon by IFTC and the applicable Fund in writing.
H. IFTC shall not have any responsibility hereunder to either Fund,
either Fund's shareowners or any other person or entity for moneys
or securities of either Fund, whether held by either Fund or
custodians of either Fund.
I. IFTC agrees that, except as otherwise required by law, IFTC will
keep confidential all records of and information in its possession
relating to the Funds and will not disclose the same to any person
except at the request or with the consent of the applicable Fund.
J. IFTC may not, except with express written consent of the Funds in
each instance, use the name of either Fund or The Prudential
Insurance Company of America or any other Prudential subsidiary or
affiliate in advertising, publicity or similar materials distributed
to existing or prospective clients.
K. IFTC shall continuously maintain adequate insurance coverage
appropriate for its duties and responsibilities under this
Agreement.
6.I. Indemnification. IFTC shall not be responsible or liable for, and each
Fund shall indemnify and hold IFTC harmless from and against, any and all
costs, expenses, losses, damages, charges, counsel fees, payments and
liabilities, which may be asserted against or incurred by IFTC or for
which it may be liable, arising out of or attributable to:
-4-
<PAGE>
A. IFTC's action or omission to act pursuant hereto, except for any
loss or damage arising from IFTC's failure to perform its
obligations hereunder and/or any negligent act or willful misconduct
of IFTC.
B. IFTC's payment of money as requested by either Fund, or the taking
of any action which might make IFTC liable for payment of money;
provided, however, that IFTC shall not be obligated to expend its
own moneys or to take any such action except in IFTC's sole
discretion.
C. IFTC's good faith reliance upon any instructions, advice, notice,
request, consent, certificate or other instrument or paper appearing
to it to be genuine and to have been properly executed.
D. IFTC's good faith reliance on the advice or opinion of counsel for
either Fund (which will be obtained at the Fund's expense) or its
own counsel (which will be obtained at IFTC's own expense), or on
the instructions, advice, and statements or either Fund, either
Fund's accountants and officers or other authorized individuals, and
other believed by it in good faith to be expert in matters upon
which they are consulted.
E. The purchase or sale of any securities or foreign currency
positions. Without limiting the generality of the foregoing, IFTC
shall be under no duty or obligation to inquire into:
(1) The validity of the issue of any securities purchased by or
for either Fund, or the legality of the purchase thereof, or
the propriety of the purchase price;
(2) The legality of the sale of any securities by or for either
Fund, or the propriety of the sale price;
(3) The legality of the issue, sale or purchase of any shares of
either Fund, or the sufficiency of the purchase or sale price;
or
(4) The legality of the declaration of any dividend by either
Fund, or the legality of the issue of any shares of either
Fund in payment of any stock dividend.
F. Any error, omission, inaccuracy or other deficiency in either Fund's
accounts and records or other information provided by or on behalf
of such Fund to IFTC, or the failure of either Fund to provide, or
provide in a timely manner, any accounts, records, or information
needed by IFTC to perform its functions hereunder.
G. Either Fund's refusal or failure to comply with terms of this
Agreement (including without limitation either Fund's failure to pay
or reimburse IFTC under this
-5-
<PAGE>
indemnification provision), either Fund's negligence or willful
misconduct, or the failure of any representation or warranty of the
Funds hereunder to be and remain true and correct in all respects at
all times.
H. Any defect in, failure of performance of or unavailability of any
computer system or application provided to IFTC by The Prudential
Insurance Company of America or any error, omission, inaccuracy or
other deficiency in the information thereby supplied to IFTC.
6.II Notwithstanding anything herein to the contrary, as between the parties
IFTC shall not be liable for consequential, special or punitive damages in
any event other than cases of IFTC's willful misconduct.
7. Force Majeure. IFTC shall not be responsible or liable for its failure or
delay in performance of its obligations under this Agreement arising out
of or caused, directly or indirectly, by circumstances beyond its
reasonable control, including, without limitation: governmental or
exchange action, statute, ordinance, rulings, regulations or direction;
war, strike, riot, emergency, civil disturbance, terrorism, vandalism,
explosions, labor disputes, freezes, floods, fires, tornados, acts of God
or public enemy, revolutions, or insurrections.
8. Procedures. IFTC and each Fund may from time to time adopt procedures as
they agree upon, and IFTC may conclusively assume that any procedure
approved or directed by a Fund or its accountants or other advisors does
not conflict with or violate any requirement of such Fund's prospectus,
charter or declaration of trust, bylaws, any applicable law, rule or
regulation, or any order, decree or agreement by which such Fund may be
bound.
9. Term and Termination. The initial term of this Agreement shall be a period
of one year commencing on the effective date hereof. This Agreement shall
continue thereafter until terminated by either or both Funds or by IFTC by
notice in writing received by the other party not less than ninety (90)
days prior to the date upon which such termination shall take effect. Upon
termination of this Agreement as to each Fund affected thereby:
A. Shall Fund pay to IFTC its fees and compensation due hereunder and
its reimbursable disbursements, costs and expenses paid or incurred
to such date, except to the extent such fees, compensation,
disbursements, costs and expenses are being disputed by the Fund in
good faith.
B. Such Fund shall designate a successor (which may be such Fund) by
notice in writing to IFTC on or before the termination date.
C. IFTC shall deliver to the successor, or if none has been designated,
to such Fund, at IFTC's office, all records, funds and other
properties of such Fund deposited with or held by IFTC hereunder. In
the event that neither a successor nor such Fund takes delivery of
all records, funds and other properties of such Fund by the
termination
-6-
<PAGE>
date, IFTC's sole obligation with respect thereto from the
termination date until delivery to a successor or such Fund shall be
to exercise reasonable care to hold the same in custody in its form
and condition as of the termination date, and IFTC shall be entitled
to reasonable compensation therefor, including but not limited to
all of its out-of-pocket costs and expenses incurred in connection
therewith.
10. Notices. Notices, requests, instructions and other writings addressed to
either Fund at 1111 Durham Avenue, South Plainfield, New Jersey,
07080-2398, Attn: Steve Tooley, or at such address as either Fund many
have designated to IFTC in writing, shall be deemed to have been properly
give to such Fund hereunder; and notices, requests, instructions and other
writings addressed to IFTC at its offices at 127 West 10th Street, Kansas
City, MO 64105, Attn: Allen Strain, or to such other address as it may
have designated to the Funds in writing, shall be deemed to have been
properly given to IFTC hereunder.
11. Limitation of Fund and Portfolio Liability. Both Funds and each Portfolio
shall be regarded for all purposes hereunder as a separate party apart
from the other Fund and each other Portfolio, respectively. Unless the
context otherwise requires, with respect to every transaction covered by
this Agreement, every reference herein to a Fund shall be deemed to relate
solely to the particular Fund and the particular Portfolio thereof to
which such transaction relates. Under no circumstances shall the rights,
obligations or remedies with respect to one Fund or a particular Portfolio
constitute a right, obligation or remedy applicable to the other Fund or
any other Portfolio, respectively. The use of this single document to
memorialize the separate agreement of each Fund is understood to be for
clerical convenience only and shall not constitute any basis for joining
the Funds or any Portfolios for any reason.
12. Miscellaneous.
A. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of
the State of Missouri, without reference to the choice of laws
principles thereof.
B. All terms and provisions of this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and
their respective successors and permitted assigns.
C. The representations and warranties, the indemnification extended
hereunder, and the provisions of Section 4.G are intended to and
shall continue after and survive the expiration, termination or
cancellation of this Agreement.
D. No provisions of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and
executed by each party hereto.
E. The failure of any party to insist upon the performance of any terms
or conditions of
-7-
<PAGE>
this Agreement or to enforce any rights resulting from any breach of
any of the terms or conditions of this Agreement, including the
payment of damages, shall not be construed as a continuing or
permanent waiver of any such terms, conditions, rights or
privileges, but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred. No waiver,
release or discharge of any party's rights hereunder shall be
effective unless contained in written instrument signed by the party
sought to be charged.
F. The captions in this Agreement are included for convenience of
reference only an in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
G. This Agreement may be executed in two or more separate counterparts,
each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
H. If any part, term or provision of this Agreement is determined by
the courts or any regulatory authority to be illegal, in conflict
with any law or otherwise invalid, the remaining portion or portions
shall be considered serverable and not affected, and rights and
obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision
held to be illegal or invalid.
I. This Agreement may not be assigned by any party without the prior
written consent of the others.
J. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and between the
Funds or either of them and IFTC.
K. It is understood and agreed that IFTC will perform the services
hereunder as an independent contractor, and that during the
performance of the services, IFTC's employees will not be considered
employees of either Fund or The Prudential Insurance Company of
America within the meaning or the application of any federal, state
or local laws or regulations including, but not limited to, laws or
regulations covering unemployment insurance, old age benefits,
workers' compensation insurance, industrial accident, labor or taxes
of any kind.
L. Except as specifically provided herein, this Agreement does not in
any way affect any other agreements entered into among the parties
hereto and any actions taken or omitted by any party hereunder shall
not affect any rights or obligations of any other party hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective and duly authorized officers, to be effective as of the day
and year first above written.
-8-
<PAGE>
INVESTORS FIDUCIARY TRUST COMPANY
By: ALLEN R. STRAIN
--------------------------------
Title: Exec. VP
THE PRUDENTIAL SERIES FUND, INC.
By: STEPHEN P. TOOLEY
--------------------------------
Title: Comptroller
PRUDENTIAL'S GIBRALTAR FUND
By: STEPHEN P. TOOLEY
--------------------------------
Title: Comptroller
-9-
<PAGE>
SCHEDULE I
FUND PORTFOLIO
- ---- ---------
The Prudential Series Fund, Inc. Money Market Portfolio
Bond Portfolio
Common Stock Portfolio
Aggressively Managed Flexible Portfolio
Conservatively Managed Flexible Portfolio
Zero Coupon Bond 1995 Portfolio
Zero Coupon Bond 2000 Portfolio
High Yield Bond Portfolio
Stock Index Portfolio
High Dividend Stock Portfolio
Natural Resources Portfolio
Government Securities Portfolio
Zero Coupon Bond 20005 Portfolio
Growth Stock Portfolio
Small Capitalization Stock Portfolio
Prudential's Gibraltar Fund Prudential's Gibraltar Fund
-10-
FIRST AMENDMENT TO INVESTMENT ACCOUNTING AGREEMENT
THE FIRST AMENDMENT TO INVESTMENT ACCOUNTING AGREEMENT (the "Amendment"), is
made and entered into as of June 20, 1995, by and among THE PRUDENTIAL SERIES
FUND, INC., a Maryland corporation, PRUDENTIAL'S GIBRALTAR FUND, a Delaware
corporation (each a "Fund" and collectively the "Funds"), and INVESTORS
FIDUCIARY TRUST COMPANY, a Missouri trust company ("IFTC").
RECITALS:
A. The Funds and IFTC are parties to that certain Investment Accounting
Agreement dated as of December 31, 1994 (the "Agreement").
B. The Funds and IFTC desire to be able to implement from time to time
electronic systems of communications between them and accordingly desire to
amend and supplement the Agreement to include certain terms and conditions with
respect thereto.
AGREEMENTS:
In consideration of mutual promises and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, each Fund and IFTC
hereby agree that the Agreement is amended and supplemented to include the
following covenants and agreements.
If IFTC shall provide either Fund direct access to the Portfolio
Accounting Systems or if IFTC and either Fund shall agree to utilize any
electronic system of communication, the applicable Fund shall be fully
responsible for any and all consequences of the use or misuse of the
terminal device, passwords, access instructions and other means of access
to such system(s) which are utilized by, assigned to or otherwise made
available to the Fund. Such Fund agrees to implement and enforce
appropriate security policies and procedures to prevent unauthorized or
improper access to or use of such system(s). IFTC shall be full protected
in acting upon any instructions, communications, data or other information
received by IFTC by such means as fully and to the same effect as if
delivered to IFTC by written instrument signed by requisite authorized
representative(s) of applicable Fund. Such Fund shall indemnify and hold
IFTC harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liability which my be
suffered or incurred by IFTC as a result of the use or misuse, whether
authorized or unauthorized, of any such system(s) by the Fund or by any
person who acquires access to such system(s) through the terminal device,
passwords, access instructions or other means of access to such system(s)
which are utilized by, assigned to or otherwise made available to the
Fund, except to the extent attributable to any negligence or willful
misconduct by IFTC.
<PAGE>
In all other respects, the Agreement is hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Amendment to be
effective as of the date first above written.
INVESTORS FIDUCIARY TRUST COMPANY
By: ALLEN R. STRAIN
--------------------------------
Title: Exec. VP
THE PRUDENTIAL SERIES FUND, INC.
By: STEPHEN P. TOOLEY
--------------------------------
Title: VP and Comptroller
PRUDENTIAL'S GIBRALTAR FUND
By: STEPHEN P. TOOLEY
--------------------------------
Title: VP and Comptroller
SECOND AMENDMENT OF INVESTMENT ACCOUNTING AGREEMENT
THIS SECOND AMENDMENT OF INVESTMENT ACCOUNTING AGREEMENT ("Amendment")
is made and entered into to be effective as of March 1, 2000 by and between THE
PRUDENTIAL SERIES FUND, INC. AND PRUDENTIAL'S GIBRALTAR FUND (collectively the
"Fund") and STATE STREET BANK AND TRUST ("State Street").
RECITALS
A. Fund and Investors Fiduciary Trust Company are parties to that certain
Investment Accounting Agreement dated December 31, 1994 and amended as
of June 20, 1995 ("Investment Accounting Agreement") pursuant to which
Fund appointed Investors Fiduciary Company as Investment Accounting
and recordkeeping agent of its then-existing Portfolios.
B. The Investment Accounting Agreement was assigned to State Street
effective January 1, 2000.
C. Fund desires to appoint State Street as investment accounting and
recordkeeping agent of additional portfolios as the Stock Index
Portfolio, Equity Income Portfolio, 20/20 Focus Portfolio, Diversified
Conservative Growth Portfolio, upon and subject to the terms,
conditions and agreements set forth in the Investment Accounting
Agreement, and State Street is willing to accept such appointment.
AGREEMENT
1. Fund hereby appoints State Street as investment accounting and
recordkeeping agent of the portfolios listed on attached Schedule I and
State Street hereby accepts such appointment and agrees that it will
act as the investment accounting and recordkeeping agent of such
Portfolios, upon and subject to all the terms, conditions and
agreements set forth in the Investment Accounting Agreement,
incorporated herein by reference.
2. The following provision shall be added to the Investment Accounting
Agreement: Fund may appoint State Street as its investment accounting
and recordkeeping agent for additional portfolios from time to time by
written notice, provided that State Street consents to such addition.
Rates or charges for each additional Portfolio shall be as agreed upon
by State Street and Fund in writing.
3. Fund and State Street hereby ratify and confirm the Investment
Accounting Agreement and agree that it remains in full force and effect
and is binding upon the parties in accordance with its terms, except as
amended hereby. Each party hereby confirms that except as amended
herein all of its representations and warranties set forth in the
Investment Accounting Agreement remain true and correct as of the date
of this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers to be effective as of the date and
year first above written.
STATE STREET BANK AND TRUST
COMPANY THE PRUDENTIAL SERIES FUND, INC.
By: By: /s/ C. CHRISTOPHER SPRAGUE
------------------------ ----------------------------
Name: Name: C. Christopher Sprague
---------------------- --------------------------
Title: Title: Assistant Secretary
--------------------- -------------------------
PRUDENTIAL'S GIBRALTER FUND
By: /s/ C. CHRISTOPHER SPRAGUE
----------------------------
Name: C. Christopher Sprague
--------------------------
Title: Assistant Secretary
-------------------------
<PAGE>
SCHEDULE I
FUND PORTFOLIO
- ---- ---------
THE PRUDENTIAL Money Market Portfolio
SERIES FUND, INC.
Stock Index Portfolio
Equity Income Portfolio
20/20 Focus Portfolio
Diversified Conservative Growth Portfolio
Global Portfolio
Diversified Bond Portfolio (f/k/a Bond Portfolio)
Equity Portfolio (f/k/a Common Stock Portfolio)
Flexible Managed Portfolio (f/k/a Aggressively Managed
Flexible Portfolio)
Conservative Balanced Portfolio (f/k/a Conservatively
Managed Flexible Portfolio)
Zero Coupon Bond 2000 Portfolio
High Yield Bond Portfolio (f/k/a High Yield Dividend
Stock Portfolio)
Natural Resources Portfolio
Government Income Portfolio (f/k/a Government
Securities Portfolio)
Zero Coupon Bond 2005 Portfolio
Prudential Jennison Portfolio (f/k/a Growth Stock
Portfolio)
Small Capitalization Stock Portfolio
PRUDENTIAL'S GIBRALTAR Prudential's Gibraltar Fund
FUND, INC.
MAKING
THE RIGHT
CHOICES
Prudential's
Ethics
Policy
[PRUDENTIAL LOGO] Prudential
<PAGE>
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TO ALL PRUDENTIAL ASSOCIATES
In today's fast-paced and high-pressure business environment, our commitment to
maintaining our customers' confidence and esteem is crucial. Without it, we will
not prosper.
In all of our businesses, our aim is to build lasting relationships with our
customers and to prove that we are worthy of their trust in our ability to help
them achieve financial security. To meet this goal, we must remain ethical in
all aspects of our business relationships -- both internal and external.
We all know the pressures in business can be enormous, and some may be tempted
to cut corners in order to improve results. But it has been proven that no
company can successfully compete in the long term without very high ethical
standards and strong compliance processes.
In an organization as vast as Prudential, managing risks and ensuring control
are constant challenges. In some situations, the right thing to do may not
always be clear. That's one reason we have an Enterprise Ethics Office where
associates can seek guidance on ethical issues. The Enterprise Ethics Office,
through the HotLine and other channels, also provides a confidential avenue for
reporting possible violations of our standards and values.
This statement reviews the Ethics Policy of Prudential and includes examples
of different types of situations that might create ethical dilemmas or conflicts
of interest. People who do not abide by this Policy do not belong in our
organization. We are committed to integrity.
Please note that this Ethics Policy applies to all associates of Prudential
not only in dealing with customers and the general public, but also in our
dealings with each other as Prudential associates. I encourage individual
business groups to adopt more detailed guidelines, consistent with this Ethics
Policy if necessary, to meet the particular needs of their operations.
Working together, we will enhance Prudential's proud reputation for being a
company that people trust, respect and admire. As we seek to become the
preferred supplier for financial services in all of our markets, our good name
is one of our most important competitive strengths. All of us have the
opportunity and responsibility to protect and improve our image by acting with
integrity every day.
/s/ ART RYAN
Chairman and Chief Executive Officer
Prudential's Ethics Policy 1
<PAGE>
TABLE OF CONTENTS -- PRUDENTIAL'S ETHICS POLICY
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PRUDENTIAL CODE OF CONDUCT ................................................ 4
Your Role ............................................................ 4
The Company and You .................................................. 4
Compliance ........................................................... 5
GUIDELINES -- ETHICAL DILEMMAS AND/OR CONFLICTS OF INTEREST ............... 6
Confidentiality ...................................................... 6
Inside Information ................................................... 7
Prudential Insider Trading Rules ..................................... 7
Communications ....................................................... 8
Involvement in Outside Business ...................................... 8
Financial Transactions ............................................... 9
Fair Competition ..................................................... 11
Relationships with Suppliers ......................................... 11
Family Member Business with Prudential ............................... 12
Gifts/Entertainment .................................................. 12
Political Contributions .............................................. 13
Laws and Regulations ................................................. 13
MAKING THE RIGHT CHOICES .................................................. 14
GLOSSARY .................................................................. 15
PROCEDURES FOR APPROVAL ................................................... 16
CONTACTS FOR GUIDANCE ..................................................... 17
SAMPLE ETHICAL PRACTICES/CONFLICTS OF INTEREST QUESTIONNAIRE .............. 19
SAMPLE DISCLOSURE FORMS ................................................... 21
For Below Management Ranks ........................................... 21
For Associate Manager through Director Ranks (or equivalent ranks) ... 23
For Functional VP through Corporate VP Ranks (or equivalent ranks) ... 25
For Senior Vice President Rank and Above (or equivalent ranks) ....... 27
Prudential's Ethics Policy 3
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PRUDENTIAL CODE OF CONDUCT
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YOUR ROLE
Prudential operates through its associates who perform a variety of important
business, economic, and social functions. All associates have an obligation to
conduct business in a manner that maintains the trust and respect of our fellow
Prudential associates, our customers, business colleagues, and the general
public.
Ethical conduct is the responsibility of all associates who work for, or act
on behalf of, Prudential. It is your responsibility to ensure that:
o We will conduct every aspect of our business (internally and externally) in a
fair, lawful, and ethical manner --maintaining the trust and respect of our
fellow associates, as well as our customers, business colleagues, and the
general public.
o We will offer our customers only those products and services that are
appropriate to their needs and provide fair value, and are in compliance with
applicable laws and regulations.
o We will create an environment where all associates will conduct themselves
with integrity, honesty, and fairness in the performance of their duties. No
single business group's bottom line is more important than preserving the name
and goodwill of Prudential. We are One Prudential.
Prudential expects associates to be honest and forthright, and to use good
judgment at all times. Because ethics is not a science, there are gray areas
that may not be covered by laws and regulations. You are expected to seek
counsel for help in making the right decision. Your business group management,
Human Resources Department, Law Department, or the Enterprise Ethics Office can
provide you with guidance at any time.
Prudential's continued success depends on each one of us meeting our
obligation to perform in an ethical manner. You are encouraged to bring any
knowledge of possible or actual unethical conduct to our attention. We will
protect your confidentiality to the utmost of our ability and assure that there
will be no adverse consequences as a result of your reporting any unethical or
questionable behavior. However, in accordance with our "Whistleblower
Protection" policy, associates who knowingly report false or misleading
information with the intent to defame or injure any person or entity could be
subject to discipline for doing so.
Your success at Prudential will depend on your meeting high ethical standards.
Prudential expects all associates to comply with the law both when acting on
behalf of Prudential and in their personal conduct.
Actions that are directly prohibited by this Ethics Policy should not be taken
indirectly. For example, activities engaged in by a family member who lives in
your household could involve a conflict, or the appearance of conflict, which is
in violation of this Ethics Policy.
Failure to adhere to the standards of this Policy may lead to serious
disciplinary action, up to and including termination.
THE COMPANY AND YOU
Prudential is committed to fostering an environment that encourages all
individuals to contribute and grow to their fullest potential. It is of utmost
importance that we show respect for each other and our customers and treat
everyone fairly.
As an employer, the Company is committed to provide:
o Equal Opportunity without regard to race, religion, color, national origin,
age, gender, sexual orientation, disability unrelated to job performance, or
on any other basis that is protected under applicable local law.
o A climate of mutual respect and trust, free of any discrimination or
harassment of any kind.
o Advancement based solely on merit.
As an associate, you should:
o Take responsibility for your own personal growth and development.
o Participate in Company-sponsored programs and those provided by outside
approved sources to enhance your value as a Prudential associate.
o Exhibit professionalism and good ethical conduct at all times.
o Promote and protect the good name and reputation of Prudential.
We recognize and respect the privacy and confidentiality of our employment
records. Your personnel records, as well as your medical file, are treated with
the same confidentiality given to policyowner and customer records. We collect,
use, and disclose associate information only on a business need-to-know basis or
as required by law. This Policy also extends to our former associates.
While this Policy covers some issues, it is not meant to be an all inclusive
guideline. Prudential associates are expected to consult other appropriate
Company approved manuals for guidance to ensure all rules are met (eg. Policies
and Principles Manual,
4 Prudential's Ethics Policy
<PAGE>
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Expense Manual, any Compliance Manuals, which are available online through Lotus
Notes).
COMPLIANCE
Each year, all associates at the ranks of Functional Vice President and above
(and their equivalent ranks), plus certain other associates in areas that are
considered particularly sensitive, such as investment and purchasing, will be
required to complete an Ethical Practices/Conflicts of Interest Questionnaire.
This questionnaire asks associates to disclose any outside interests and
potential conflicts with their position at Prudential.
In addition, any associates being hired, promoted, or transferred into any of
these levels and positions must also file an Ethical Practices/Conflicts of
Interest Questionnaire when any of these events take effect.
Completion and signature on the Ethical Practices/Conflicts of Interest
Questionnaire will also serve as certification and proof that associates have
read this Policy. As an associate, you are responsible for providing accurate
information on this questionnaire. Whenever possible, you should also seek
guidance in advance to ensure necessary written approvals are obtained relative
to any potential conflict situation. Specific steps for obtaining approvals are
covered in the back of this Policy.
All associates are strongly encouraged to become familiar with the guidelines
set forth in this Policy and consult with their Business Group's Ethics Officer
or the Enterprise Ethics Office to ensure they understand their responsibilities
and are in compliance with the requirements set forth herein.
This process serves to remind us of the Company's concern with ethical issues
and its desire to avoid conflicts of interest or their appearance. It should
also prompt us to examine our personal circumstances in light of the Company's
philosophy and policies regarding ethics.
Prudential's Ethics Policy 5
<PAGE>
GUIDELINES - ETHICAL DILEMMAS AND/OR CONFLICTS OF INTEREST
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All Prudential associates must prevent their personal interest from conflicting
or appearing to conflict with the ethical principles and practices of Prudential
in their activities with customers, the public, or other associates.
Associates must conduct business in a manner that earns the respect of our
clients, our business colleagues, the general public, as well as other
Prudential associates. This Policy addresses specific issues that associates
should be aware of while employed with Prudential. A conflict of interest is
defined as a personal interest outside of the Company that could conflict with
one's obligations to Prudential, its policyholders and/or its customers. A
conflict of interest may exist even when no wrong is done; the opportunity to
act improperly may be enough to create the appearance of a conflict. Associates
may not engage in personal activities that would give the appearance of
influencing their decision making with respect to Prudential's business.
This Policy reflects compliance with several statutes, including ERISA, the
Federal Sentencing Guidelines, and the Investment Company Act. The Policy is
also mandated by Prudential's standards of business ethics, human resources
policies, and common practice throughout the financial services industry.
Also, as part of our commitment to doing business the right way, we have
embraced the principles of ethical conduct adopted by the Insurance Marketplace
Standards Association (IMSA) and have incorporated those principles into our
operations to ensure our customers and colleagues will all be treated fairly,
honestly, and competently.
CONFIDENTIALITY
Many business relationships require the exchange of confidential information.
Associates have a responsibility to restrict the use of that information during
the course of business. They should not use that information for purposes other
than those expected or approved by the discloser. Associates have further
responsibility to safeguard confidential information so that access is
restricted to those who have a need to know.
In the course of our business, associates and certain outside (third) parties
may have access to financial, health, and other personal information about
customers and other employees. This information may be contained in documents,
electronic systems or shared verbally. All associates have an obligation to keep
this information confidential and respect the privacy rights of our clients and
associates. This is critically important to maintaining our credibility and the
trust of our customers, the public, and our associates. Any questions regarding
disclosure of the above information should be discussed with management.
Unauthorized or improper disclosure could be harmful and might result in
liability for the Company. More importantly, success in our business depends on
our customers' and associates' trust that we will properly use information
confided in us.
In the conduct of Company business, you must:
o Request and use only information that is related to our business needs. Such
information should be revealed and discussed only within the scope of your
job.
o Restrict access to records to persons with proper authorization and legitimate
business needs.
o Include only relevant and accurate data in files that are used as a basis for
taking action or making business or personnel decisions.
If you are uncertain whether information should be disclosed, check with your
management.
[CLIPART]
ETHICAL DILEMMA: I work for a health maintenance organization (HMO) owned by
Prudential. One of Prudential's insurance representatives asked me for the
names and addresses of persons enrolled in the HMO. The representative would
like to use these names to prospect for new clients. I want to be helpful but
don't know whether I am permitted to provide this information.
ANSWER: You should not honor such a request. It is improper to disclose,
without their consent, the names of individuals who are obtaining health care
from us under an arrangement made through their employer. Our customer's
privacy rights require that we keep such information confidential.
6 Prudential's Ethics Policy
<PAGE>
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[CLIPART]
ETHICAL DILEMMA: I'm a secretary in a human resources area. My principal is
out of town and I've just taken a call from another company doing a reference
check on one of our former associates. The person the caller was inquiring
about worked in my area, and I knew him/her very well. Since I have access to
all personnel files as part of my job, I know where to go for the information
needed. I want to be helpful especially since my principal is out on business
and the caller needs the information as soon as possible. Can I give the
caller information?
ANSWER: Absolutely not. You should be knowledgeable of Prudential's rules
governing what can and cannot be disclosed for a reference check. Your
principal has ownership of the personnel files and as such they are the
principal's responsibility. You do not have the authority to examine or
divulge the contents of these records unless you have specific instruction to
do so from your principal.
INSIDE INFORMATION
Prudential aspires to attain the highest standard of business ethics.
Accordingly, Prudential has developed the following policies to ensure the
proper use of proprietary and/or confidential information and to comply with
federal and state laws.
In the course of your work at Prudential, you may receive or have access to
material, nonpublic information. Company policy, industry practice, and federal
and state laws establish strict guidelines for the use of material, nonpublic
information. To ensure that Prudential associates adhere to the best practices
in the industry, Prudential has adopted the following policies:
o You may not use confidential or proprietary information obtained in the course
of your employment for your personal gain or share such information with
others for their personal benefit;
o You must treat as confidential all information not generally made public
concerning Prudential's investment activity or plans, or the financial
condition and business activity of any enterprise with which Prudential is
doing business; and
o If you possess confidential or proprietary information, you must preserve its
confidentiality and disclose it only to other associates who have a legitimate
business need for the information.
[CLIPART]
ETHICAL DILEMMA: I played a role in an innovative financial transaction. Its
success depended on a complex series of computer simulations that my business
group designed and conducted. A former colleague, now employed by a
competitor, calls to ask how Prudential was able to structure the deal on a
profitable basis.
ANSWER: This information is proprietary and disclosure is in direct violation
of your responsibility to keep this information strictly confidential.
PRUDENTIAL INSIDER TRADING RULES
Under federal securities law, in most circumstances, it is illegal to buy or
sell a security while in possession of material, nonpublic information relating
to the security. It is also illegal to "tip" others about inside information. In
other words, you may not pass material, nonpublic information about an issuer on
to others or recommend that they trade the issuer's securities.
Set forth below are three rules concerning insider trading. Failure to comply
with these rules could result in violations of the federal securities laws and
subject you to severe penalties under these laws. Violations of these rules also
may result in discipline by Prudential up to and including termination of
employment.
o If you have material, nonpublic information relating to any security, you may
not buy or sell that security for yourself, members of your family, Prudential
or any other person. In addition, you may not recommend to others that they
buy or sell that security.
o If you are aware that Prudential is considering or actually trading any
security for any account it manages, you must regard that as material,
nonpublic information, Accordingly, you may not make any trade or
recommendation involving that security until seven calendar days after you
know that such trading is no longer being considered, or until seven calendar
days after Prudential ceases trading in that security.
Note: Prudential Securities and associates in other subsidiaries should refer
to the specific guidelines for their business group on Personal Trading.
o You may not communicate material, nonpublic information to anyone except
individuals who are entitled to receive it in connection with the performance
of their responsibilities for Prudential.
Prudential's Ethics Policy 7
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EXAMPLES OF INFORMATION THAT MAY BE MATERIAL.
o Information about a company's earnings or dividends, or a merger, acquisition,
tender offer, joint venture or similar transaction involving the company.
o Information about a company's physical assets or financial status (e.g., an
oil discovery, an environmental problem or any plans or other developments
concerning financial restructuring or the issuance or redemption of, or any
payments on, any securities),
o Information that Prudential or a subsidiary is going to enter into a
transaction with a company, such as entering a contract to make a large
purchase of supplies or services from a particular company.
o Information that Prudential or a subsidiary is considering whether to buy or
sell a security of a company or is going to make a trade or has just made a
trade of that security. This is true regardless of whether Prudential is
trading for the general account, an institutional client, or a brokerage
client.
COMMUNICATIONS
All communications placed by Prudential or its subsidiaries, whether internal or
external, should be accurate and forthright. These communications include, but
are not limited to, television, radio broadcasts, advertising, marketing, sales
illustrations, or general internal reports and memoranda.
Prudential's policy is to provide accurate information when promoting our
products and services, as well as in our responses to inquiries from the media,
regulators, clients and associates.
Associates are not permitted to create, publish or circulate, either
externally or internally, any oral or written statement that is false,
derogatory to, or maliciously critical of a competitor, or that is intended to
defame or injure any person or entity engaged in a competitive business.
Each associate is responsible to comply with corporate and/or marketing
guidelines, regulatory policies and rules governing communications with the
public, and should be sure such communications are accurate.
[CLIPART]
ETHICAL DILEMMA: I am a Prudential Insurance Representative and recently
spotted in a supermarket pamphlet an ad placed by another Insurance
Representative that appeals to me, The wording is catchy, the sales
illustrations are clear, and the Prudential logo is novel in its presentation,
I'm thinking of doing something similar to this. Can I?
ANSWER: NO! There are specific Prudential regulations governing all sales
materials (including advertisements), Even the Prudential logo has to be shown
according to specific guidelines. You should contact your Marketing and
Compliance areas to have all items reviewed and approved in advance, Even if
the ad you are referring to has been placed by another Prudential Insurance
Representative, do not make the mistake of thinking "if he did it, it must be
okay," You could be subject to disciplinary action by not following compliance
and/or marketing guidelines.
INVOLVEMENT IN OUTSIDE BUSINESS
A management associate may not serve as an outside director, officer, employee,
partner, or trustee nor hold any other position in an outside business
enterprise without prior written approval from the Company.
All associates are expected to devote full time to their Company duties.
Involvement in an outside business activity is unacceptable when it interferes
with one's ability to perform the duties of his/her job.
EXCEPTIONS:
o An associate does not need prior approval if all of the following apply:
The outside business enterprise is principally owned by other members of the
associate's immediate family; and the outside business enterprise is not doing
business with, or in competition with Prudential; and the outside business
enterprise will not interfere with the associate's duties at Prudential.
o Associates below associate manager rank do not need prior approval to accept
outside employment, if permitted under applicable administrative policies or
agreements relating to their employment.
Under no circumstances, however, may an associate conduct external business
on Company time. This includes, but is not limited to, circulating catalogs,
soliciting sales, or otherwise promoting the external business.
8 Prudential's Ethics Policy
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[CLIPART]
ETHICAL DILEMMA: My spouse runs a flower shop that was financed with a loan
from his parents. The flower shop does occasional business with a Prudential
business group that I do not work in. If, in my spare time, I help handle the
shop's accounting requirements and tax returns, is approval required?
ANSWER: Yes, you should disclose in writing your involvement with the flower
shop and seek appropriate approval.
An associate may not conduct outside business in competition with Prudential.
[CLIPART]
ETHICAL DILEMMA: I am an associate of Prudential and I work in the
Comptrollers Department. May I accept a position with another company
selling life insurance on nights and weekends?
ANSWER: No. Selling life insurance for a competitor would be considered a
conflict of interest, even if the associate did so during his/her own time.
FINANCIAL TRANSACTIONS
An associate may not act on behalf of Prudential in any transaction in which
he/she has a personal interest.
If associates find themselves in this situation, they should immediately
disclose their personal interest to their supervisor.
Exception: This rule does not apply to a personal interest resulting from
participation in an incentive compensation plan that has been approved by an
associate's business group, or any plan that provides for direct participation
in specific transactions by Prudential's Board of Directors.
[CLIPART]
ETHICAL DILEMMA: I work in Prudential Capital Group and my division lends
money to companies. I was just named to the team that will be reviewing five
possible companies to which we may lend money, and I personally hold an equity
position in one of the companies. Should I disclose this as a possible
conflict of interest?
ANSWER: Yes, you should disclose your personal interest immediately to your
superior Your personal interest in one of the companies may give the
appearance of having influenced your evaluations of the companies, and your
judgment could be called into question. You will be asked to excuse yourself
from any activities regarding the company with which you hold a financial
interest
An associate may not, without prior approval, have a substantial interest in any
outside business that, to their knowledge, is involved currently in a business
transaction with Prudential or is engaged in businesses similar to any business
engaged in by Prudential.
A SUBSTANTIAL INTEREST INCLUDES:
o Any investment in an outside business involving an amount that exceeds the
greater of 10 percent of your gross assets, or $10,000;
o Any investment involving an ownership interest greater than 2% of the
outstanding equity interests.
You do not need approval for bank deposits and investments in mutual funds,
partnerships and similar enterprises that are publicly owned and engaged
primarily in the business of investing in securities, real estate or other
investment assets.
[CLIPART]
ETHICAL DILEMMA: I work in the Treasurer's Department and I have a $17,000
investment in a Real Estate investment Trust ("REIT") with which Prudential is
affiliated. My gross assets amount to $210,000, including my home, car and
savings account. Do I have to disclose my REIT investment as a potential
conflict of interest?
ANSWER: No. Though your investment exceeds $10,000. it is not greater than 10%
of your gross assets (i.e. $21,000). Therefore, no prior approval is required.
In addition, since the REIT is publicly owned and is in the business of
investing in real estate, your investment would not be viewed as a conflict of
interest.
Prudential's Ethics Policy 9
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[CLIPART]
ETHICAL DILEMMA: My spouse has a substantial investment in a private office
supply distributor that does business with Prudential. She has invested
$30,000 in the distributor. Our gross assets amount to $500,000, including our
home less encumbrances (i.e. the amount of any outstanding mortgages, liens,
etc.). Do I have to disclose this investment as a potential conflict?
Answer No. Disclosure of the investment is not required because your
investment $30,000) is less than 10% of your gross assets (i.e. $50,000).
However, refer to the section addressing "Relationships With Suppliers" to
determine if any further steps should be taken.
An associate may not, without prior approval, borrow an amount that exceeds the
greater of 10% of their gross assets, or $10,000, on an unsecured basis from any
bank, financial institution, or other business that, to their knowledge,
currently does business with Prudential or with which Prudential has an
outstanding investment relationship.
Note: This rule does not apply to residential mortgage loans (including bridge
loans in anticipation of a residential mortgage loan), margin accounts, or other
adequately secured loans.
[CLIPART]
ETHICAL DILEMMA: I plan on borrowing $50,000 on an unsecured basis to finance
my child's college education. (My gross assets amount to $250,000.) I've just
learned that the bank I'm borrowing this money from is a bank that Prudential
uses as a custodian for its mutual funds. Do I need approval from Prudential
before proceeding with this loan?
ANSWER: Yes. Prior approval is required because the loan exceeds 10% of your
gross assets.
An associate may not, without prior approval, engage in any transaction
involving the purchase of products and services from Prudential, except on the
same terms and conditions as they are offered to the public.
If there is any question whether the terms and conditions are the same as
those generally offered to the public, or there is the possibility of an
appearance of conflict, associates should seek approval.
Prior approval is not required to accept special discounts or other favorable
terms that are in the nature of employee benefits or items available from the
"Company Store," which are generally offered to our associates.
Note: Directors and Officers of Prudential or its insurance subsidiaries may be
prohibited by law from engaging in certain transactions, even though the terms
and conditions are the same as those generally offered to the public. Those
individuals should consult the Law Department.
[CLIPART]
ETHICAL DILEMMA: I am an Associate Manager in the Individual Insurance Group
and I would like to participate in the special incentives offered to
Prudential employees by Norwest (formerly Prudential Home Mortgage). Should I
seek prior approval before participating?
ANSWER: No, Prior approval is not required, because the incentives are offered
to all eligible employees. Note that Officers cannot accept special incentives
unless they are part of a relocation package.
[CLIPART]
ETHICAL DILEMMA: I am a Vice President in Prudential Investments, and I would
like to open a brokerage account with Prudential Securities. Should I seek
prior approval before accepting the special employee discount?
ANSWER: No. Prior approval is not required because the discount is offered to
all eligible employees.
Note: Margin accounts are considered to be loans. Therefore, as a Corporate
Officer if you were considering opening a margin account. you would be
prohibited from doing so.
Associates are prohibited from appropriating business opportunities from clients
or policyholders.
Associates may have access to considerable information about investments and
other types of business opportunities in the normal scope of their Prudential
duties. These opportunities are for the benefit of our customers and/or
policyholders. If an associate were to take advantage of the opportunity for
his/her own personal gain, when the opportunity would otherwise be suitable for
one of our customers, policyholders, or the Company itself, the associate would
be misappropriating that opportunity.
10 Prudential's Ethics Policy
<PAGE>
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[CLIPART]
ETHICAL DILEMMA: I am a portfolio manager and I have been offered the chance
to purchase warrants in a company for my personal account. This investment
would be suitable for one of my clients. Would it be acceptable to allocate a
portion to my client and purchase a portion for my own personal account?
ANSWER: NO. Because this investment is suitable for your client, this would be
considered appropriating an investment from your client and would be
considered a conflict of interest. Note: If you had determined that the
investment was NOT suitable for your client and you wanted to personally
invest in the company, you should seek express prior written approval from
your compliance officer.
FAIR COMPETITION
A fundamental tenet of our society is that the public is best served by vigorous
competitive activity. Our antitrust laws are intended to facilitate free and
open competition and prohibit any activity or conduct that improperly reduces or
eliminates such competition in the marketplace.
Prudential has a longstanding policy of support for these antitrust laws and
expects all associates to comply with them fully. Penalties for their violation
can be severe.
Antitrust laws are complex and are discussed in detail in the Company's
publication "Antitrust Compliance Program, which may be obtained at any time
from the Law Department.
All purchases and sales must be based strictly on considerations of
suitability, quality, service, price, and efficiency. We do not condone
reciprocal arrangements or tie-in sales.
No customer should be led to believe that he or she must buy a particular
product or service from Prudential in order to obtain any other product or
service we offer, or to induce Prudential to purchase any product or service
that the customer offers.
Offering special discounts or "packaged" products as a marketing promotion is
permissible only when approved by the appropriate business group heads and the
Law Department.
Associates should avoid conversations with competitors about our future plans
regarding commissions, fees, costs, interest crediting rates or other matters
affecting the prices we charge for our products.
RELATIONSHIPS WITH SUPPLIERS
Associates may not take advantage of their position with Prudential to receive
goods or services from a third party at rates not generally available to the
public.
A conflict of interest may arise if an associate is offered goods or services
from a third party on terms not generally available to the public. This would
include any gifts from vendors or suppliers with which he/she does business.
Such an arrangement could create the appearance that an associate is being
singled out because of his/her position with the Company. In addition, it may
appear that the individual would be expected to provide something in return for
the benefit he/she has received. If an associate has reason to question whether
the terms and conditions of an offer are the same as those offered to the
public, he/she must seek prior approval.
We should be fair to our suppliers. It is our policy to award orders,
contracts and commitments to suppliers strictly on the basis of merit without
favoritism.
The choice of our suppliers should be based on such factors as price, quality,
reliability, service, technical advantage, and, in appropriate circumstances,
the impact on the community, such as purchasing from local or minority vendors.
[CLIPART]
ETHICAL DILEMMA: An external broker offers a portfolio manager a lower
commission rate on his/her personal investments. The portfolio manager has
directed client business to that broker in the past. If the portfolio manager
takes advantage of the offer, would this be viewed as a conflict of interest?
ANSWER: Yes. Portfolio managers have a fiduciary responsibility to their
clients and must always keep their clients' interests ahead of their own
personal interests.
[CLIPART]
ETHICAL DILEMMA: I am a lawyer in the Property and Casualty section of the Law
Department. I recently placed a bid on a house. An outside law firm that my
group is doing business with has offered me a special discount on the house
closing costs. Can I accept this offer?
ANSWER: No. It is not appropriate to accept this special discount as it is not
generally available to the public.
Prudential's Ethics Policy 11
<PAGE>
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FAMILY MEMBER BUSINESS WITH PRUDENTIAL
An associate may not channel business to a family member.
Associates should have the best interest of Prudential's clients and
policyholders in mind when conducting business. Associates may not direct
business to someone solely due to their relationship with the person. Channeling
business for this purpose may include directing brokerage transactions,
contracting with a vendor for goods and/or services, etc. It could also include
offers of employment, in which instance the associate should seek guidance from
his/her Human Resources area. If an associate believes that a family member can
offer the best goods and/or service, he/she should provide the competitive bids
to his/her supervisor, disclose in writing his/her relationship with the
individual, and be excused from the decision-making process. This will remove
the appearance of a conflict and will allow an independent third party to make
the decision.
[CLIPART]
ETHICAL DILEMMA: I am an operations manager for one of Prudential's business
groups, and I will have to hire an outside vendor to supply office furniture
for our upcoming move. May I contract with my niece, who owns an office supply
and furniture business, to supply the equipment?
ANSWER: No. Associates generally may not channel business to family members.
However, if your niece can provide the best service and price for the
equipment, you should fully disclose your relationship to your supervisor and
ask him/her to make a determination whether or not to use her service.
[CLIPART]
ETHICAL DILEMMA: I am a Director in one of the systems areas, and I will have
to hire an external vendor to provide computer services during our transition
to a new system. Should I seek approval before hiring the company where my
husband works to provide the services?
ANSWER: Yes, you must seek prior approval in this circumstance. Depending on
your husband's position in the company, this may be an actual conflict of
interest, and the request to hire this company may not be approved. However if
it is determined that there is no real conflict, that your husband would not
receive an unfair benefit from the decision, and that no future conflicts
could be expected to arise during the project, this request may be approved.
GIFTS/ENTERTAINMENT
Associates should not accept or provide any gifts or favors that might influence
the decisions they or the recipient must make in business transactions involving
Prudential, or that others might reasonably believe would influence those
decisions. Even a nominal gift should not be accepted if, to an observer, it
might appear that the gift would influence your business decisions. As a general
guideline, giving or receiving a gift having a value over $100 is considered
excessive.
Generally, the acceptance of gifts and/or entertainment, or anything else of
value, may violate Prudential policy or statutes if excessive in amount or
frequency.
Associates may occasionally give or accept gifts of moderate value, subject to
compliance with federal and state laws and regulations that apply to the giving
and receipt of gifts. Modest gifts and favors, which would not be regarded by
others as improper, may be accepted or given on an occasional basis.
Entertainment that satisfies these requirements and conforms to generally
accepted business practices is also permissible. Associates should be aware that
their specific business group may have adopted more strict guidelines.
Where there is a law or policy that affects the conduct of a particular
business and the acceptance of gifts of nominal value, the law or policy must be
followed.
[CLIPART]
ETHICAL DILEMMA: My spouse and I receive an invitation to dinner and the
theater from a longtime business associate. My spouse is employed by a
consulting firm that my business group occasionally retains.
ANSWER: This is a fairly common practice and is permissible unless your
business group adopts a stricter rule prohibiting such entertainment.
[CLIPART]
ETHICAL DILEMMA: Our Gift Policy contained in the Policy and Principles Manual
states that gifts having value of under $100 could be considered acceptable.
In my dealings with a specific vendor, they send me, two or three times a
year, gifts and/or discounts adding up to over $100 in total but on a
per-occasion basis only, maybe worth $25-$30. Is this acceptable?
ANSWER: It is not acceptable. The acceptance of gifts and/or entertainment or
anything else of value may violate Prudential policy or statutes if excessive
in amount or frequency.
Prudential's Ethics Policy 12
<PAGE>
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POLITICAL CONTRIBUTIONS
Prudential does not contribute financial or other support to political parties
or candidates for public office except where permitted by law and approved in
advance in accordance with procedures adopted by Prudential's Board of Directors
Committee on Business Ethics.
Associates may, of course, make political contributions, but only on their own
behalf. They will not be reimbursed by the Company for such contributions.
Associates have the right to contribute to a company-sponsored Political
Action Committee, but such contributions are strictly voluntary. No one may be
rewarded by the Company for contributions to such a committee or penalized for
electing not to participate.
Associates are also free to seek and hold an elective or appointive public
office, provided they do not do so as a representative of the Company. However,
associates will be expected to conduct any campaign activities and perform any
duties of the office in a manner that does not interfere with their
responsibilities to Prudential.
[CLIPART]
ETHICAL DILEMMA: Prudential is involved in the development of an office
building through a joint venture. The mayor of the local community asks our
joint venture partner for an election campaign contribution from our
partnership. Our partner seeks your approval for the contribution which, in
this area, is permitted under state law.
ANSWER: Such contributions cannot be made without proper authorization. The
Company's policy is to grant such approvals only under extraordinary
circumstances.
[CLIPART]
ETHICAL DILEMMA: My friend is running for mayor in my hometown, and he has
asked that I act as his campaign treasurer This position may require that I
make occasional phone calls during the day to various sponsors. I work a long
day at Prudential, usually arriving at 8 am and leaving around 8pm. Would it
be permissible if I took a half hour out of my day to make the phone calls?
ANSWER: Yes. As long as the activity does not interfere with your Prudential
responsibilities, is not performed on Company time, and you are not using any
Prudential property (including telephones, office space, etc.), to perform
these activities.
[CLIPART]
ETHICAL DILEMMA: In making a campaign contribution, I mistakenly wrote a cover
note to include with my check and used my Prudential letterhead. Is this a
violation?
ANSWER: yes. Although associates are free to contribute to any political
campaign of their own choosing, it must not appear in any way that they may be
representing Prudential. Even the use of Prudential stationery could give this
appearance.
LAWS AND REGULATIONS
It is Prudential's policy to be in strict compliance with all laws and
regulations applying to our business. Because these laws and regulations may
vary from state to state and country to country, and may be ambiguous and
difficult to interpret, it is important that you seek advice from your business
group's legal counsel. We expect good faith efforts from all Prudential
associates in following the spirit and intent of the law.
We do not permit our staff or resources to be used for any purposes that
contravene the laws and regulations of any country. Nor do we permit improper
payments of any sort to be made to any governmental, political, labor or
business person or organization. Gifts of insubstantial value to minor
government officials of foreign countries, where such gifts are customary and
legal and comply with the Foreign Corrupt Practices Act, are permissible. Such
gifts should not be made unless approved in advance in accordance with the
procedures adopted by Prudential's Committee on Business Ethics.
All associates should be guided by the following principles
o No unrecorded funds or assets may be established or maintained.
o All accounting entries must be accurate and must properly describe each
transaction,
o No payment may be made with the intention that the funds will be used for any
purpose other than that described in the supporting documents.
o All agreements with customers, representatives, consultants, or others should
be in writing and should include all applicable fee schedules.
If you have doubts about the propriety of a transaction or payment, discuss the
matter with your management.
Prudential's Ethics Policy 13
<PAGE>
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AVOID THE APPEARANCE OF A CONFLICT OF INTEREST
The appearance of a conflict of interest may be as damaging to the Company as an
actual performance of a conflict of interest. It is important to remember that
associates should disclose all potential conflicts to the appropriate party,
e.g. a member of their management or the Ethics Office, and seek guidance as to
whether a situation may appear to violate the guidelines set forth in this
Policy. In addition, you should disclose your relationship with any family
members who work at companies in similar businesses to Prudential, where an
appearance of a conflict of interest could result due to the family member
benefiting from your actions or advice as a Prudential associate.
[CLIPART]
ETHICAL DILEMMA: I work in a customer service center taking care of
policyholder changes. A policyholder has requested a change on one of his
policies -- changing the beneficiary to me. I've tried to persuade the
policyholder that I felt it was not appropriate. But the policyholder is
insisting on designating me as a beneficiary in recognition of my years of
service to his policy matters. Can I accept the beneficiary designation?
ANSWER: No. Although the policyholder has the legal right to designate anyone
he chooses to be the beneficiary on a policy, there would be the appearance of
a conflict of interest, and would therefore be in violation of Company policy.
In this situation, contact your management and/or Business Group Ethics
Officer for advice.
[CLIPART]
ETHICAL DILEMMA: I am an investment professional in the Realty Group, and I
just learned that my broker, who has full discretion over my brokerage
account, has purchased shares for my account in a company to which Prudential
is about to lend money. I am working on the deal team for this transaction.
Should I disclose this investment as a potential conflict of interest?
ANSWER: Yes. Even though you did nor instruct your broker to buy this
security, you are the beneficial owner of the shares, and this investment may
create the appearance of a conflict.
[CLIPART]
ETHICAL DILEMMA: I am a portfolio manager at Prudential Investments and I just
got married, My husband is a trader at Merrill Lynch, Should I disclose this
as a potential conflict of interest?
ANSWER: yes. This should be disclosed as a potential conflict of interest. In
addition, neither you nor your spouse may disclose significant information
about your employer's activities that might influence, or give the appearance
of influencing the other's decisions or actions. Also, by disclosure, it
allows management to ask for any recusal that may be necessary depending on
the situation.
We value the privacy of our associates and their desire to conduct their
personal lives without unnecessary interference. However, Prudential requires
full and timely written disclosure of any situation that could result in a
conflict of interest or the appearance of one. The Company must determine
whether or not there is a conflict; this determination may not be made solely by
the associate.
Failure to adhere to the standards of this Policy may lead to serious
disciplinary action, up to and including termination.
MAKING THE RIGHT CHOICES
Maintaining the high standards we demand of ourselves requires more than simply
issuing a statement of policy. It requires a total commitment to sound ethical
principles and Prudential's values. It also requires the nurturing of a culture
within the Company that is highly moral, with decisions and actions based on
what is right, not simply what is expedient.
There may be occasions when you are uncertain about what is the right thing to
do. In these situations ask yourself, "Would I be comfortable with this action
if it came to the attention of the media, or my associates, my friends, or
members of my family?"
If the answer to this question is "no," then it is not the right course of
action for you and Prudential.
In every business group, our management team must make its ethical standards
clear; and at every level, associates must set the right example in the daily
conduct of their duties.
No policy, statement, or code of conduct can cover every conceivable
circumstance. Ultimately, we are each responsible for our own actions.
Prudential wants to be recognized as an outstanding company to work for and do
business with. We are committed to our customers, to our businesses, and to
carrying on the Company's tradition of excellence.
Prudential's Ethics Policy 14
<PAGE>
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GLOSSARY
ASSOCIATE: any full- or part-time employee, onsite consultant, intern officer or
Director of Prudential, its subsidiaries and/or affiliates.
BUSINESS GROUP ETHICS OFFICER: the designee who is responsible for monitoring
the ethical climate of the business group, implementing the annual Conflicts of
Interest process and approval procedures.
COMMITTEE ON BUSINESS ETHICS: a committee of the Prudential's Board of Directors
that has the responsibility to review the Company's policies on business ethics
and, when appropriate, make recommendations to the Board of Directors concerning
the adoption and amendment of the Company's published statement on business
ethics.
COMMUNICATIONS: internal or external correspondence that could include, but not
be limited to, television and radio broadcasts, advertising, marketing
materials, sales illustrations, brochures, general internal reports and
memoranda.
CONFIDENTIALITY: an associate's obligation to respect privacy rights by keeping
any information he/she may access during the course of his/her work
confidential, and only sharing client, employee, or business related information
with other Prudential units or individuals who have proper authorization and a
legitimate business need to know. Fair Competition: the facilitation of free and
open competition where the activity or conduct that improperly reduces or
eliminates such competition in the marketplace is prohibited.
FAMILY MEMBER: any person who receives material financial support, directly or
indirectly, from an associate of Prudential, including but not limited to, an
associate's parents, mother-in-law, father-in-law, husband or wife, brother or
sister, brother-in-law or sister-in-law, son-in-law or daughter-in-law, and
children.
GIFTS/ENTERTAINMENT: a gift or favor which may influence or appear to influence
the decision an employee makes in a business transaction involving Prudential.
Gifts include, but are not confined to, money, securities, loans, investment or
business opportunities, goods and services, discounts, entertainment events,
meals, outings, trips, travel, and favorable interest or brokerage rates.
INSIDE INFORMATION: for the purposes of this Policy, inside information means
any confidential or proprietary information obtained in the course of
employment.
OFFICER: a Prudential associate at or above the rank of Vice President or its
equivalent (generally level 78 and above or the equivalent). Conflict of
Interest: a personal interest outside of the Company which could be placed ahead
of one's obligations to Prudential, its policyholders, and/or its customers, or
gives the appearance of a conflict by way of influences, interests, or
relationships.
Prudential's Ethics Policy 15
<PAGE>
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PROCEDURES FOR APPROVALS
MEMBERS OF THE BOARD OF DIRECTORS AND ASSOCIATES AT OR ABOVE THE RANK OF SENIOR
VICE PRESIDENT (or its equivalent) must obtain approval from the Board of
Directors' Committee on Business Ethics. Members of the Board of Directors or
associates at Senior Vice President rank and above (or equivalents) should
submit any request for approvals directly to the Corporate Secretary. Senior
Vice Presidents and above (or equivalents) should simultaneously notify the
Chief Ethics Officer.
ASSOCIATES AT FUNCTIONAL THROUGH CORPORATE VICE PRESIDENT RANK (or their
equivalent) should present a written request for review of potential conflicts
of interest to the Chief Ethics Officer, who will review them with the Law
Department and present them to an appropriate Executive Vice President or the
Chairman and CEO for approval.
OTHER MANAGEMENT ASSOCIATES should obtain written approval from their business
group head at a rank of at least Senior Vice President who has overall
responsibility for the business group. The Senior Vice President should seek
advice from the Law Department on the individual cases before approval is
granted.
ASSOCIATES BELOW MANAGEMENT rank should obtain written approval from management
of at least functional vice president rank to whom they report, directly or
indirectly. A member of the Human Resources, Comptroller's or Law Departments
for their business group should be consulted before granting the approval.
Prudential's Ethics Policy 16
<PAGE>
- --------------------------------------------------------------------------------
CONTACTS FOR GUIDANCE
ETHICAL QUESTIONS/CONFLICTS OF INTEREST SITUATIONS/APPROVALS
Enterprise Ethics Office: 800-752-7024
Fax: 973-802-9955
PRUDENTIAL'S POLICIES AND PRINCIPLES MANUAL
Audit Administration: 973-802-7570
The Following Pages Contain Sample Forms
Prudential's Ethics Policy 17
<PAGE>
[PRUDENTIAL LOGO]
ETHICAL PRACTICES/CONFLICTS OF INTEREST QUESTIONNAIRE
- --------------------------------------------------------------------------------
1. WERE YOU DURING THE LAST YEAR, WHILE EMPLOYED WITH PRUDENTIAL, A DIRECTOR,
OFFICER, EMPLOYEE, PARTNER, OR TRUSTEE OF, OR DID YOU HOLD ANY OTHER
POSITION WITH ANY OTHER BUSINESS ENTERPRISE*
*The following situations do not need to be disclosed: Any involvements
with Prudential, a Prudential subsidiary, or a Prudential Mutual Fund; a
non-profit organization, a family-owned business not doing business with or
in competition with Prudential, or any of its subsidiaries; passive
interests in partnerships engaged primarily in investment in securities,
real estate, or other investment assets; outside employment for ranks below
associate manager which are permitted under applicable administrative
policies.
IF YOU ANSWERED YES, PLEASE DESCRIBE THE POSITION BELOW (INCLUDE NAME AND
ADDRESS OF BUSINESS, TYPE OF BUSINESS, POSITION HELD, AND APPROVAL DATE):
2. HAVE YOU ACTED ON BEHALF OF PRUDENTIAL OR ANY OF ITS SUBSIDIARIES DURING
THE LAST YEAR IN CONNECTION WITH ANY TRANSACTION IN WHICH YOU HAD A
PERSONAL INTEREST?*
* Transactions involving a personal interest arising solely from
participation in any plan in the nature of incentive compensation approved
by your business group or Prudential's Board of Directors need not be
disclosed. IF YOU ANSWERED YES, PLEASE DESCRIBE BELOW:
3. DID YOU OR ANY FAMILY MEMBER LIVING IN YOUR HOUSEHOLD HAVE ANY INVESTMENT*
INVOLVING AN AMOUNT WHICH EXCEEDED GREATER THAN 10% OF YOUR GROSS ASSETS,
OR $10,000 IF THAT AMOUNT IS LARGER; OR INVOLVING AN OWNERSHIP INTEREST
GREATER THAN 2% OF THE OUTSTANDING EQUITY INTERESTS, IN ANY BUSINESS
ENTERPRISE DURING THE LAST YEAR WHICH, TO THE BEST OF YOUR KNOWLEDGE,
ENGAGED IN ANY BUSINESS TRANSACTION WITH PRUDENTIAL OR ANY OF ITS
SUBSIDIARIES, OR WHICH ENGAGED IN ANY BUSINESS SIMILAR TO THE BUSINESS OF
PRUDENTIAL OR ANY OF ITS SUBSIDIARIES, DURING THAT PERIOD?
* Bank deposits and Investments in mutual funds, partnerships and similar
enterprises which are privately owned and engage primarily in the business
of investing in securities, real estate or other investment assets need not
be disclosed. IF YOU ANSWERED YES, PLEASE DESCRIBE BELOW:
4. DID YOU OR ANY FAMILY MEMBER LIVING IN YOUR HOUSEHOLD BORROW AN AMOUNT
WHICH EXCEEDED THE GREATER OF 10 PERCENT OF YOUR GROSS ASSETS, OR $10,000
IF THAT AMOUNT IS LARGER, ON AN UNSECURED BASIS* FROM ANY BANK, FINANCIAL
INSTITUTION OR OTHER BUSINESS DURING THE LAST YEAR WHICH, TO THE BEST OF
YOUR KNOWLEDGE, ENGAGED IN ANY BUSINESS TRANSACTION OR HAD ANY INVESTMENT
RELATIONSHIP WITH PRUDENTIAL OR ANY OF ITS SUBSIDIARIES DURING THAT PERIOD?
* Residential mortgage loans (including bridge loans in anticipation of a
residential mortgage loan), margin accounts and other adequately secured
loans need not be disclosed. Note: Officers and Directors of Prudential are
prohibited from accepting or soliciting any loans from Prudential or its
affiliates. IF YOU ANSWERED YES, PLEASE DESCRIBE BELOW:
Prudential's Ethics Policy 19
<PAGE>
- --------------------------------------------------------------------------------
DISCLOSURE REPORTING FORM FOR ASSOCIATE MANAGER THROUGH DIRECTOR RANKS
(Please print/type)
TO: _________________________________ FROM: _________________________________
(Business Group Head) (Business Ethics Officer)
RE: _________________________________ LEVEL: ______________
(Name/Title of Associate)
BUSINESS GROUP: ________________________________________________________________
Describe the potential conflict (including a brief description of any other
business, its location, and its relationship to Prudential):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATTORNEY COMPLETION (USE ADDITIONAL SPACE IF REQUIRED).
Legal considerations important in reviewing request and recommendation for
approval/denial (including risks and possible benefits to Prudential):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Recommend: |_| Approval |_| Denial |_| Approval with controls (provide detail)
ATTORNEY REVIEW
SIGNATURE:__________________________________________ DATE:______________
PRINTED NAME: ______________________________________________________________
BG HEAD APPROVAL
SIGNATURE:__________________________________________ DATE:______________
PRINTED OF BUSINESS GROUP: ________________________________________________
Prudential's Ethics Policy 23
Please retain copy for your personal records
<PAGE>
- --------------------------------------------------------------------------------
DISCLOSURE REPORTING FORM FOR
FUNCTIONAL VICE PRESIDENT THROUGH CORPORATE VICE PRESIDENT RANKS
(Please print/type)
TO: _________________________________
(Chief Ethics Officer)
FROM: _______________________________ _______________________________________
(Business Ethics Officer) (Business Group)
RE: _________________________________ _______________________________________
(Name/Title of Associate) (Business Group/Level)
Describe the potential conflict (including a brief description of any other
business, its location, and its relationship to Prudential):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATTORNEY COMPLETION (USE ADDITIONAL SPACE IF REQUIRED).
Legal considerations important in reviewing request and recommendation for
approval/denial (including risks and possible benefits to Prudential):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Recommend: |_| Approval |_| Denial |_| Approval with controls (provide detail)
ATTORNEY REVIEW
SIGNATURE:__________________________________________ DATE:______________
PRINTED NAME: ______________________________________________________________
BG HEAD APPROVAL
SIGNATURE:__________________________________________ DATE:______________
PRINTED OF BUSINESS GROUP: ________________________________________________
EVP/CEO APPROVAL
SIGNATURE:__________________________________________ DATE:______________
Prudential's Ethics Policy 25
Please retain copy for your personal records
<PAGE>
- --------------------------------------------------------------------------------
DISCLOSURE REPORTING FORM FOR
SENIOR VICE PRESIDENT AND EXECUTIVE VICE PRESIDENT RANKS
(Please print/type)
TO: Corporate Secretary
FROM: _______________________________ _______________________________________
(Business Unit)
RE: _________________________________ _______________________________________
(Name/Title of Associate) (Business Unit/Level)
STATEMENT OF FACTS GIVING RISE TO THE POTENTIAL CONFLICT:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Reasons (if any) why action may pose potential conflict an considerations
important in reviewing request (e.g., amount of time required, compensation,
relationships with Prudential):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATTORNEY REVIEW
SIGNATURE:__________________________________________ DATE:______________
PRINTED NAME: ______________________________________________________________
SUBMIT THIS REQUEST TO THE CORPORATE SECRETARY (WITH A COPY TO THE CHIEF ETHICS
OFFICER) FOR PRESENTATION TO THE COMMITTEE ON BUSINESS ETHICS.
DATE PRESENTED TO COMMITTEE:____________________ ACTION:______________
Prudential's Ethics Policy 27
Please retain copy for your personal records
The Prudential Series Fund, Inc.
Code of Ethics Adopted Pursuant to Rule 17j-1
Under the Investment Company Act of 1940
(the Code)
1. Purposes
The Code has been adopted by the Board of Directors/Trustees or the Duly
Appointed Officer-In-Charge of the Fund, the Manager, the Adviser/Subadviser,
and the Principal Underwriter in accordance with Rule 17j-1(c) under the
Investment Company Act of 1940 (the Act) and in accordance with the following
general principles:
(1) The duty at all times to place the interests of shareholders first.
Investment company personnel should scrupulously avoid serving their
own personal interests ahead of shareholders' interests in any decision
relating to their personal investments.
(2) The requirement that all personal securities transactions be conducted
consistent with the Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of an individual's position of
trust and responsibility.
Investment company personnel must not only seek to achieve technical
compliance with the Code but should strive to abide by its spirit and the
principles articulated herein.
(3) The fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
Investment company personnel must avoid any situation that might
compromise, or call into question, their exercise of fully independent
judgment in the interest of shareholders, including, but not limited to the
receipt of unusual investment opportunities, perquisites, or gifts of more
than a de minimis value from persons doing or seeking business with the
Fund.
<PAGE>
Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to a purchase or sale of a security held or to be
acquired (as such term is defined in Section 2.) by an investment company, if
effected by an associated person of such company.
The purpose of the Code is to establish procedures consistent with the Act
and Rule 17j-1 to give effect to the following general prohibitions as set forth
in Rule 17j-1(b) as follows:
(a) It shall be unlawful for any affiliated person of or Principal
Underwriter for a registered investment company, or any affiliated person
of an investment adviser of or principal underwriter for a registered
investment company in connection with the purchase or sale, directly or
indirectly, by such person of a security held or to be acquired, by such
registered investment company:
(1) To employ any device, scheme or artifice to defraud such
registered investment company;
(2) To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
(4) To engage in any manipulative practice with respect to such
registered investment company.
2. Definitions
2
<PAGE>
(a) "Access Person" means any director/trustee, officer, general
partner or Advisory Person (including any Investment Personnel, as that
term is defined herein) of the Fund, the Manager, the Adviser/Subadviser,
or the Principal Underwriter.
(b) "Adviser/Subadviser" means the Adviser or Subadviser of the Fund
or both as the context may require.
(c) "Advisory Person" means (i) any employee of the Fund, Manager or
Adviser/Subadviser (or of any company in a control relationship to the
Fund, Manager or Adviser/Subadviser) who, in connection with his or her
regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by the Fund, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control relationship
to the Fund who obtains information concerning recommendations made to the
Fund with regard to the purchase or sale of a security.
(d) "Beneficial Ownership" will be interpreted in the same manner as
it would be under Securities Exchange Act Rule 16a-1(a)(2) in determining
which security holdings of a person are subject to the reporting and
short-swing profit provisions of Section 16 of the Securities Exchange Act
of 1934 and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership will apply to all
securities which an Access Person has or acquires (Exhibit A).
(e) "Complex" means the group of registered investment companies for
which Prudential Investments Fund Management LLC serves as Manager;
provided, however, that with respect to Access Persons of the Subadviser
(including any unit or subdivision thereof), "Complex" means the group of
registered investment companies in the Complex advised by the Subadviser or
unit or subdivision thereof.
(f) "Compliance Officer" means the person designated by the Manager,
the Adviser/Subadviser, or Principal Underwriter (including his or her
designee) as having responsibility for compliance with the requirements of
the Code.
(g) "Control" will have the same meaning as that set forth in Section
2(a)(9) of the Act.
(h) "Disinterested Director/Trustee" means a Director/ Trustee of the
Fund who is not an "interested person" of the Fund within the meaning of
Section 2(a)(19) of the Act.
3
<PAGE>
An interested Director/Trustee who would not otherwise be deemed to be
an Access Person, shall be treated as a Disinterested Director/Trustee for
purposes of compliance with the provisions of the Code.
(i) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934.
(j) "Investment Personnel" means: (a) Portfolio Managers and other
Advisory Persons who provide investment information and/or advice to the
Portfolio Manager(s) and/or help execute the Portfolio Manager's(s')
investment decisions, including securities analysts and traders ; and (b)
any natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to the
purchase or sale of a security.
(k) "Manager" means Prudential Investments Fund Management, LLC.
(l) "Portfolio Manager" means any Advisory Person who has the direct
responsibility and authority to make investment decisions for the Fund.
(m) "Private placement" means a limited offering that is exempt from
registration under the Securities Act of 1933 pursuant to section 4(2) or
section 4(6) or pursuant to rule 504, rule 505 or rule 506 under such
Securities Act.
(n) "Security" will have the meaning set forth in Section 2(a)(36) of
the Act, except that it will not include shares of registered open-end
investment companies, direct obligations of the Government of the United
States, , short-term debt securities which are "government securities"
within the meaning of Section 2(a)(16) of the Act, bankers' acceptances,
bank certificates of deposit, commercial paper and such other money market
instruments as are designated by the Compliance Officer. For purposes of
the Code, an "equivalent Security" is one that has a substantial economic
relationship to another Security. This would include, among other things,
(1) a Security that is exchangeable for or convertible into another
Security, (2) with respect to an equity Security, a Security having the
same issuer (including a private issue by the same issuer) and any
derivative, option or warrant relating to that Security and (3) with
respect to a fixed-income Security, a Security having the same issuer,
maturity, coupon and rating.
4
<PAGE>
(o) Security held or to be acquired means any Security or any
equivalent Security which, within the most recent 15 days: (1) is or has
been held by the Fund; or (2) is being considered by the Fund or its
investment adviser for purchase by the Fund.
3. Applicability
The Code applies to all Access Persons and the Compliance Officer shall
provide each Access Person with a copy of the Code. The prohibitions described
below will only apply to a transaction in a Security in which the designated
Access Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership. The Compliance Officer will maintain a list of
all Access Persons who are currently, and within the past five years, subject to
the Code.
4. Prohibited Purchases and Sales
A. Initial Public Offerings
No Investment Personnel may acquire any Securities in an initial public
offering. For purposes of this restriction, "Initial Public Offerings" shall not
include offerings of government and municipal securities.
B. Private Placements
No Investment Personnel may acquire any Securities in a private placement
without prior approval.
(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will
take into account, among other factors, whether the investment opportunity
should be reserved for the Fund and its shareholders and
5
<PAGE>
whether the opportunity is being offered to the Investment Personnel by
virtue of his or her position with the Fund. The Adviser/Subadviser shall
maintain a record of such prior approval and reason for same, for at least
5 years after the end of the fiscal year in which the approval is granted.
(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the
chief investment officer (including his or her designee) of the
Adviser/Subadviser (or of any unit or subdivision thereof) or the
Compliance Officer when they play a part in any subsequent consideration of
an investment by the Fund in the issuer. In such circumstances, the Fund's
decision to purchase Securities of the issuer will be subject to an
independent review by appropriate personnel with no personal interest in
the issuer.
C. Blackout Periods
(i) Except as provided in Section 5 below, Access Persons are
prohibited from executing a Securities transaction on a day during which
any investment company in the Complex has a pending "buy" or "sell" order
in the same or an equivalent Security and until such time as that order is
executed or withdrawn; provided, however, that this prohibition shall not
apply to Disinterested Directors/Trustees except if they have actual
knowledge of trading by any fund in the Complex and, in any event, only
with respect to those funds on whose boards they sit.
6
<PAGE>
This prohibition shall also not apply to Access Persons of the
Subadviser who do not, in the ordinary course of fulfilling his or her
official duties, have access to information regarding the purchase and sale
of Securities for the Fund and are not engaged in the day-to-day operations
of the Fund; provided that Securities investments effected by such Access
Persons during the proscribed period are not effected with knowledge of the
purchase or sale of the same or equivalent Securities by any fund in the
Complex.
A "pending 'buy' or 'sell' order" exists when a decision to purchase
or sell a Security has been made and communicated.
(ii) Portfolio Managers are prohibited from buying or selling a
Security within seven calendar days before or after the Fund trades in the
same or an equivalent Security. Nevertheless, a personal trade by any
Investment Personnel shall not prevent a Fund in the same Complex from
trading in the same or an equivalent security. However, such a transaction
shall be subject to independent review by the Compliance Officer.
(iii) If trades are effected during the periods proscribed in (i) or
(ii) above, except as provided in (iv) below with respect to (i) above, any
profits realized on such trades will be promptly required to be disgorged
to the Fund.
(iv) A transaction by Access Persons (other than Investment Personnel)
inadvertently effected during the period proscribed in (i) above will not
be considered a violation of the Code and disgorgement will not be required
so long as the transaction was effected in accordance with the preclearance
procedures described in Section 6 below and without prior knowledge of
trading by any fund
7
<PAGE>
in the Complex in the same or an equivalent Security.
D. Short-Term Trading Profits
Except as provided in Section 5 below, Investment Personnel are prohibited
from profiting from a purchase and sale, or sale and purchase, of the same or an
equivalent Security within any 60 calendar day period. If trades are effected
during the proscribed period, any profits realized on such trades will be
immediately required to be disgorged to the Fund.
E. Short Sales
No Access Person may sell any security short which is owned by any Fund in
the Complex. Access Persons may, however make short sales when he/she owns an
equivalent amount of the same security.
F. Options
No Access Person may write a naked call option or buy a naked put option on
a security owned by any Fund in the Complex. Access Persons may purchase options
on securities not held by any Fund in the Complex, or purchase call options or
write put options on securities owned by any Fund in the Complex, subject to
preclearance and the same restrictions applicable to other securities. Access
Persons may write covered call options or buy covered put options on a security
owned by any Fund in the Complex at the discretion of the Compliance Officer.
G. Investment Clubs
No Access Person may participate in an investment club.
5. Exempted Transactions
Subject to preclearance in accordance with Section 6 below with respect to
8
<PAGE>
subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C)
and 4(D) will not apply to the following:
(a) Purchases or sales of Securities effected in any account over
which the Access Person has no direct or indirect influence or control or
in any account of the Access Person which is managed on a discretionary
basis by a person other than such Access Person and with respect to which
such Access Person does not in fact influence or control such transactions.
(b) Purchases or sales of Securities (or their equivalents) which are
not eligible for purchase or sale by any fund in the Complex.
(c) Purchases or sales of Securities which are non-volitional on the
part of either the Access Person or any fund in the Complex.
(d) Purchases of Securities which are part of an automatic dividend
reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
(f) Any equity Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 500 shares
or less in the aggregate, if (i) the Access Person has no prior knowledge
of activity in such security by any fund in the Complex and (ii) the issuer
is listed on The New York Stock Exchange or has a market capitalization
(outstanding shares multiplied by the current price per share) greater than
$1 billion (or a corresponding market capitalization in foreign markets).
(g) Any fixed-income Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 100 units
($100,000 principal amount) or less in the aggregate, if the Access Person
has no prior knowledge of transactions in such Securities by any fund in
the Complex.
(h) Any transaction in index options effected on a broad-based index
(See Exhibit B.)(1)
(i) Purchases or sales of Securities which receive the prior
- ----------
(1) Exhibit B will be amended by the Compliance Officer as necessary.
9
<PAGE>
approval of the Compliance Officer (such person having no personal interest
in such purchases or sales), based on a determination that no abuse is
involved and that such purchases and sales are not likely to have any
economic impact on any fund in the Complex or on its ability to purchase or
sell Securities of the same class or other Securities of the same issuer.
(j) Purchases or sales of Unit Investment Trusts.
6. Preclearance
Access Persons (other than Disinterested Directors/Trustees) must preclear
all personal Securities investments with the exception of those identified in
subparts (a), (c), (d), (h) and (j) of Section 5 above.
All requests for preclearance must be submitted to the Compliance Officer
for approval. All approved orders must be executed no later than 5:00 p.m. local
time on the business day following the date preclearance is granted. If any
order is not timely executed, a request for preclearance must be resubmitted.
7. Reporting
(a) Disinterested Directors/Trustees shall report to the Secretary of the
Fund or the Compliance Officer the information described in Section 7(b) hereof
with respect to transactions in any Security in which such Disinterested
Director/Trustee has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in the Security only if such Disinterested
Director/Trustee, at the time of that transaction knew or, in the ordinary
course of fulfilling his or her official duties as a Director/Trustee of the
Fund, should have known that, during the 15-day period immediately preceding or
subsequent to the date of the transaction in a Security by such
Director/Trustee, such Security is or was purchased or sold by the Fund or was
being considered for purchase
10
<PAGE>
or sale by the Fund, the Manager or Adviser/Subadviser; provided, however, that
a Disinterested Director/Trustee is not required to make a report with respect
to transactions effected in any account over which such Director/Trustee does
not have any direct or indirect influence or control or in any account of the
Disinterested Director/Trustee which is managed on a discretionary basis by a
person other than such Director/Trustee and with respect to which such
Director/Trustee does not in fact influence or control such transactions. The
Secretary of the Fund or the Compliance Officer shall maintain such reports and
such other records to the extent required by Rule 17j-1 under the Act.
(b) Every report required by Section 7(a) hereof shall be made not later
than ten days after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the following
information:
(i) The date of the transaction, the title and the number of shares, and
the principal amount of each Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(v) The date that the report is submitted.
(c) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.
8. Records of Securities Transactions and Post-Trade Review
Access Persons (other than Disinterested Directors/Trustees) are required
to
11
<PAGE>
direct their brokers to supply, on a timely basis, duplicate copies of
confirmations of all personal Securities transactions and copies of periodic
statements for all Securities accounts in which such Access Persons have a
Beneficial Ownership interest to the Compliance Officer. Such instructions must
be made upon becoming an Access Person and promptly as new accounts are
established, but no later than ten days after the end of a calendar quarter,
with respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect beneficial
interest of the Access Person. Notification must be made in writing and a copy
of the notification must be submitted to Compliance. This notification will
include the broker, dealer or bank with which the account was established and
the date the account was established.
Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(d), provided,
however, that such confirmations and statements contain all the information
required by Section 7. b. hereof and are furnished within the time period
required by such section.
The Compliance Officer will periodically review the personal investment
activity and holdings reports of all Access Persons (including Disinterested
Directors/Trustees with respect to Securities transactions reported pursuant to
Section 7 above).
9. Disclosure of Personal Holdings
Within ten days after an individual first becomes and Access Person and
thereafter on an annual basis, each Access Person (other than Disinterested
Directors/Trustees) must disclose all personal Securities holdings. Such
disclosure must be made in writing and be as of the date the individual first
became an Access
12
<PAGE>
Person with respect to the initial report and by January 30 of each year,
including holdings information as of December 31, with respect to the annual
report. All such reports shall include the following: title, number of shares
and principal amount of each security held, name of broker, dealer or bank with
whom these securities are held and the date of submission by the Access Person.
10. Gifts
Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of the Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.
11. Service As a Director
Investment Personnel are prohibited from serving on the boards of directors
of publicly traded companies, absent prior authorization based upon a
determination that the board service would be consistent with the interests of
the Fund and its shareholders. In the limited instances that such board service
is authorized, Investment Personnel will be isolated from those making
investment decisions affecting transactions in Securities issued by any publicly
traded company on whose board such Investment Personnel serves as a director
through the use of "Chinese Wall" or other procedures designed to address the
potential conflicts of interest.
12. Certification of Compliance with the Code
Access Persons are required to certify annually as follows:
(i) that they have read and understood the Code;
(ii) that they recognize that they are subject to the Code;
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<PAGE>
(iii) that they have complied with the requirements of the Code; and
(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to the
requirements of the Code.
13. Code Violations
All violations of the Code will be reported to the Board of
Directors/Trustees of the Fund on a quarterly basis. The Board of
Directors/Trustees may take such action as it deems appropriate.
14. Review by the Board of Directors/Trustees
The Board of Directors/Trustees will be provided with an annual report
which at a minimum:
(i) certifies to the Board that the Fund, Manager, Investment
Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably
necessary to prevent its Access persons from violating its Code.
(ii) summarizes existing procedures concerning personal investing and any
changes in the procedures made during the preceding year;
(iii) identifies material Code or procedural violations and sanctions
imposed in response to those material violations; and
(iv) identifies any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code, evolving industry
practices, or developments in applicable laws and regulations.
The Board will review such report and determine if any further action is
required.
14
<PAGE>
Explanatory Notes to Code
1. No comparable Code requirements have been imposed upon Prudential Mutual
Fund Services LLC, the Fund's transfer agent, or Prudential Investment
Management Services, LLC , which acts as the Fund's distributor, or those of
their directors or officers who are not Directors/Trustees or Officers of the
Fund since they are deemed not to constitute Access Persons or Advisory Persons
as defined in paragraphs (e)(1) and (2) of Rule 17j-1.
15
<PAGE>
Exhibit A
Definition of Beneficial Ownership
The term "beneficial ownership" of securities would include not only
ownership of securities held by an access person for his or her own benefit,
whether in bearer form or registered in his or her own name or otherwise, but
also ownership of securities held for his or her benefit by other (regardless of
whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he or she has only a
remainder interest), and securities held for his or her account by pledges,
securities owned by a partnership in which he or she should regard as a personal
holding corporation. Correspondingly, this term would exclude securities held by
an access person for the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an access person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an access person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting of such securities.
An access person also may be regarded as the beneficial owner of securities
held in the name of another person, if by reason of any contact, understanding,
relationship, agreement or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership. Moreover, the fact that the
holder is a relative or relative of a spouse and sharing the same home as an
access person may in itself indicate that the access person would obtain
benefits substantially equivalent to those of ownership from securities held in
the name of such relative. Thus, absent countervailing facts, it is expected
that securities held by relatives who share the same home as an access person
will be treated as being beneficially owned by the access person.
An access person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.
<PAGE>
Exhibit B
INDEX OPTIONS ON A BROAD-BASED INDEX
TICKER SYMBOL DESCRIPTION
- --------------------------------------------------------------------------------
NIK Nikkei 300 Index CI/Euro
- --------------------------------------------------------------------------------
OEX S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEW S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEY S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
SPB S&P 500 Index
- --------------------------------------------------------------------------------
SPZ S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SPX S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SXZ S&P 500 (Wrap)
- --------------------------------------------------------------------------------
SXB S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
RUZ Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
RUT Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
MID S&P Midcap 400 Open/Euro Index
- --------------------------------------------------------------------------------
NDX NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDU NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDV NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NCZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
SML S&P Small Cap 600
- --------------------------------------------------------------------------------
TPX U.S. Top 100 Sector
- --------------------------------------------------------------------------------
SPL S&P 500 Long-Term Close
- --------------------------------------------------------------------------------
ZRU Russell 2000 L-T Open./Euro
- --------------------------------------------------------------------------------
VRU Russell 2000 Long-Term Index
- --------------------------------------------------------------------------------
Prudential Investment Management Services LLC
Code of Ethics Adopted Pursuant to Rule 17j-1
Under the Investment Company Act of 1940
(the Code)
1. Purposes
The Code has been adopted by the Board of Directors/Trustees or the Duly
Appointed Officer-In-Charge of the Fund, the Manager, the Adviser/Subadviser,
and the Principal Underwriter in accordance with Rule 17j-1(c) under the
Investment Company Act of 1940 (the Act) and in accordance with the following
general principles:
(1) The duty at all times to place the interests of shareholders first.
Investment company personnel should scrupulously avoid serving their
own personal interests ahead of shareholders' interests in any decision
relating to their personal investments.
(2) The requirement that all personal securities transactions be conducted
consistent with the Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of an individual's position of
trust and responsibility.
Investment company personnel must not only seek to achieve technical
compliance with the Code but should strive to abide by its spirit and the
principles articulated herein.
(3) The fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
Investment company personnel must avoid any situation that might
compromise, or call into question, their exercise of fully independent
judgment in the interest of shareholders, including, but not limited to the
receipt of unusual investment opportunities, perquisites, or gifts of more
than a de minimis value from persons doing or seeking business with the
Fund.
<PAGE>
Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to a purchase or sale of a security held or to be
acquired (as such term is defined in Section 2.) by an investment company, if
effected by an associated person of such company.
The purpose of the Code is to establish procedures consistent with the Act
and Rule 17j-1 to give effect to the following general prohibitions as set forth
in Rule 17j-1(b) as follows:
(a) It shall be unlawful for any affiliated person of or Principal
Underwriter for a registered investment company, or any affiliated person
of an investment adviser of or principal underwriter for a registered
investment company in connection with the purchase or sale, directly or
indirectly, by such person of a security held or to be acquired, by such
registered investment company:
(1) To employ any device, scheme or artifice to defraud such
registered investment company;
(2) To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
(4) To engage in any manipulative practice with respect to such
registered investment company.
2. Definitions
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<PAGE>
(a) "Access Person" means any director/trustee, officer, general
partner or Advisory Person (including any Investment Personnel, as that
term is defined herein) of the Fund, the Manager, the Adviser/Subadviser,
or the Principal Underwriter.
(b) "Adviser/Subadviser" means the Adviser or Subadviser of the Fund
or both as the context may require.
(c) "Advisory Person" means (i) any employee of the Fund, Manager or
Adviser/Subadviser (or of any company in a control relationship to the
Fund, Manager or Adviser/Subadviser) who, in connection with his or her
regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by the Fund, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control relationship
to the Fund who obtains information concerning recommendations made to the
Fund with regard to the purchase or sale of a security.
(d) "Beneficial Ownership" will be interpreted in the same manner as
it would be under Securities Exchange Act Rule 16a-1(a)(2) in determining
which security holdings of a person are subject to the reporting and
short-swing profit provisions of Section 16 of the Securities Exchange Act
of 1934 and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership will apply to all
securities which an Access Person has or acquires (Exhibit A).
(e) "Complex" means the group of registered investment companies for
which Prudential Investments Fund Management LLC serves as Manager;
provided, however, that with respect to Access Persons of the Subadviser
(including any unit or subdivision thereof), "Complex" means the group of
registered investment companies in the Complex advised by the Subadviser or
unit or subdivision thereof.
(f) "Compliance Officer" means the person designated by the Manager,
the Adviser/Subadviser, or Principal Underwriter (including his or her
designee) as having responsibility for compliance with the requirements of
the Code.
(g) "Control" will have the same meaning as that set forth in Section
2(a)(9) of the Act.
(h) "Disinterested Director/Trustee" means a Director/ Trustee of the
Fund who is not an "interested person" of the Fund within the meaning of
Section 2(a)(19) of the Act.
3
<PAGE>
An interested Director/Trustee who would not otherwise be deemed to be
an Access Person, shall be treated as a Disinterested Director/Trustee for
purposes of compliance with the provisions of the Code.
(i) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934.
(j) "Investment Personnel" means: (a) Portfolio Managers and other
Advisory Persons who provide investment information and/or advice to the
Portfolio Manager(s) and/or help execute the Portfolio Manager's(s')
investment decisions, including securities analysts and traders ; and (b)
any natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to the
purchase or sale of a security.
(k) "Manager" means Prudential Investments Fund Management, LLC.
(l) "Portfolio Manager" means any Advisory Person who has the direct
responsibility and authority to make investment decisions for the Fund.
(m) "Private placement" means a limited offering that is exempt from
registration under the Securities Act of 1933 pursuant to section 4(2) or
section 4(6) or pursuant to rule 504, rule 505 or rule 506 under such
Securities Act.
(n) "Security" will have the meaning set forth in Section 2(a)(36) of
the Act, except that it will not include shares of registered open-end
investment companies, direct obligations of the Government of the United
States, , short-term debt securities which are "government securities"
within the meaning of Section 2(a)(16) of the Act, bankers' acceptances,
bank certificates of deposit, commercial paper and such other money market
instruments as are designated by the Compliance Officer. For purposes of
the Code, an "equivalent Security" is one that has a substantial economic
relationship to another Security. This would include, among other things,
(1) a Security that is exchangeable for or convertible into another
Security, (2) with respect to an equity Security, a Security having the
same issuer (including a private issue by the same issuer) and any
derivative, option or warrant relating to that Security and (3) with
respect to a fixed-income Security, a Security having the same issuer,
maturity, coupon and rating.
4
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(o) Security held or to be acquired means any Security or any
equivalent Security which, within the most recent 15 days: (1) is or has
been held by the Fund; or (2) is being considered by the Fund or its
investment adviser for purchase by the Fund.
3. Applicability
The Code applies to all Access Persons and the Compliance Officer shall
provide each Access Person with a copy of the Code. The prohibitions described
below will only apply to a transaction in a Security in which the designated
Access Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership. The Compliance Officer will maintain a list of
all Access Persons who are currently, and within the past five years, subject to
the Code.
4. Prohibited Purchases and Sales
A. Initial Public Offerings
No Investment Personnel may acquire any Securities in an initial public
offering. For purposes of this restriction, "Initial Public Offerings" shall not
include offerings of government and municipal securities.
B. Private Placements
No Investment Personnel may acquire any Securities in a private placement
without prior approval.
(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will
take into account, among other factors, whether the investment opportunity
should be reserved for the Fund and its shareholders and
5
<PAGE>
whether the opportunity is being offered to the Investment Personnel by
virtue of his or her position with the Fund. The Adviser/Subadviser shall
maintain a record of such prior approval and reason for same, for at least
5 years after the end of the fiscal year in which the approval is granted.
(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the
chief investment officer (including his or her designee) of the
Adviser/Subadviser (or of any unit or subdivision thereof) or the
Compliance Officer when they play a part in any subsequent consideration of
an investment by the Fund in the issuer. In such circumstances, the Fund's
decision to purchase Securities of the issuer will be subject to an
independent review by appropriate personnel with no personal interest in
the issuer.
C. Blackout Periods
(i) Except as provided in Section 5 below, Access Persons are
prohibited from executing a Securities transaction on a day during which
any investment company in the Complex has a pending "buy" or "sell" order
in the same or an equivalent Security and until such time as that order is
executed or withdrawn; provided, however, that this prohibition shall not
apply to Disinterested Directors/Trustees except if they have actual
knowledge of trading by any fund in the Complex and, in any event, only
with respect to those funds on whose boards they sit.
6
<PAGE>
This prohibition shall also not apply to Access Persons of the
Subadviser who do not, in the ordinary course of fulfilling his or her
official duties, have access to information regarding the purchase and sale
of Securities for the Fund and are not engaged in the day-to-day operations
of the Fund; provided that Securities investments effected by such Access
Persons during the proscribed period are not effected with knowledge of the
purchase or sale of the same or equivalent Securities by any fund in the
Complex.
A "pending 'buy' or 'sell' order" exists when a decision to purchase
or sell a Security has been made and communicated.
(ii) Portfolio Managers are prohibited from buying or selling a
Security within seven calendar days before or after the Fund trades in the
same or an equivalent Security. Nevertheless, a personal trade by any
Investment Personnel shall not prevent a Fund in the same Complex from
trading in the same or an equivalent security. However, such a transaction
shall be subject to independent review by the Compliance Officer.
(iii) If trades are effected during the periods proscribed in (i) or
(ii) above, except as provided in (iv) below with respect to (i) above, any
profits realized on such trades will be promptly required to be disgorged
to the Fund.
(iv) A transaction by Access Persons (other than Investment Personnel)
inadvertently effected during the period proscribed in (i) above will not
be considered a violation of the Code and disgorgement will not be required
so long as the transaction was effected in accordance with the preclearance
procedures described in Section 6 below and without prior knowledge of
trading by any fund
7
<PAGE>
in the Complex in the same or an equivalent Security.
D. Short-Term Trading Profits
Except as provided in Section 5 below, Investment Personnel are prohibited
from profiting from a purchase and sale, or sale and purchase, of the same or an
equivalent Security within any 60 calendar day period. If trades are effected
during the proscribed period, any profits realized on such trades will be
immediately required to be disgorged to the Fund.
E. Short Sales
No Access Person may sell any security short which is owned by any Fund in
the Complex. Access Persons may, however make short sales when he/she owns an
equivalent amount of the same security.
F. Options
No Access Person may write a naked call option or buy a naked put option on
a security owned by any Fund in the Complex. Access Persons may purchase options
on securities not held by any Fund in the Complex, or purchase call options or
write put options on securities owned by any Fund in the Complex, subject to
preclearance and the same restrictions applicable to other securities. Access
Persons may write covered call options or buy covered put options on a security
owned by any Fund in the Complex at the discretion of the Compliance Officer.
G. Investment Clubs
No Access Person may participate in an investment club.
5. Exempted Transactions
Subject to preclearance in accordance with Section 6 below with respect to
8
<PAGE>
subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C)
and 4(D) will not apply to the following:
(a) Purchases or sales of Securities effected in any account over
which the Access Person has no direct or indirect influence or control or
in any account of the Access Person which is managed on a discretionary
basis by a person other than such Access Person and with respect to which
such Access Person does not in fact influence or control such transactions.
(b) Purchases or sales of Securities (or their equivalents) which are
not eligible for purchase or sale by any fund in the Complex.
(c) Purchases or sales of Securities which are non-volitional on the
part of either the Access Person or any fund in the Complex.
(d) Purchases of Securities which are part of an automatic dividend
reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
(f) Any equity Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 500 shares
or less in the aggregate, if (i) the Access Person has no prior knowledge
of activity in such security by any fund in the Complex and (ii) the issuer
is listed on The New York Stock Exchange or has a market capitalization
(outstanding shares multiplied by the current price per share) greater than
$1 billion (or a corresponding market capitalization in foreign markets).
(g) Any fixed-income Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 100 units
($100,000 principal amount) or less in the aggregate, if the Access Person
has no prior knowledge of transactions in such Securities by any fund in
the Complex.
(h) Any transaction in index options effected on a broad-based index
(See Exhibit B.)(1)
(i) Purchases or sales of Securities which receive the prior
- ----------
(1) Exhibit B will be amended by the Compliance Officer as necessary.
9
<PAGE>
approval of the Compliance Officer (such person having no personal interest
in such purchases or sales), based on a determination that no abuse is
involved and that such purchases and sales are not likely to have any
economic impact on any fund in the Complex or on its ability to purchase or
sell Securities of the same class or other Securities of the same issuer.
(j) Purchases or sales of Unit Investment Trusts.
6. Preclearance
Access Persons (other than Disinterested Directors/Trustees) must preclear
all personal Securities investments with the exception of those identified in
subparts (a), (c), (d), (h) and (j) of Section 5 above.
All requests for preclearance must be submitted to the Compliance Officer
for approval. All approved orders must be executed no later than 5:00 p.m. local
time on the business day following the date preclearance is granted. If any
order is not timely executed, a request for preclearance must be resubmitted.
7. Reporting
(a) Disinterested Directors/Trustees shall report to the Secretary of the
Fund or the Compliance Officer the information described in Section 7(b) hereof
with respect to transactions in any Security in which such Disinterested
Director/Trustee has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in the Security only if such Disinterested
Director/Trustee, at the time of that transaction knew or, in the ordinary
course of fulfilling his or her official duties as a Director/Trustee of the
Fund, should have known that, during the 15-day period immediately preceding or
subsequent to the date of the transaction in a Security by such
Director/Trustee, such Security is or was purchased or sold by the Fund or was
being considered for purchase
10
<PAGE>
or sale by the Fund, the Manager or Adviser/Subadviser; provided, however, that
a Disinterested Director/Trustee is not required to make a report with respect
to transactions effected in any account over which such Director/Trustee does
not have any direct or indirect influence or control or in any account of the
Disinterested Director/Trustee which is managed on a discretionary basis by a
person other than such Director/Trustee and with respect to which such
Director/Trustee does not in fact influence or control such transactions. The
Secretary of the Fund or the Compliance Officer shall maintain such reports and
such other records to the extent required by Rule 17j-1 under the Act.
(b) Every report required by Section 7(a) hereof shall be made not later
than ten days after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the following
information:
(i) The date of the transaction, the title and the number of shares, and
the principal amount of each Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(v) The date that the report is submitted.
(c) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.
8. Records of Securities Transactions and Post-Trade Review
Access Persons (other than Disinterested Directors/Trustees) are required
to
11
<PAGE>
direct their brokers to supply, on a timely basis, duplicate copies of
confirmations of all personal Securities transactions and copies of periodic
statements for all Securities accounts in which such Access Persons have a
Beneficial Ownership interest to the Compliance Officer. Such instructions must
be made upon becoming an Access Person and promptly as new accounts are
established, but no later than ten days after the end of a calendar quarter,
with respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect beneficial
interest of the Access Person. Notification must be made in writing and a copy
of the notification must be submitted to Compliance. This notification will
include the broker, dealer or bank with which the account was established and
the date the account was established.
Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(d), provided,
however, that such confirmations and statements contain all the information
required by Section 7. b. hereof and are furnished within the time period
required by such section.
The Compliance Officer will periodically review the personal investment
activity and holdings reports of all Access Persons (including Disinterested
Directors/Trustees with respect to Securities transactions reported pursuant to
Section 7 above).
9. Disclosure of Personal Holdings
Within ten days after an individual first becomes and Access Person and
thereafter on an annual basis, each Access Person (other than Disinterested
Directors/Trustees) must disclose all personal Securities holdings. Such
disclosure must be made in writing and be as of the date the individual first
became an Access
12
<PAGE>
Person with respect to the initial report and by January 30 of each year,
including holdings information as of December 31, with respect to the annual
report. All such reports shall include the following: title, number of shares
and principal amount of each security held, name of broker, dealer or bank with
whom these securities are held and the date of submission by the Access Person.
10. Gifts
Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of the Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.
11. Service As a Director
Investment Personnel are prohibited from serving on the boards of directors
of publicly traded companies, absent prior authorization based upon a
determination that the board service would be consistent with the interests of
the Fund and its shareholders. In the limited instances that such board service
is authorized, Investment Personnel will be isolated from those making
investment decisions affecting transactions in Securities issued by any publicly
traded company on whose board such Investment Personnel serves as a director
through the use of "Chinese Wall" or other procedures designed to address the
potential conflicts of interest.
12. Certification of Compliance with the Code
Access Persons are required to certify annually as follows:
(i) that they have read and understood the Code;
(ii) that they recognize that they are subject to the Code;
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<PAGE>
(iii) that they have complied with the requirements of the Code; and
(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to the
requirements of the Code.
13. Code Violations
All violations of the Code will be reported to the Board of
Directors/Trustees of the Fund on a quarterly basis. The Board of
Directors/Trustees may take such action as it deems appropriate.
14. Review by the Board of Directors/Trustees
The Board of Directors/Trustees will be provided with an annual report
which at a minimum:
(i) certifies to the Board that the Fund, Manager, Investment
Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably
necessary to prevent its Access persons from violating its Code.
(ii) summarizes existing procedures concerning personal investing and any
changes in the procedures made during the preceding year;
(iii) identifies material Code or procedural violations and sanctions
imposed in response to those material violations; and
(iv) identifies any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code, evolving industry
practices, or developments in applicable laws and regulations.
The Board will review such report and determine if any further action is
required.
14
<PAGE>
Explanatory Notes to Code
1. No comparable Code requirements have been imposed upon Prudential Mutual
Fund Services LLC, the Fund's transfer agent, or Prudential Investment
Management Services, LLC , which acts as the Fund's distributor, or those of
their directors or officers who are not Directors/Trustees or Officers of the
Fund since they are deemed not to constitute Access Persons or Advisory Persons
as defined in paragraphs (e)(1) and (2) of Rule 17j-1.
15
<PAGE>
Exhibit A
Definition of Beneficial Ownership
The term "beneficial ownership" of securities would include not only
ownership of securities held by an access person for his or her own benefit,
whether in bearer form or registered in his or her own name or otherwise, but
also ownership of securities held for his or her benefit by other (regardless of
whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he or she has only a
remainder interest), and securities held for his or her account by pledges,
securities owned by a partnership in which he or she should regard as a personal
holding corporation. Correspondingly, this term would exclude securities held by
an access person for the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an access person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an access person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting of such securities.
An access person also may be regarded as the beneficial owner of securities
held in the name of another person, if by reason of any contact, understanding,
relationship, agreement or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership. Moreover, the fact that the
holder is a relative or relative of a spouse and sharing the same home as an
access person may in itself indicate that the access person would obtain
benefits substantially equivalent to those of ownership from securities held in
the name of such relative. Thus, absent countervailing facts, it is expected
that securities held by relatives who share the same home as an access person
will be treated as being beneficially owned by the access person.
An access person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.
<PAGE>
Exhibit B
INDEX OPTIONS ON A BROAD-BASED INDEX
TICKER SYMBOL DESCRIPTION
- --------------------------------------------------------------------------------
NIK Nikkei 300 Index CI/Euro
- --------------------------------------------------------------------------------
OEX S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEW S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEY S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
SPB S&P 500 Index
- --------------------------------------------------------------------------------
SPZ S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SPX S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SXZ S&P 500 (Wrap)
- --------------------------------------------------------------------------------
SXB S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
RUZ Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
RUT Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
MID S&P Midcap 400 Open/Euro Index
- --------------------------------------------------------------------------------
NDX NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDU NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDV NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NCZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
SML S&P Small Cap 600
- --------------------------------------------------------------------------------
TPX U.S. Top 100 Sector
- --------------------------------------------------------------------------------
SPL S&P 500 Long-Term Close
- --------------------------------------------------------------------------------
ZRU Russell 2000 L-T Open./Euro
- --------------------------------------------------------------------------------
VRU Russell 2000 Long-Term Index
- --------------------------------------------------------------------------------
THE FRANKLIN TEMPLETON GROUP
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS..................................................1
PART 1 - STATEMENT OF PRINCIPLES.............................................................1
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE........................................2
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS......................................3
3.1 Who Is Covered by the Code and How Does It Work?...................................3
3.2 What Accounts and Transactions Are Covered?........................................5
3.3 What Securities Are Exempt From the Code of Ethics?................................6
3.4 What Transactions are Prohibited by the Code?......................................6
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS.................10
4.1 Requirement to Disclose Interest and Method of Disclosure.........................10
4.2 Short Sales of Securities.........................................................11
4.3 Short Swing Trading...............................................................11
4.4 Service as a Director.............................................................12
4.5 Securities Sold in a Public Offering..............................................12
4.6 Interests in Partnerships and Securities Issued in Private Placements.............12
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS......................................14
5.1 Reporting of Beneficial Ownership and Securities Transactions.....................14
5.2 Quarterly Transaction Reports.....................................................14
5.3 Annual Reports - All Access Persons...............................................15
5.4 Annual Reports - Additional Requirements for Portfolio Persons Only...............16
5.5 Brokerage Accounts and Confirmations of Securities Transactions...................16
PART 6 - PRE-CLEARANCE REQUIREMENTS.........................................................18
6.1 Prior Approval of Securities Transactions.........................................18
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE...............................................23
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY...............24
APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS.............................25
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER...................................26
A. Pre-Clearance Standards............................................................26
B. Waivers by a Compliance Officer....................................................29
C. Continuing Responsibilities........................................................29
D. Responsibilities of the Legal Department...........................................30
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS.......................................30
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE PROVISIONS.....32
A. Prohibited Transactions............................................................32
B. Reporting and Preclearance.........................................................32
IV. LEGAL REQUIREMENT...................................................................33
APPENDIX B: FORMS AND SCHEDULES.............................................................34
ACKNOWLEDGMENT FORM.........................................................................35
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX NUMBERS.....36
</TABLE>
i
<PAGE>
THE FRANKLIN TEMPLETON GROUP CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in the
Franklin Templeton Group of Funds (the "Funds") (collectively, the "Franklin
Templeton Group") will follow this Code of Ethics (the "Code") and Policy
Statement on Insider Trading (the "Insider Trading Policy"). Additionally, the
subsidiaries listed in Appendix C of this Code, together with Franklin
Resources, Inc., and the Funds, have adopted the Code and Insider Trading
Policy.
PART 1 - STATEMENT OF PRINCIPLES
The Franklin Templeton Group's policy is that the interests of shareholders
and clients are paramount and come before the interests of any director, officer
or employee of the Franklin Templeton Group.(1)
Personal investing activities of ALL directors, officers and employees of
the Franklin Templeton Group should be conducted in a manner to avoid actual or
potential conflicts of interest with the Franklin Templeton Group, Fund
shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of the Franklin Templeton Group shall use
their positions with the Franklin Templeton Group, and any investment
opportunities they learn of because of their positions with the Franklin
Templeton Group, in a manner consistent with their fiduciary duties for the
benefit of Fund shareholders, and clients.
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(1) "Director" includes trustee.
1
<PAGE>
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its
overall purpose is to help all of us comply with the law and to preserve and
protect the outstanding reputation of the Franklin Templeton Group. This
document was adopted to comply with Securities and Exchange Commission rules
under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers
Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud
Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations
contained in the ICI's Report of the Advisory Group on Personal Investing. Any
violation of the Code or Insider Trading Policy, including engaging in a
prohibited transaction or failing to file required reports, may result in
disciplinary action, and, when appropriate, termination of employment and/or
referral to appropriate governmental agencies.
2
<PAGE>
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors,
officers and employees(2) of the Franklin Templeton Group. However, there are
different categories of restrictions on personal investing activities. The
category in which you have been placed generally depends on your job function,
although unique circumstances may result in you being placed in a different
category. The Code covers the following categories of employees who are
described below:
(1) ACCESS PERSONS: Access Persons are those employees who have "access to
information" concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security. Examples of "access to
information" would include having access to trading systems, portfolio
accounting systems, research data bases or settlement information.
Access Persons would typically include employees in the following
departments:
o fund accounting;
o investment operations;
o information services & technology;
o product management;
o legal and legal compliance
o and anyone else designated by the Compliance Officer
In addition, you are an Access Person if you are any of the following:
o an officer or and directors of funds;
o an officer or director of an investment advisor or
broker-dealer subsidiary in the Franklin Templeton Group;
o a person that controls those entities; and
o any Franklin Resources' Proprietary Account ("Proprietary
Account")(3)
- ------------
(2) The term "employee or employees" includes management trainees, temporary
personnel, consultants, independent contractors, persons fulfilling similar
roles, as well as regular employees of the Franklin Templeton Group.
(3) See Appendix A. II. for the definition of "Proprietary Accounts."
3
<PAGE>
(1) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access Persons
and are those employees of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund
in the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those
purchases or sales. Portfolio Persons include:
o portfolio managers;
o research analysts;
o traders;
o persons serving in equivalent capacities (such as Management
Trainees);
o persons supervising the activities of Portfolio Persons;
o and anyone else designated by the Compliance Officer
(1) NON-ACCESS PERSONS: If you are an employee in the Franklin Templeton
Group AND you do not fit into any of the above categories, you are a
Non-Access Person. Because you do not normally receive confidential
information about Fund portfolios, you are subject only to the
prohibited transaction provisions described in 3.4 of this Code and
the Franklin Resources, Inc.'s Standards of Business Conduct contained
in the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to what
category you fall in or whether you should be considered to be an Access Person
or Portfolio Person.
The Code works by prohibiting some transactions and requiring pre-clearance
and reporting of most others. NON-ACCESS PERSONS do not have to pre-clear their
security transactions, and, in most cases, do not have to report their
transactions. "INDEPENDENT DIRECTORS" need not report any securities transaction
unless you knew, or should have known that, during the 15-day period before or
after the transaction, the security was purchased or sold or considered for
purchase or sale by a Fund or Franklin Resources for a Fund. (See Section 5.2.B
below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES AND INDEPENDENT
DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED TRANSACTIONS
PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions regarding your
personal securities activity, contact the Legal Compliance Department.
4
<PAGE>
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and transactions,
as well as transactions by any of Franklin Resource's Proprietary Accounts. It
also covers all securities and accounts in which you have "beneficial
ownership."(4) A transaction by, or for the account of your spouse, or any
other family member living in your home is considered to be the same as a
transaction by you. Also, a transaction for any account in which you have any
economic interest (other than the account of an unrelated client for which
advisory fees are received) and have or share investment control is generally
considered the same as a transaction by you. For example, if you invest in a
corporation that invests in securities and you have or share control over its
investments, that corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any securities
held by a partnership, corporation, trust or similar entity unless you control,
or share control of such entity, or have, or share control over its investments.
For example, securities transactions of a trust or foundation in which you do
not have an economic interest (i.e., you are not the trustor or beneficiary) but
of which you are a trustee are not considered yours unless you have voting or
investment control of its assets. Accordingly, each time the words "you" or
"your" are used in this document, they apply not only to your personal
transactions and accounts, but also to all transactions and accounts in which
you have any direct or indirect beneficial interest. If it is not clear whether
a particular account or transaction is covered, ask the Compliance Officer for
guidance.
- --------------
(4) Generally, a person has "beneficial ownership" in a security if he or she,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise, has or shares a direct or indirect pecuniary
interest in the security. There is a presumption of a pecuniary interest in
a security held or acquired by a member of a person's immediate family
sharing the same household.
5
<PAGE>
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear or report transactions of the following
securities:
(1) securities that are direct obligations of the U. S. Government
(i.e., issued or guaranteed by the U.S. Government, such as
Treasury bills, notes and bonds, including U.S. Savings Bonds and
derivatives thereof);
(2) high quality short-term instruments, including but not limited to
bankers' acceptances, bank certificates of deposit, commercial
paper and repurchase agreements;(5)
(3) shares of registered open-end investment companies ("mutual
funds"); and
(4) commodity futures, currencies, currency forwards and derivatives
thereof.
Such transactions are also exempt from : (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 WHAT TRANSACTIONS ARE PROHIBITED BY THE CODE?
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts and
the SEC to be prohibited by law. The Code reiterates that these types of
transactions are a violation of the Statement of Principals and are prohibited.
Preclearance, which is a cornerstone of our compliance efforts, cannot detect
transactions which are dependent upon intent, or which by their nature, occur
before any order has been placed for a fund or client. The Preclearance staff,
which is there to assist you with compliance with the Code, cannot guarantee any
transaction or transactions comply with the Code or the law. The fact that your
transaction receives preclearance, shows evidence of good faith, but depending
upon all the facts, may not provide a full and complete defense to any
accusation of violation of the Code or of the law. For example, if you executed
a transaction for which you received approval, or if the transaction
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(5) Footnote #66 of the SEC's proposed amendments to Rule 17j-1(e)(5) and
204-(a)(12) and 204-2(a)(13).
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was exempt from preclearance (e.g., a transaction for 100 shares or less), would
not preclude a subsequent finding that front-running or scalping occurred
because such activity are dependent upon your intent. Intent cannot be detected
during preclearance, but only after a review of all the facts.
In the final analysis, compliance remains the responsibility of each
individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term "front-run"
means knowingly trading before a contemplated transaction by a Fund or client of
any Franklin Templeton adviser, whether or not your trade and the Fund's or
client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin Templeton
Group's intention, to purchase that security or a related security on
behalf of a Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton Group's
intention, to sell that security or a related security on behalf of a
Fund or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the
intention of recommending that the security be purchased for a Fund, or client,
or sell short a security (or its economic equivalent) with the intention of
recommending that the security be sold for a Fund or client. Scalping is
prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related security
is being bought contemporaneously by a Fund or client, or sell a security if you
know that the same or a related security is being sold contemporaneously by a
Fund or client.
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E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling the
same or a related security, or has sold the security, until seven
(7) calendar days after the Fund's or client's order has either
been executed or withdrawn, or
(2) sell a security if you know that a Fund or client is buying the
same or a related security, or has bought the security until
seven (7) calendar days after the Fund's or client's order has
either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the Code
for more details regarding the preclearance of personal securities transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information(6)
without disclosing the information and receiving written authorization. If you
wish to purchase or sell a security about which you obtained such information,
you must report all of the information you obtained regarding the security to
the Appropriate Analyst(s)(7), or to the Compliance Officer for dissemination to
the Appropriate Analyst(s).
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(6) Proprietary Information: Information that is obtained or developed during
the ordinary course of employment with the Franklin Templeton Group,
whether by you or someone else, and is not available to persons outside the
Franklin Templeton Group. Examples of such Proprietary Information include,
among other things, internal research reports, research materials supplied
to the Franklin Templeton Group by vendors and broker-dealers not generally
available to the public, minutes of departmental/research meetings and
conference calls, and communications with company officers (including
confidentiality agreements). Examples of non-Proprietary Information
include mass media publications (e.g., The Wall Street Journal, Forbes, and
Fortune), certain specialized publications available to the public (e.g.,
Morningstar, Value Line, Standard and Poors), and research reports
available to the general public.
(7) The Compliance Officer is designated on Schedule A. The "Appropriate
Analyst" means any securities analyst or portfolio manager, other than you,
making recommendations or investing funds on behalf of any associated
client, who may be reasonably expected to recommend or consider the
purchase or sale of the security in question.
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You will be permitted to purchase or sell such security if the Appropriate
Analyst(s) confirms to the Preclearance Desk that there is no intention to
engage in a transaction regarding the security within seven (7) calendar days on
behalf of an Associated Client(8) and you subsequently preclear such security in
accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES, INC., AND
AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its
affiliates, including the Franklin Templeton Group, you cannot effect a short
sale of the securities, including "short sales against the box" of Franklin
Resources, Inc., or any of the Franklin or Templeton closed-end funds, Franklin
real estate investment trusts or any other security issued by Franklin
Resources, Inc. or its affiliates. This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to
sales of any option to buy (i.e., a call option) or purchases of any option to
sell (i.e., a put option) and "swap" transactions or other derivatives. Officers
and directors of the Franklin Templeton Group who may be covered by Section 16
of the Securities Exchange Act of 1934, are reminded that their obligations
under that section are in addition to their obligations under this Code.
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(8) Associated Client: A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
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PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS(9)
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or indirect
beneficial interest in a security whenever you learn that the security is under
consideration for purchase or sale by an Associated Client in the Franklin
Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of
which recommendation shall be made on behalf of the Associated
Client; or
(3) Have functions or duties that relate to the determination of
which recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest
orally to the primary portfolio manager (or other Appropriate Analyst) of the
Associated Client(s) considering the security, the Director of Research and
Trading or the Compliance Officer. Following that oral disclosure, you must send
a written acknowledgment of that interest on Schedule E (or on a form containing
substantially similar information) to the primary portfolio manager (or other
Appropriate Analyst), with a copy to the Compliance Officer.
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(9) You are a "Portfolio Person" if you are an employee of the Franklin
Templeton Group, and, in connection with your regular functions or duties,
make or participate in the decision to purchase or sell a security by a
Fund in the Franklin Templeton Group, or any other client or if your
functions relate to the making of any recommendations about those purchases
or sales. Portfolio Persons include portfolio managers, research analysts,
traders, persons serving in equivalent capacities (such as Management
Trainees, temporary personnel and consultants), persons supervising the
activities of Portfolio Persons, and anyone else so designated by the
Compliance Officer.
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4.2 SHORT SALES OF SECURITIES
You cannot sell short any security held by your Associated Clients,
including "short sales against the box". Additionally, Portfolio Persons
associated with the Templeton Group of Funds and clients cannot sell short any
security on the Templeton "Bargain List". This prohibition would also apply to
effecting economically equivalent transactions, including, but not limited to,
sales of uncovered call options, purchases of put options while not owning the
underlying security and short sales of bonds that are convertible into equity
positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and
purchase within sixty calendar days of any security, including derivatives. This
restriction does not apply to:
(1) trading within a shorter period if you do not realize a profit and if
you do not violate any other provisions of this Code; and
(2) profiting on the purchase and sale or sale and purchase within sixty
calendar days of a security, including a derivative, that is not
required to be precleared and reported pursuant to the provisions of
the Code.(10)
Calculation of profits during the 60 calendar day holding period generally
will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may elect to
calculate their 60 calendar day profits on either a LIFO or FIFO ("first-in,
first-out") basis when there has not been any activity in such security by their
Associated Clients during the previous 60 calendar days.
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(10) See Section III of Appendix A for a description of those securities.
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4.4 SERVICE AS A DIRECTOR
As a Portfolio Person, you cannot serve as a director, trustee, or in a
similar capacity for any company (excluding not-for-profit companies, charitable
groups, and eleemosynary organizations) unless you receive approval from the
Chief Executive Officer of the principal investment adviser to the Fund(s) of
which you are a Portfolio Person and he/she determines that your service is
consistent with the interests of the Fund(s) and its shareholders.
4.5 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering, or
a secondary offering by an issuer. Public offerings of securities made by the
Franklin Templeton Group, including open-end and closed-end mutual funds, real
estate investment trusts, and securities of Franklin Resources, Inc., are
excluded from this prohibition.
4.6 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other
securities in private placements unless they obtain prior approval of the
Compliance Officer after he or she consults with an executive officer of
Franklin Resources, Inc.
However, investments in any issuer exempt under Section 3(c)(1) or (7) of
the Investment Company Act of 1940 (a "private investment company") do not
require the prior approval described in this section (but would remain subject
to the preclearance requirements of Part 6 below) if the Portfolio Person does
not have direct or indirect influence or control over the private investment
company's investments AND such private investment company does not provide
"contemporaneous portfolio information"(11) to the Portfolio Person. Further,
this provision does not relieve the Portfolio Person of the obligation to
promptly disclose any direct or indirect beneficial interest in a security
whenever the
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(11) "Contemporaneous portfolio information" as used in this context means
receipt of statements of securities holdings for such private investment
companies that report positions as of a date less than 45 days prior to the
date such statements are received by the Portfolio Person.
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Portfolio Person learns that the security is under consideration for purchase or
sale by an Associated Client in the Franklin Templeton Group, as described in
Section 4.1 of the Code.
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PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting
procedures is essential to enable us to meet our responsibilities to Funds and
other clients and to comply with regulatory requirements. You are expected to
comply with both the letter and spirit of these requirements, including
completing and filing all reports required under the Code in a timely manner.
5.2 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You must report all securities transactions by; (i) providing the
Compliance Officer with copies of all broker's confirmations and statements
(which may be sent under separate cover by the broker) showing all transactions
and holdings in securities and (ii) certifying at least annually that you have
disclosed all such brokerage accounts on Schedule F to the Compliance Officer.
The brokerage statements and confirmations must include all transactions in
securities in which you have, or by reason of the transaction acquire any direct
or indirect beneficial ownership, including transactions in a discretionary
account and transactions for any account in which you have any economic interest
and have or share investment control. Also, if you acquire securities by any
other method which is not being reported to the Compliance Officer by a
duplicate confirmation statement at or near the time of the acquisition, you
must report that acquisition to the Compliance Officer on Schedule B within 10
days after you are notified of the acquisition. Such acquisitions include, among
other things, securities acquired by gift, inheritance, vesting, merger or
reorganization of the issuer of the security.
You must file these documents with the Compliance Officer not later than 10
calendar days after the end of each quarter, but you need not show or report
transactions for any account over which you had
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no direct or indirect influence or control.12 Failure to timely report
transactions is a violation of Rule 17j-1 as well as the Code, and may be
reported to the Fund's Board of Directors and may also result, among other
things, in denial of future personal security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of the Franklin Templeton Group but you are not an
"interested person" of the Fund, you are not required to file transaction
reports unless you knew or should have known that, during the 15-day period
before or after a transaction, the security was purchased or sold, or considered
for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund.
5.3 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS
As an access person, other than an independent director,13 you must file a
report of all personal securities accounts on Schedule F, with the Compliance
Officer, within 10 business days of receipt of this Code, and annually
thereafter by January 31. You must report the name and description of each
securities account in which you have a direct or indirect beneficial interest,
including securities accounts of a spouse and minor children. You must also
report any account in which you have any economic interest and have or share
investment control (e.g., trusts, foundations, etc.) other than an account for a
Fund in or a client of the Franklin Templeton Group.
B. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS
All access persons, including independent directors, will be asked to
certify that they will comply with the Franklin Templeton Group's Code of Ethics
and Policy Statement on Insider Trading by filing
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(12) See Sections 3.2 and 4.6 of the Code. Also, confirmations and statements of
transactions in open-end mutual funds, including mutual funds sponsored by
the Franklin Templeton Group are not required. See Section 3.3 above for a
list of other securities that need not be reported. If you have any
beneficial ownership in a discretionary account, transactions in that
account are treated as yours and must be reported by the manager of that
account (see Section 6.1.C below).
(13) Independent directors are not required to file Schedule F.
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the Acknowledgment Form with the Compliance Officer within 10 business days of
receipt of the Code. Thereafter, they will be asked to certify that you have
complied with the Code during the preceding year by filing a similar
Acknowledgment Form by January 31 of each year.
5.4 ANNUAL REPORTS - ADDITIONAL REQUIREMENTS FOR PORTFOLIO PERSONS ONLY
A. SECURITIES HOLDINGS REPORTS
If you are a Portfolio Person, you must file a report of personal
securities holdings, on Schedule C, with the Compliance Officer, within 10
business days of receipt of this Code, and annually thereafter by January 31.
This report should include all of your securities holdings, including any
security acquired by a transaction, gift, inheritance, vesting, merger or
reorganization of the issuer of the security, in which you have any direct or
indirect beneficial ownership, including securities holdings in a discretionary
account and for any account in which you have any economic interest and have or
share investment control.
5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS
If you are an access person (other than an independent director of a
Franklin Templeton Group), or an employee of a broker-dealer in the Franklin
Templeton Group, before or at a time contemporaneous with opening a brokerage
account with a registered broker-dealer, or a bank, or placing an initial order
for the purchase or sale of securities with that broker-dealer or bank, you
must:
(1) notify the Compliance Officer, in writing, by completing Schedule D;
and
(2) notify the institution with which the account is opened, in writing,
of your association with the Franklin Templeton Group.
The Compliance Department will request the institution in writing to send
to it duplicate copies of confirmations and statements for all transactions
effected in the account simultaneously with their mailing to you.
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If you have an existing account on the effective date of this Code or
upon becoming an access person, you must comply within 10 days with conditions
(1) and (2) above.
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PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph D below, you cannot buy or sell any
security, without first contacting the Compliance Officer by fax, phone, or
e-mail and obtaining his or her approval. A clearance is good until the close of
the business day following the day clearance is granted but may be extended in
special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the Code.
However, all other provisions of the Code apply, including, but not limited to:
(i) the prohibited transaction provisions contained in Part 3.4 such as
front-running; (ii) the additional compliance requirements applicable to
portfolio persons contained in Part 4, (iii) the applicable reporting
requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) MUTUAL FUNDS. Transactions in shares of any registered open-end
mutual fund;
(2) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and sales
of securities of Franklin Resources, Inc., closed-end funds of
the Franklin Templeton Group, or real estate investment trusts
advised by Franklin Properties Inc., as these securities cannot
be purchased on behalf of our advisory clients.14
(3) SMALL QUANTITIES. Transactions that do not result in purchases or
sales of more than 100 shares of any one security, regardless of
where it is traded, in any 30 day period. Additionally,
transactions made pursuant to dividend reinvestment plans
("DRIPs") do not require preclearance regardless of quantity.
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(14) Officers, directors and certain other key management personnel who perform
significant policy-making functions of Franklin Resources, Inc., the
closed-end funds, and/or real estate investment trusts may have ownership
reporting requirements in addition to these reporting requirements. Contact
the Legal Compliance Department for additional information. See also the
"Insider Trading Policy" attached.
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(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or
guaranteed by the governments of the United States, Canada, the
United Kingdom, France, Germany, Switzerland, Italy and Japan, or
their agencies or instrumentalities, or derivatives thereof;
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's
spouse pursuant to a payroll deduction program, provided the
Compliance Department has been previously notified in writing by
the access person that the spouse will be participating in the
payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the
exercise and/or purchase by an access person or an access
person's spouse of securities pursuant to a program sponsored by
a corporation employing the access person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of
rights issued pro rata to all holders of a class of securities or
the sale of rights so received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona fide
tender offer made for any and all such securities to all
similarly situated shareholders in conjunction with mergers,
acquisitions, reorganizations and/or similar corporate actions.
However, tenders pursuant to offers for less than all outstanding
securities of a class of securities of an issuer must be
precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any
securities that are prohibited investments for all Funds and
clients advised by the entity employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or
entity over which you do not have or share investment control
(i.e., an account where someone else exercises complete
investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not acquire
or dispose of direct or indirect beneficial ownership (i.e., an
account where in you have no financial interest).
Although an access person's securities transaction may be exempt from
pre-clearing, such transactions must comply with the prohibited transaction
provisions of Section 3.4 above. Additionally, you may not trade any securities
as to which you have "inside information" (see attached The Franklin Templeton
Group Policy Statement on Insider Trading). If you have any questions, contact
the Compliance Officer before engaging in the transaction. If you have any doubt
whether you have or might acquire direct or indirect beneficial ownership or
have or share investment control over an account or
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entity in a particular transaction, or whether a transaction involves a security
covered by the Code, you should consult with the Compliance Officer before
engaging in the transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for
which a registered broker-dealer, a registered investment adviser, or other
investment manager acting in a similar fiduciary capacity, which is not
affiliated with the Franklin Templeton Group, exercises sole investment
discretion, if the following conditions are met:(15)
(1) The terms of each account relationship ("Agreement") must be in
writing and filed with the Compliance Officer prior to any
transactions.
(2) Any amendment to each Agreement must be filed with the Compliance
Officer prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at
the time such account relationship commences, and annually
thereafter, as contained in Schedule G of the Code that such
Portfolio Person does not have direct or indirect influence or
control over the account, other than the right to terminate the
account.
(4) Additionally, any discretionary account that you open or maintain
with a registered broker-dealer, a registered investment adviser,
or other investment manager acting in a similar fiduciary
capacity must comply with the reporting requirements of Section
5, as appropriate, by timely filing the required reports with the
Compliance Officer.(16)
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(15) Please note that these conditions apply to any discretionary account in
existence prior to the effective date of this Code or prior to your
becoming an access person. Also, the conditions apply to transactions in
any discretionary account, including pre-existing accounts, in which you
have any direct or indirect beneficial ownership, even if it is not in your
name.
(16) Any pre-existing agreement must be promptly amended to comply with this
condition. The required reports may be made in the form of an account
statement if they are filed by the applicable deadline.
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However, if you make any request that the discretionary account manager
enter into or refrain from a specific transaction or class of transactions, you
must first consult with the Compliance Officer and obtain approval prior to
making such request.
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D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in the Franklin Templeton Group and
a director of the fund's advisor;
(2) You are not an "advisory person"(17) of a Fund in the Franklin
Templeton Group; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative"(18) of Franklin
Resources or any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the
transaction, the security was purchased or sold, or considered for purchase or
sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
Directors qualifying under this paragraph are required to comply with all
applicable provisions of the Code including reporting their personal securities
transactions in accordance with 5.2 and reporting securities accounts in
accordance with 5.3 and 5.5 of the Code.
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(17) An "advisory person" of a registered investment company or an investment
adviser includes is any such employee, who in connection with his regular
functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by a registered investment
company, or whose functions relate to the making of any recommendations
with respect to such purchases or sales. Advisory person also includes any
natural person in a control relationship to such company or investment
adviser who obtains information concerning recommendations made to such
company with regard to the purchase or sale of a security.
(18) Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection
with his duties, obtains any information concerning which securities are
being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations. See
Section II of Appendix A for the legal definition of "Advisory
Representative."
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PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to
maintain shareholder confidence in the Franklin Templeton Group.
In adopting this Code, it is the intention of the Boards of
Directors/Trustees, to attempt to achieve 100% compliance with all requirements
of the Code - but it is recognized that this may not be possible. Incidental
failures to comply with the Code are not necessarily a violation of the law or
the Franklin Templeton Group's Statement of Principles. Such isolated or
inadvertent violations of the Code not resulting in a violation of law or the
Statement of Principles will be referred to the appropriate Compliance Officer
and/or management personnel, and disciplinary action commensurate with the
violation, if warranted, will be imposed.
However, if you violate any of the enumerated prohibited transactions
contained in Parts 3 and 4 of the Code, you will be expected to give up any
profits realized from these transactions to Franklin Resources for the benefit
of the affected Funds or other clients. If Franklin Resources cannot determine
which Fund(s) or client(s) were affected, the proceeds will be donated to a
charity chosen by Franklin Resources. Failure to disgorge profits when requested
may result in additional disciplinary action, including termination of
employment.
Further, a pattern of violations which individually do not violate the law
or Statement of Principles, but which taken together demonstrate a lack of
respect for the Code of Ethics, may result in disciplinary action including
termination of employment. A violation of the Code resulting in a violation of
the law will be severely sanctioned, with disciplinary action including, but not
limited to referral of the matter to the board of directors of the affected
Fund, termination of employment or referral of the matter to the appropriate
regulatory agency for civil and/or criminal investigation.
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PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON GROUP INSIDER TRADING POLICY
The Code of Ethics is primarily concerned with transactions in securities
held or to be acquired by any of the Funds or Franklin Resources' clients,
regardless of whether those transactions are based on inside information or
actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the
problem of insider trading in securities that could result in harm to a Fund, a
client, or members of the public, and applies to all directors, officers and
employees of any entity in the Franklin Templeton Group. Although the
requirements of the Code and the Insider Trading Policy are similar, you must
comply with both.
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APPENDIX A: COMPLIANCE PROCEDURES, DEFINITIONS, AND OTHER ITEMS
This appendix sets forth the additional responsibilities and obligations of
Compliance Officers, and the Legal/Administration and Legal/Compliance
Departments, under the Franklin Templeton Group Code of Ethics and Policy
Statement on Insider Trading.
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I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Compliance Officer shall only permit an access person to go forward
with a proposed transaction if he or she determines that, considering all of the
facts and circumstances, the transaction does not violate the provisions of Rule
17j-1, or of this Code and there is no likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, the Compliance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, Inc. ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
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Certain officers of Franklin Resources, as well as legal, compliance, fund
accounting, investment operations and other personnel who generally have access
to trading information of the funds and clients of the Franklin Templeton Group
during the course of their regular functions and duties, will have their
personal securities transactions precleared against executed transactions, open
orders and recommendations of the entire Franklin Templeton Group.
3. SPECIFIC STANDARDS
(a) Securities Transactions by Funds or clients
No clearance shall be given for any transaction on any day during which an
Associated Client of the access person has executed a buy or sell order, until
seven (7) calendar days after the order has been executed.
(b) Securities under Consideration
Open Orders
No clearance shall be given for any transaction on any day which an
Associated Client of the access person has a pending buy or sell order, until
seven (7) calendar days after the order has been executed.
Recommendations
No clearance shall be given for any transaction in a security on any day
which a recommendation on a security was made by a Portfolio Person, until seven
(7) calendar days after the recommendation was made and no orders have
subsequently been executed or are pending. Notwithstanding a transaction in the
previous seven days, clearance may be granted if the security has been disposed
of by all Associated Clients.
27
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(c) Private Placements
In considering requests by Portfolio Personnel for approval of limited
partnerships and other private placement securities transactions, the Compliance
Officer shall consult with an executive officer of Franklin Resources, Inc. In
deciding whether to approve the transaction, the Compliance Officer and the
executive officer shall take into account, among other factors, whether the
investment opportunity should be reserved for a Fund or other client, and
whether the investment opportunity is being offered to the access person by
virtue of his or her position with the Franklin Templeton Group. If the access
person receives clearance for the transaction, no investment in the same issuer
may be made for a Fund or client unless an executive officer of Franklin
Resources, Inc., with no interest in the issuer, approves the transaction.
(d) Duration of Clearance
If the Compliance Officer approves a proposed securities transaction, the
order for the transaction must be placed and effected by the close of the next
business day following the day approval was granted. The Compliance Officer may,
in his or her discretion, extend the clearance period up to seven calendar days,
beginning on the date of the approval, for a securities transaction of any
access person who demonstrates that special circumstances make the extended
clearance period necessary and appropriate.(19) The Compliance Officer may, in
his or her discretion, after consultation with a member of senior management for
Franklin Resources, Inc., renew the approval for a particular transaction for up
to an additional seven calendar days upon a similar showing of special
circumstances by the access person. The Compliance Officer may shorten or
rescind any approval or renewal of approval under this paragraph if he or she
determines it is appropriate to do so.
- -------------
(19) Special circumstances include but are not limited to, for example,
differences in time zones, delays due to travel, and the unusual size of
proposed trades or limit orders. Limit orders must expire within the
applicable clearance period.
28
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B. WAIVERS BY A COMPLIANCE OFFICER
A Compliance Officer may, in his or her discretion, after consultation with
an executive officer of Franklin Resources, Inc., waive compliance by any access
person with the provisions of the Code, if he or she finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of unforeseen
circumstances or is otherwise appropriate under all the relevant
facts and circumstances;
(2) will not be inconsistent with the purposes and objectives of the
Code;
(3) will not adversely affect the interests of advisory clients of
the Franklin Templeton Group, the interests of the Franklin
Templeton Group or its affiliates; and
(4) will not result in a transaction or conduct that would violate
provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis for
it, and a copy shall be promptly sent by the Compliance Officer to the Legal
Department of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES
Each Compliance Officer shall make a record of all requests for
pre-clearance regarding the purchase or sale of a security, including the date
of the request, the name of the access person, the details of the proposed
transaction, and whether it was prohibited. The Compliance Officer shall keep a
record of any waivers given, including the reasons for each exception and a
description of any potentially conflicting Fund or client transactions.
The Compliance Officer shall also collect the signed initial
acknowledgments of receipt and the annual acknowledgments from each access
person of receipt of a copy of the Code and Insider Trading Policy, as well as
reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition,
the Compliance Officer shall request copies of all confirmations, and other
information with respect to an account opened and maintained with the
broker-dealer by any access person of the Franklin Templeton G
29
<PAGE>
Group. The Compliance Officer shall preserve those acknowledgments and reports,
the records of consultations and waivers, and the confirmations, and other
information for the period required by applicable regulation.
D. RESPONSIBILITIES OF THE LEGAL DEPARTMENT
The Legal Department shall consult with the Compliance Department and the
Personnel Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor compliance
with the reporting, pre-clearance, prohibited transaction and
other requirements of the Code.
(2) Appropriate compliance reports are submitted to the Board of
Directors of Franklin Resources, Inc., and the Board of each
relevant Fund.
(3) All access persons and new employees of the Franklin Templeton
Group are adequately informed and receive appropriate education
and training as to their duties and obligations under the Code.
(4) There are adequate educational, informational and monitoring
efforts to ensure that reasonable steps are taken to prevent and
detect unlawful insider trading by access persons and to control
access to inside information.
(5) Appropriate reports are made to Franklin Resources management and
the relevant Fund regarding the administration of and compliance
with the Code.
(6) Appropriate records are kept for the periods required by law.
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the terms
below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning of
Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a
person, including an Advisory Representative, who has access to
information concerning recommendations made to a Fund or client with
regard to the purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any
employee who makes any recommendation, who participates in the
determination of which recommendation shall be made,
30
<PAGE>
or whose functions or duties relate to the determination of which
recommendation shall be made; any employee who, in connection with his
duties, obtains any information concerning which securities are being
recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations;
and any of the following persons who obtain information concerning
securities recommendations being made by Franklin Resources prior to
the effective dissemination of such recommendations or of the
information concerning such recommendations: (i) any person in a
control relationship to Franklin Resources, (ii) any affiliated person
of such controlling person, and (iii) any affiliated person of such
affiliated person.
AFFILIATED PERSON - same meaning as Section 2(a)(3) of the Investment Company
Act of 1940. An "affiliated person" of an investment company includes
directors, officers, employees, and the investment adviser. In addition,
it includes any person owning 5% of the company's voting securities, any
person in which the investment company owns 5% or more of the voting
securities, and any person directly or indirectly controlling,
controlled by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst
or portfolio manager making investment recommendations or investing
funds on behalf of an Associated Client and who may be reasonably
expected to recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be
available to the access person during the course of his or her regular
functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the
1934 Act. Generally, a person has a beneficial ownership in a security
if he or she, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the security. There is a presumption of a
pecuniary interest in a security held or acquired by a member of a
person's immediate family sharing the same household.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the
most recent 15 days it (i) is or has been held by a Fund, or (ii) is
being or has been considered by a Fund or its investment adviser for
purchase by the Fund. A purchase or sale includes the writing of an
option to purchase or sell.
PORTFOLIO PERSON - Any employee of the Franklin Templeton Group, who, in
connection with his or her regular functions or duties, makes or
participates in the decision to purchase or sell a security by a Fund in
the Franklin Templeton Group, or any other client or if his or her
functions relate to the making of any recommendations about those
purchases or sales. Portfolio Persons include portfolio managers,
research analysts, traders, persons serving in equivalent capacities
(such as Management Trainees), persons supervising the activities of
Portfolio Persons, and anyone else designated by the Compliance Officer
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not
limited to, a limited partnership, a corporate hedge fund, a limited
liability company or any other pooled investment vehicle in which
Franklin Resources or its affiliates, owns 5 percent or more of the
outstanding
31
<PAGE>
capital or is entitled to 25% or more of the profits or losses in the
account (excluding any asset based investment management fees based on
average periodic net assets in accounts).
SECURITY- Any stock, note, bond, evidence of indebtedness, participation or
interest in any profit-sharing plan or limited or general partnership,
investment contract, certificate of deposit for a security, fractional
undivided interest in oil or gas or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a certificate
of deposit), guarantee of, or warrant or right to subscribe for or
purchase any of the foregoing, and in general any interest or instrument
commonly known as a security, except commodity futures, currency and
currency forwards. See Section III of Appendix A for a summary of
different requirements for different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE
PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions of
Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
(3) shares of registered open-end investment companies;
(4) commodity futures, currencies, currency forwards and derivatives
thereof;
(5) securities that are prohibited investments for all Funds and
clients advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the
governments or their agencies or instrumentalities of Canada, the
United Kingdom, France, Germany, Switzerland, Italy and Japan and
derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of Section
5 and preclearance requirements of Section 6 of the Code include:
(1) securities that are direct obligations of the U.S. Government,
such as Treasury bills, notes and bonds, and U.S. Savings Bonds
and derivatives thereof;
(2) high quality short-term instruments ("money market instruments")
including but not limited to (i) bankers' acceptances, (ii) U.S.
bank certificates of deposit; (iii) commercial paper; and (iv)
repurchase agreements;
32
<PAGE>
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and derivatives
thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes it
unlawful for any affiliated person of the Franklin Templeton Group in connection
with the purchase or sale of a security "held or to be acquired" by a Fund in
the Franklin Templeton Group:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to
state to a Fund a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
C. To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15 days it
(i) is or has been held by a Fund, or (ii) is being or has been considered by a
Fund or its investment adviser for purchase by the Fund. A purchase or sale
includes the writing of an option to purchase or sell a security.
33
<PAGE>
APPENDIX B: FORMS AND SCHEDULES
34
<PAGE>
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
To: MANAGING DIRECTOR OF COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I hereby acknowledge receipt of a copy of the Franklin Templeton Group's CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, AMENDED AND RESTATED, AUGUST
1998, which I have read and understand. I will comply fully with all provisions
of the Code and the Insider Trading Policy to the extent they apply to me during
the period of my employment. Additionally, I authorize any broker-dealer, bank
or investment adviser with whom I have securities accounts and accounts in which
I have beneficial ownership, to provide brokerage confirmations and statements
as required for compliance with the Code. I further understand and acknowledge
that any violation of the Code or Insider Trading Policy, including engaging in
a prohibited transaction or failure to file reports as required (see Schedules
B, C, D, E, F and G), may subject me to disciplinary action, including
termination of employment.
- --------------------------------------------------------------------------------
SIGNATURE:
- --------------------------------------------------------------------------------
PRINT NAME:
- --------------------------------------------------------------------------------
TITLE:
- --------------------------------------------------------------------------------
DEPARTMENT:
- --------------------------------------------------------------------------------
LOCATION:
- --------------------------------------------------------------------------------
DATE ACKNOWLEDGMENT WAS SIGNED:
- --------------------------------------------------------------------------------
RETURN TO: LEGAL COMPLIANCE DEPARTMENT, 2000 ALAMEDA DE LAS PULGAS - FLOOR 2
35
<PAGE>
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX
NUMBERS
LEGAL OFFICER
- -------------
DEBORAH R. GATZEK
SENIOR VICE PRESIDENT - LEGAL/ADMINISTRATION
FRANKLIN RESOURCES, INC.
777 MARINERS ISLAND BLVD.
7TH FLOOR
SAN MATEO, CA 94404
(650) 312-3051
COMPLIANCE OFFICER
- ------------------
JAMES M. DAVIS
MANAGING DIRECTOR OF COMPLIANCE
FRANKLIN RESOURCES, INC.
2000 ALAMEDA DE LAS PULGAS, SUITE 200F
SAN MATEO, CA 94403
(650) 312-2832
PRECLEARANCE DESK AND CODE OF ETHICS ADMINISTRATION
- ---------------------------------------------------
LEGAL COMPLIANCE DEPARTMENT
2000 ALAMEDA DE LAS PULGAS, SUITE 200E
SAN MATEO, CA 94403
(650) 312-3693 (TELEPHONE)
(650) 312-5646 (FACSIMILE)
PRECLEAR, LEGAL (E-MAIL ADDRESS)
36
CONFIDENTIAL INFORMATION AND
SECURITIES TRADING POLICY
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CONTENTS
Page
- ------------------------------
INTRODUCTION .................................................... 1
PART I
APPLICABLE TO ALL ASSOCIATES
SECTION ONE
CONFIDENTIAL INFORMATION............................ 2
-Types of Confidential Information.................. 2
-Rules for Protecting Confidential Information...... 3
-Supplemental Procedures............................ 4
SECTION TWO
INSIDER TRADING AND TIPPING......................... 5
-Legal Prohibitions................................. 5
-Mellon's Policy.................................... 6
SECTION THREE
RESTRICTIONS ON THE FLOW OF INFORMATION
WITHIN MELLON (THE "CHINESE WALL").................. 7
-Rules for Maintaining the Chinese Wall............. 7
-Reporting Receipt of Material Nonpublic
Information........................................ 8
-Functions "Above the Wall"......................... 9
-Supplemental Procedures............................ 9
SECTION FOUR
RESTRICTIONS ON TRANSACTIONS IN MELLON
SECURITIES..........................................10
-Beneficial Ownership...............................11
SECTION FIVE
RESTRICTIONS ON TRANSACTIONS IN OTHER
SECURITIES..........................................12
SECTION SIX
CLASSIFICATION OF ASSOCIATES........................14
-Insider Risk Associate.............................14
-Investment Associate...............................15
-Other Associate....................................15
PART II
APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY ....................................................16
-Prohibition on Investments in Securities of
Financial Services Organizations...................16
-Conflict of Interest...............................17
-Preclearance for Personal Securities
Transactions.......................................17
-Personal Securities Transactions Reports...........19
-Confidential Treatment.............................19
PART III
APPLICABLE TO INVESTMENT
ASSOCIATES ONLY ....................................................20
-Special Standards of Conduct for
Investment Associates..............................20
-Preclearance for Personal Securities
Transactions.......................................21
-Personal Securities Transactions Reports...........23
-Confidential Treatment.............................24
PART IV
APPLICABLE TO OTHER
ASSOCIATES ONLY ....................................................25
-Preclearance for Personal Securities
Transactions.......................................25
-Personal Securities Transactions Reports...........25
-Restrictions on Transactions in Other
Securities.........................................25
-Confidential Treatment.............................26
PART V
APPLICABLE TO NONMANAGEMENT
BOARD MEMBERS ....................................................27
-Nonmanagement Board Member.........................27
-Standards of Conduct for Nonmanagement
Board Member.......................................27
-Preclearance for Personal Securities
Transactions.......................................28
-Personal Securities Transactions Reports...........29
-Confidential Treatment.............................29
GLOSSARY Definitions.........................................30
INDEX OF EXHIBITS ....................................................33
</TABLE>
<PAGE>
INTRODUCTION
- ------------------------------
Mellon Bank Corporation ("Mellon") and its associates, and
the registered investment companies for which The Dreyfus
Corporation ("Dreyfus") and/or Mellon serves as investment
adviser, sub-investment adviser or administrator, are
subject to certain laws and regulations governing the use
of confidential information and personal securities
trading. Mellon has developed this Confidential Information
and Securities Trading Policy (the "Policy") to establish
specific standards to promote compliance with applicable
laws. Further, the Policy is intended to protect Mellon's
business secrets and proprietary information as well as
that of its customers and any entity for which it acts in a
fiduciary capacity.
The Policy set forth procedures and limitations which
govern the personal securities transactions of every Mellon
associate and certain other individuals associated with the
registered investment companies for which Dreyfus and/or
Mellon serves as investment adviser, sub-investment adviser
or administrator. The Policy is designed to reinforce
Mellon's reputation for integrity by avoiding even the
appearance of impropriety in the conduct of Mellon's
business.
Associates should be aware that they may be held personally
liable for any improper or illegal acts committed during
the course of their employment, and that "ignorance of the
law" is not a defense. Associates may be subject to civil
penalties such as fines, regulatory sanctions including
suspensions, as well as criminal penalties.
Associates outside the United States are also subject to
applicable laws of foreign jurisdictions, which may differ
substantially from U.S. law and which may subject such
associates to additional requirements. Such associates must
comply with applicable requirements of pertinent foreign
laws as well as with the provisions of the Policy. To the
extent any particular portion of the Policy is inconsistent
with foreign law, associates should consult the General
Counsel or the Manager of Corporate Compliance.
Any provision of this Policy may be waived or exempted at
the discretion of the Manager of Corporate Compliance. Any
such waiver or exemption will be evidenced in writing and
maintained in the Risk Management and Compliance
Department.
Associates must read the Policies and MUST COMPLY
with them. Failure to comply with the provisions
of the Policies may result in the imposition of
serious sanctions, including but not limited to
disgorgement of profits, dismissal, substantial
personal liability and referral to law enforcement
agencies or other regulatory agencies. Associates
should retain the Policies in their records for
future reference. Any questions regarding the
Policies should be referred to the Manager of
Corporate Compliance or his/her designee.
<PAGE>
PART I - APPLICABLE TO ALL ASSOCIATES
- ------------------------------
SECTION ONE
CONFIDENTIAL INFORMATION
As an associate you may receive information about Mellon,
its customers and other parties that, for various reasons,
should be treated as confidential. All associates are
expected to strictly comply with measures necessary to
preserve the confidentiality of information.
TYPES OF CONFIDENTIAL INFORMATION - Although it is
impossible to provide an exhaustive list of information
that should remain confidential, the following are examples
of the general types of confidential information that
associates might receive in the ordinary course of carrying
out their job responsibilities.
o Information Obtained from Business Relations - An associate
might receive confidential information regarding customers
or other parties with whom Mellon has business
relationships. If released, such information could have a
significant effect on their operations, their business
reputations or the market price of their securities.
Disclosing such information could expose both the associate
and Mellon to liability for damages.
o Mellon Financial Information - An associate might receive
financial information regarding Mellon before such
information has been disclosed to the public. It is the
policy of Mellon to disclose all material corporate
information to the public in such a manner that all those
who are interested in Mellon and its securities have equal
access to the information. Disclosing such information to
unauthorized persons could subject both the associate and
Mellon to liability under the federal securities laws.
o Mellon Proprietary Information - Certain nonfinancial
information developed by Mellon - such as business plans,
customer lists, methods of doing business, computer
software, source codes, databases and related documentation
- constitutes valuable Mellon proprietary information.
Disclosure of such information to unauthorized persons
could harm, or reduce a benefit to, Mellon and could result
in liability for both the associate and Mellon.
o Mellon Examination Information - Banks and certain other
Mellon subsidiaries are periodically examined by regulatory
agencies. Certain reports made by those regulatory agencies
are the property of those agencies and are strictly
confidential. Giving information from these reports to
anyone not officially connected with Mellon is a criminal
offense.
o Portfolio Management Information - Portfolio management
information relating to investment accounts or funds
managed by Mellon or Dreyfus, including investment
decisions or strategies developed for the benefit of
investment companies advised by Dreyfus, is for the benefit
of such account or fund. Disclosure or exploitation of such
information by an associate in an unauthorized manner may
cause detriment to such accounts or funds and may subject
the associate to liability under the federal securities
laws.
<PAGE>
RULES FOR PROTECTING CONFIDENTIAL INFORMATION - The
following are some basic rules to follow to protect
confidential information.
o Limited Communication to Outsiders - Confidential
information should not be communicated to anyone outside
Mellon, except to the extent they need to know the
information in order to provide necessary services to
Mellon.
o Limited Communication to Insiders - Confidential
information should not be communicated to other associates,
except to the extent they need to know the information to
fulfill their job responsibilities and their knowledge of
the information is not likely to result in misuse or a
conflict of interest. In this regard, Mellon has
established specific restrictions with respect to material
nonpublic information in order to separate and insulate
different functional areas and personnel within Mellon.
Please refer to Section Three, "Restrictions on The Flow of
Information Within Mellon" (The "Chinese Wall").
o Corporate Use Only - Confidential information should be
used only for Corporate purposes. Under no circumstances
may an associate use it, directly or indirectly, for
personal gain or for the benefit of any outside party who
is not entitled to such information.
o Other Customers - Where appropriate, customers should be
made aware that associates will not disclose to them other
customers' confidential information or use the confidential
information of one customer for the benefit of another.
o Notification of Confidentiality - When confidential
information is communicated to any person, either inside or
outside Mellon, they should be informed of the
information's confidential nature and the limitations on
its further communication.
o Prevention of Eavesdropping - Confidential matters should
not be discussed in public or in places, such as in
building lobbies, restaurants or elevators, where
unauthorized persons may overhear. Precautions, such as
locking materials in desk drawers overnight, stamping
material "Confidential" and delivering materials in sealed
envelopes, should be taken with written materials to ensure
they are not read by unauthorized persons.
o Data Protection - Data stored on personal computers and
diskettes should be properly secured to ensure they are not
accessed by unauthorized persons. Access to computer files
should be granted only on a need-to-know basis. At a
minimum, associates should comply with applicable Mellon
policies on electronic data security.
<PAGE>
o Confidentiality Agreements - Confidentiality agreements to
which Mellon is a party must be complied with in addition
to, but not in lieu of, this Policy. Confidentiality
agreements that deviate from commonly used forms should be
reviewed in advance by the Legal Department.
o Contact with the Public - All contacts with institutional
shareholders or securities analysts about Mellon must be
made through the Investor Relations Division of the Finance
Department. All contacts with the media and all speeches or
other public statements made on behalf of Mellon or about
Mellon's businesses must be cleared in advance by Corporate
Affairs. In speeches and statements not made on behalf of
Mellon, care should be taken to avoid any implication that
Mellon endorses the views expressed.
SUPPLEMENTAL PROCEDURES - Mellon entities, departments,
divisions and groups should establish their own
supplemental procedures for protecting confidential
information, as appropriate. These procedures may include:
o establishing records retention and destruction policies;
o using code names;
o limiting the staffing of confidential matters (for example,
limiting the size of working groups and the use of
temporary employees, messengers and word processors); and
o requiring written confidentiality agreements from certain
associates.
Any supplemental procedures should be used only to protect
confidential information and not to circumvent appropriate
reporting and recordkeeping requirements.
<PAGE>
SECTION TWO
INSIDER TRADING AND TIPPING
LEGAL PROHIBITIONS - Federal securities laws generally
prohibit the trading of securities while in possession of
"material nonpublic" information regarding the issuer of
those securities (insider trading). Any person who passes
along the material nonpublic information upon which a trade
is based (tipping) may also be liable.
"Material" - Information is material if there is a
substantial likelihood that a reasonable investor would
consider it important in deciding whether to buy, sell or
hold securities. Obviously, information that would affect
the market price of a security would be material. Examples
of information that might be material include:
o a proposal or agreement for a merger, acquisition or
divestiture, or for the sale or purchase of substantial
assets;
o tender offers, which are often material for the party
making the tender offer as well as for the issuer of the
securities for which the tender offer is made;
o dividend declarations or changes;
o extraordinary borrowings or liquidity problems;
o defaults under agreements or actions by creditors,
customers or suppliers relating to a company's credit
standing;
o earnings and other financial information, such as large
or unusual write-offs, write-downs, profits or losses;
o pending discoveries or developments, such as new products,
sources of materials, patents, processes, inventions or
discoveries of mineral deposits;
o a proposal or agreement concerning a financial
restructuring;
o a proposal to issue or redeem securities, or a
development with respect to a pending issuance or
redemption of securities;
o a significant expansion or contraction of operations;
o information about major contracts or increases or
decreases in orders;
o the institution of, or a development in, litigation or a
regulatory proceeding;
o developments regarding a company's senior management;
o information about a company received from a director of
that company; and
o information regarding a company's possible noncompliance
with environmental protection laws.
This list is not exhaustive. All relevant circumstances
must be considered when determining whether an item of
information is material.
<PAGE>
"Nonpublic" - Information about a company is nonpublic if
it is not generally available to the investing public.
Information received under circumstances indicating that it
is not yet in general circulation and which may be
attributable, directly or indirectly, to the company or its
insiders is likely to be deemed nonpublic information.
If an associate can refer to some public source to show
that the information is generally available (that is,
available not from inside sources only) and that enough
time has passed to allow wide dissemination of the
information, the information is likely to be deemed public.
While information appearing in widely accessible sources -
such as newspapers - becomes public very soon after
publication, information appearing in less accessible
sources - such as regulatory filings - may take up to
several days to be deemed public. Similarly, highly complex
information might take longer to become public than would
information that is easily understood by the average
investor.
MELLON'S POLICY - Associates who possess material nonpublic
information about a company - whether that company is
Mellon, another Mellon entity, a Mellon customer or
supplier, or other company - may not trade in that
company's securities, either for their own accounts or for
any account over which they exercise investment discretion.
In addition, associates may not recommend trading in those
securities and may not pass the information along to
others, except to associates who need to know the
information in order to perform their job responsibilities
with Mellon. These prohibitions remain in effect until the
information has become public.
Associates who have investment responsibilities should take
appropriate steps to avoid receiving material nonpublic
information. Receiving such information could create severe
limitations on their ability to carry out their
responsibilities to Mellon's fiduciary customers.
Associates managing the work of consultants and temporary
employees who have access to the types of confidential
information described in this Policy are responsible for
ensuring that consultants and temporary employees are aware
of Mellon's policy and the consequences of noncompliance.
Questions regarding Mellon's policy on material nonpublic
information, or specific information that might be subject
to it, should be referred to the General Counsel.
<PAGE>
SECTION THREE
RESTRICTIONS ON THE FLOW OF
INFORMATION WITHIN MELLON
(THE "CHINESE WALL")
As a diversified financial services organization, Mellon
faces unique challenges in complying with the prohibitions
on insider trading and tipping of material nonpublic
information and misuse of confidential information. This is
because one Mellon unit might have material nonpublic
information about a company while other Mellon units may
have a desire, or even a fiduciary duty, to buy or sell
that company's securities or recommend such purchases or
sales to customers. To engage in such broad-ranging
financial services activities without violating laws or
breaching Mellon's fiduciary duties, Mellon has established
a "Chinese Wall" policy applicable to all associates. The
"Chinese Wall" separates the Mellon units or individuals
that are likely to receive material nonpublic information
(Potential Insider Functions) from the Mellon units or
individuals that either trade in securities - for Mellon's
account or for the accounts of others - or provide
investment advice (Investment Functions).
Examples of Potential Insider Functions - Potential Insider
Functions include, among others, certain commercial
lending, corporate finance, and credit policy areas.
Insider Risk Associates (see Section Six, "Insider Risk
Associates") should consider themselves to be in Potential
Insider Functions unless their particular job
responsibilities clearly indicate otherwise.
Examples of Investment Functions - Investment Functions
include, among others, securities sales and trading,
investment management and advisory services, investment
research and various trust or fiduciary functions.
RULES FOR MAINTAINING THE "CHINESE WALL" - Without the
prior approval of the General Counsel, material nonpublic
information obtained by anyone in a Potential Insider
Function should not be communicated to anyone in an
Investment Function. To reduce the risk of material
nonpublic information being communicated, communications
between these associates in these functions must be limited
to the maximum extent consistent with valid business needs.
Particular rules -
o File Restrictions - Associates in Investment Functions must
not have access to commercial credit files, corporate
finance files, or any other Potential Insider Function
files that might contain material nonpublic information.
All such files that contain material nonpublic information
should be marked as "Confidential" and, if feasible,
segregated from nonconfidential files.
o Electronic Data - Associates in Investment Functions must
not have access to personal computer or word processing
files of associates in Potential Insider Functions.
o Meetings - Associates in Investment Functions must not
attend meetings between customers and associates in
Potential Insider Functions unless appropriate steps have
been taken to ensure that material nonpublic information
will not be disclosed or discussed.
o Committee Service - Without the prior approval of the
General Counsel, associates other than those "Above the
Wall" (see page 9) must not serve simultaneously on a
committee having responsibility for any Investment Function
and a committee having responsibility for any Potential
Insider Function.
o Information Requests - Requests for nonmaterial information
or public information across the "Chinese Wall" should be
made in writing to an appropriate associate in the
applicable area. Associates sending or receiving such a
request should resolve any questions regarding the
materiality or nonpublic nature of the requested
information by consulting their department head, who will
contact the General Counsel, as appropriate.
o Information Backflow - Associates should take care to avoid
inadvertent backflow of information that may be interpreted
as the prohibited communication of material nonpublic
information. For example, the mere fact that someone in a
Potential Insider Function, such as a mergers and
acquisitions specialist, requests information from an
associate in an Investment Function could give the latter
person a clue as to possible material developments
affecting a customer.
o Customers - Associates in Investment Functions must not
state or imply to customers that associates making
decisions or recommendations will have the benefit of
information from Mellon's Potential Insider Functions. When
appropriate, associates should inform customers of Mellon's
"Chinese Wall" policy.
o Conflicts of Interest - Associates should not receive or
pass on any information that would create an undue risk of
Mellon or any associate having a conflict of interest or
breaching a fiduciary obligation.
REPORTING RECEIPT OF MATERIAL NONPUBLIC INFORMATION -
Associates in Investment Functions who receive any
suspected material nonpublic information must report such
receipt promptly to their department or entity head. A
department or entity head who receives information believed
to be material and nonpublic should report the matter
promptly to the General Counsel. If the General Counsel
determines that the information is material and nonpublic,
the affected department or entity will:
o immediately suspend all trading in the securities of the
issuer to which the information applies, as well as all
recommendations with respect to such securities. The
suspension will remain in effect as long as the information
remains both material and nonpublic.
O notify the General Counsel before resuming transactions or
recommendations in the affected securities. The General
Counsel will advise as to possible further steps, including
ascertaining the validity and nonpublic nature of the
information with the issuer of the securities; requesting
the issuer of the securities, or other appropriate parties,
to disseminate the information promptly to the public if
the information is valid and nonpublic; and publishing the
information.
In certain circumstances, the department or entity head may
be able to demonstrate conclusively that the receipt of the
material nonpublic information has been confined to an
individual or small group of individuals and that measures
other than those described above will comparably reduce the
likelihood of trading on the basis of the information.
These measures might include temporarily relieving
individuals of responsibility for any Investment Functions
and preventing any contact between those individuals and
associates in Investment Functions. In these circumstances,
the department head, with the approval of the General
Counsel, may take those measures rather than the measures
described above.
<PAGE>
FUNCTIONS "ABOVE THE WALL" - Some functions at Mellon are
deemed to be "Above the Wall." For example, members of
senior management, Auditing, Risk Management and
Compliance, and the Legal Department will typically need to
have access to information on both sides of the "Chinese
Wall" to carry out their job responsibilities. These
individuals cannot rely on the procedural safeguards of the
"Chinese Wall" and, therefore, need to be particularly
careful to avoid any improper use or dissemination of
material nonpublic information.
SUPPLEMENTAL PROCEDURES - As appropriate, certain Mellon
departments or areas, such as Mellon Trust, should
establish their own procedures to reduce the possibility of
information being communicated to associates who should not
have access to that information.
<PAGE>
SECTION FOUR
RESTRICTIONS ON TRANSACTIONS
IN MELLON SECURITIES
Associates who engage in transactions involving Mellon
securities should be aware of their unique responsibilities
with respect to such transactions arising from the
employment relationship and should be sensitive to even the
appearance of impropriety.
The following restrictions apply to all transactions in
Mellon's publicly traded securities occurring in the
associate's own account and in all other accounts over
which the associate could be expected to exercise influence
or control (see provisions under "Beneficial Ownership"
below for a more complete discussion of the accounts to
which these restrictions apply). These restrictions are to
be followed in addition to any restrictions that apply to
particular officers or directors (such as restrictions
under Section 16 of the Securities Exchange Act of 1934).
o Short Sales - Short sales of Mellon securities by
associates are prohibited.
o Sales Within 60 Days of Purchase - Sales of Mellon
securities within 60 days of acquisition are prohibited.
For purposes of the 60-day holding period, securities will
be deemed to be equivalent if one is convertible into the
other, if one entails a right to purchase or sell the
other, or if the value of one is expressly dependent on the
value of the other (e.g., derivative securities).
In cases of extreme hardship, associates (other than senior
management) may obtain permission to dispose of Mellon
securities acquired within 60 days of the proposed
transaction, provided the transaction is pre-cleared with
the Manager of Corporate Compliance and any profits earned
are disgorged in accordance with procedures established by
senior management. The Manager of Corporate Compliance
reserves the right to suspend the 60-day holding period
restriction in the event of severe market disruption.
o Margin Transactions - Purchases on margin of Mellon's
publicly traded securities by associates is prohibited.
Margining Mellon securities in connection with a cashless
exercise of an employee stock option through the Human
Resources Department is exempt from this restriction.
Further, Mellon securities may be used to collateralize
loans or the acquisition of securities other than those
issued by Mellon.
o Option Transactions - Option transactions involving
Mellon's publicly traded securities are prohibited.
Transactions under Mellon's Long-Term Incentive Plan or
other associate option plans are exempt from this
restriction.
o Major Mellon Events - Associates who have knowledge of
major Mellon events that have not yet been announced are
prohibited from buying and selling Mellon's publicly traded
securities before such public announcements, even if the
associate believes the event does not constitute material
nonpublic information.
o Mellon Blackout Period - Associates are prohibited from
buying or selling Mellon's publicly traded securities
during a blackout period, which begins the 16th day of the
last month of each calendar quarter and ends three business
days after Mellon publicly announces the financial results
for that quarter. In cases of extreme hardship, associates
(other than senior management) may request permission from
the Manager of Corporate Compliance to dispose of Mellon
securities during the blackout period.
<PAGE>
BENEFICIAL OWNERSHIP - The provisions discussed above apply
to transactions in the associate's own name and to all
other accounts over which the associate could be expected
to exercise influence or control, including:
o accounts of a spouse, minor children or relatives to whom
substantial support is contributed;
o accounts of any other member of the associate's household
(e.g., a relative living in the same home);
o trust accounts for which the associate acts as trustee or
otherwise exercises any type of guidance or influence;
o Corporate accounts controlled, directly or indirectly, by
the associate;
o arrangements similar to trust accounts that are established
for bona fide financial purposes and benefit the associate;
and
o any other account for which the associate is the beneficial
owner (see Glossary for a more complete legal definition of
"beneficial owner").
<PAGE>
SECTION FIVE
RESTRICTIONS ON TRANSACTIONS
IN OTHER SECURITIES
Purchases or sales by an associate of the securities of
issuers with which Mellon does business, or other third
party issuers, could result in liability on the part of
such associate. Associates should be sensitive to even the
appearance of impropriety in connection with their personal
securities transactions. Associates should refer to the
provisions under "Beneficial Ownership" (Section Four,
"Restrictions on Transactions in Mellon Securities"), which
are equally applicable to the following provisions.
The Mellon Code of Conduct contains certain restrictions on
investments in parties that do business with Mellon.
Associates should refer to the Code of Conduct and comply
with such restrictions in addition to the restrictions and
reporting requirements set forth below.
The following restrictions apply to all securities
transactions by associates:
o Credit or Advisory Relationship - Associate may not buy or
sell securities of a company if they are considering
granting, renewing or denying any credit facility to that
company or acting as an adviser to that company with
respect to its securities. In addition, lending associates
who have assigned responsibilities in a specific industry
group are not permitted to trade securities in that
industry. This prohibition does not apply to transactions
in securities issued by open-end investment companies.
o Customer Transactions - Trading for customers and Mellon
accounts should always take precedence over associates'
transactions for their own or related accounts.
o Front Running - Associates may not engage in "front
running," that is, the purchase or sale of securities for
their own accounts on the basis of their knowledge of
Mellon's trading positions or plans.
o Initial Public Offerings - Mellon prohibits its associates
from acquiring any securities in an initial public offering
("IPO").
o Margin Transactions - Margin trading is a highly leveraged
and relatively risky method of investing that can create
particular problems for financial services employees. For
this reason, all associates are urged to avoid margin
trading.
Prior to establishing a margin account, the associate must
obtain the written permission of the Manager of Corporate
Compliance. Any associate having a margin account prior to
the effective date of this Policy must notify the Manager
of Corporate Compliance of the existence of such account.
<PAGE>
All associates having margin accounts, other than described
below, must designate the Manager of Corporate Compliance
as an interested party on that account. Associates must
ensure that the Manager of Corporate Compliance promptly
receives copies of all trade confirmations and statements
relating to the account directly from the broker. If
requested by a brokerage firm, please contact the Manager
of Corporate Compliance to obtain a letter (sometimes
referred to as a "407 letter") granting permission to
maintain a margin account. Trade confirmations and
statements are not required on margin accounts established
at Dreyfus Investment Services Corporation for the sole
purpose of cashless exercises of employee stock options. In
addition, products may be offered by a broker/dealer that,
because of their characteristics, are considered margin
accounts but have been determined by the Manager of
Corporate Compliance to be outside the scope of this Policy
(e.g., a Cash Management Account which provides overdraft
protection for the customer). Any questions regarding the
establishment, use and reporting of margin accounts should
be directed to the Manager of Corporate Compliance.
Examples of an instruction letter to a broker are shown in
Exhibits B1 and B2.
o Material Nonpublic Information - Associates possessing
material nonpublic information regarding any issuer of
securities must refrain from purchasing or selling
securities of that issuer until the information becomes
public or is no longer considered material.
o Naked Options, Excessive Trading - Mellon discourages all
associates from engaging in short-term or speculative
trading, in trading naked options, in trading that could be
deemed excessive or in trading that could interfere with an
associate's job responsibilities.
o Private Placements - Associates are prohibited from
acquiring any security in a private placement unless they
obtain the prior written approval of the Preclearance
Compliance Officer (applicable only to Investment
Associates), the Manager of Corporate Compliance and the
associate's department head. Approval must be given by all
appropriate aforementioned persons for the acquisition to
be considered approved. After receipt of the necessary
approvals and the acquisition, associates are required to
disclose that investment when they participate in any
subsequent consideration of an investment in the issuer for
an advised account. Final decision to acquire such
securities for an advised account will be subject to
independent review.
o Scalping - Associates may not engage in "scalping," that
is, the purchase or sale of securities for their own or
Mellon's accounts on the basis of knowledge of customers'
trading positions or plans or Mellon's forthcoming
investment recommendations.
o Short-Term Trading - Associates are discouraged from
purchasing and selling, or from selling and purchasing, the
same (or equivalent) securities within 60 calendar days.
With respect to Investment Associates only, any profits
realized on such short-term trades must be disgorged in
accordance with procedures established by senior
management.
<PAGE>
SECTION SIX
CLASSIFICATION OF ASSOCIATES
Associates are engaged in a wide variety of activities for
Mellon. In light of the nature of their activities and the
impact of federal and state laws and the regulations
thereunder, the Policy imposes different requirements and
limitations on associates based on the nature of their
activities for Mellon. To assist the associates in
complying with the requirements and limitations imposed on
them in light of their activities, associates are
classified into one of three categories: Insider Risk
Associate, Investment Associate and Other Associate.
Appropriate requirements and limitations are specified in
the Policy based upon the associate's classification.
INSIDER RISK ASSOCIATE -
You are considered to be an Insider Risk Associate if you
are:
o employed in any of the following departments or functional
areas, however named, of a Mellon entity other than Dreyfus
(see Glossary for definition of "Dreyfus"):
<TABLE>
<CAPTION>
<S> <C>
- Auditing - International
- Capital Markets - Leasing
- Corporate Affairs - Legal
- Credit Policy - Mellon Business Credit
- Credit Recovery - Middle Market
- Credit Review - Portfolio and Funds Management
- Domestic Corporate Banking - Risk Management and Compliance
- Finance - Strategic Planning
- Institutional Banking - Wholesale, Administration and
Operations
</TABLE>
O a member of the Mellon Senior Management Committee,
provided that those members of the Mellon Senior Management
Committee who have management responsibility for fiduciary
activities or who routinely have access to information
about customers' securities transactions are considered to
be Investment Associates and are subject to those
provisions of the Policy pertaining to Investment
Associates;
o employed by a broker/dealer subsidiary of a Mellon
entity other than Dreyfus;
o an associate in the Stock Transfer business unit and have
been specifically designated as an Insider Risk Associate
by the Manager of Corporate Compliance; or
o an associate specifically designated as an Insider Risk
Associate by the Manager of Corporate Compliance.
<PAGE>
INVESTMENT ASSOCIATE -
You are considered to be an Investment Associate if you
are:
o a member of Mellon's Senior Management Committee who, as
part of his/her usual duties, has management responsibility
for fiduciary activities or routinely has access to
information about customers' securities transactions;
o a Dreyfus associate;
o an associate of a Mellon entity registered under the
Investment Advisers Act of 1940;
o employed in the trust area of Mellon and:
- have the title of Vice President, First Vice President
or Senior Vice President; or
- have access to material, confidential information
regarding securities transactions by or on behalf of
Mellon customers; or
o an associate specifically designated as an Investment
Associate by the Manager of Corporate Compliance.
OTHER ASSOCIATE -
You are considered to be an Other Associate if you are an
associate of Mellon Bank Corporation or any of its direct
or indirect subsidiaries who is not either an Insider Risk
Associate or an Investment Associate.
<PAGE>
PART II - APPLICABLE TO INSIDER
RISK ASSOCIATES ONLY
- ------------------------------
PROHIBITION ON INVESTMENTS IN SECURITIES OF FINANCIAL
SERVICES ORGANIZATIONS
You are prohibited from acquiring any security issued by a
financial services organization if you are:
o a member of the Mellon Senior Management Committee. For
purposes of this restriction only, this prohibition also
applies to those members of the Mellon Senior Management
Committee who are considered Investment Associates.
o employed in any of the following departments of a Mellon
entity other than Dreyfus (see Glossary for definition of
"Dreyfus"):
- Strategic Planning - Finance
- Institutional Banking - Legal
o an associate specifically designated by the Manager of
Corporate Compliance and informed that this prohibition is
applicable to you.
Financial Services Organizations - The term "security
issued by a financial services organization" includes any
security issued by:
<TABLE>
<CAPTION>
<S> <C>
- Commercial Banks - Bank Holding Companies
(other than Mellon) (other than Mellon)
- Thrifts - Savings and Loan Associations
- Insurance Companies - Broker/Dealers
- Investment Advisory Companies - Transfer Agents
- Shareholder Servicing - Other Depository
Companies Institutions
</TABLE>
The term "securities issued by a financial services
organization" DOES NOT INCLUDE securities issued by mutual
funds, variable annuities or insurance policies. Further,
for purposes of determining whether a company is a
financial services organization, subsidiaries and parent
companies are treated as separate issuers.
Effective Date - The foregoing restrictions will be
effective upon adoption of this Policy. Securities of
financial services organizations properly acquired before
the later of the effective date of this Policy or the date
of hire may be maintained or disposed of at the owner's
discretion.
Additional securities of a financial services organization
acquired through the reinvestment of the dividends paid by
such financial services organization through a dividend
reinvestment program (DRIP) are not subject to this
prohibition, provided your election to participate in the
DRIP predates the later of the effective date of this
Policy or date of hire. Optional cash purchases through a
DRIP are subject to this prohibition.
Within 30 days of the later of the effective date of this
Policy or date of becoming subject to this prohibition, all
holdings of securities of financial services organizations
must be disclosed in writing to the Manager of Corporate
Compliance. Periodically, you will be asked to file an
updated disclosure of all your holdings of securities of
financial services organizations.
<PAGE>
CONFLICT OF INTEREST - No Insider Risk Associate may engage
in or recommend any securities transaction that places, or
appears to place, his or her own interests above those of
any customer to whom investment services are rendered,
including mutual funds and managed accounts, or above the
interests of Mellon.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - All
Insider Risk Associates must notify the Manager of
Corporate Compliance in writing and receive preclearance
before they engage in any purchase or sale of a security.
Insider Risk Associates should refer to the provisions
under "Beneficial Ownership" (Section Four, "Restrictions
on Transactions in Mellon Securities"), which are equally
applicable to these provisions.
Exemptions from Requirement to Preclear - Preclearance is
not required for the following transactions:
O purchases or sales of Exempt Securities (see Glossary);
o purchases or sales of municipal bonds;
o purchases or sales effected in any account over which an
associate has no direct or indirect control over the
investment decision-making process (e.g., nondiscretionary
trading accounts). Nondiscretionary trading accounts may
only be maintained, without being subject to preclearance
procedures, when the Manager of Corporate Compliance, after
a thorough review, is satisfied that the account is truly
nondiscretionary;
o transactions that are non-volitional on the part of an
associate (such as stock dividends);
o the sale of stock received upon the exercise of an
associate stock option if the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human
Resources Department (for which the Human Resources
Department will forward information to the Manager of
Corporate Compliance);
o the automatic reinvestment of dividends under a DRIP
(preclearance is required for optional cash purchases under
a DRIP);
o purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities, to
the extent such rights were acquired from such issuer;
o sales of rights acquired from an issuer, as described
above; and/or
O those situations where the Manager of Corporate Compliance
determines, after taking into consideration the particular
facts and circumstances, that prior approval is not
necessary.
Requests for Preclearance - All requests for preclearance
for a securities transaction shall be submitted to the
Manager of Corporate Compliance by completing a
Preclearance Request Form (see Exhibit C1).
The Manager of Corporate Compliance will notify the Insider
Risk Associate whether the request is approved or denied,
without disclosing the reason for such approval or denial.
<PAGE>
Notifications may be given in writing or verbally by the
Manager of Corporate Compliance to the Insider Risk
Associate. A record of such notification will be maintained
by the Manager of Corporate Compliance. However, it shall
be the responsibility of the Insider Risk Associate to
obtain a written record of the Manager of Corporate
Compliance's notification within 24 hours of such
notification. The Insider Risk Associate should retain a
copy of this written record.
As there could be many reasons for preclearance being
granted or denied, Insider Risk Associates should not infer
from the preclearance response anything regarding the
security for which preclearance was requested.
Although making a preclearance request does not obligate an
Insider Risk Associate to do the transaction, it should be
noted that:
o preclearance authorization will expire at the end of the
third business day after it is received (the day
authorization is granted is considered the first business
day);
O preclearance requests should not be made for a
transaction that the Insider Risk Associate does not
intend to make; and
o Insider Risk Associates should not discuss with anyone
else, inside or outside Mellon, the response they received
to a preclearance request.
Every Insider Risk Associate must follow these procedures
or risk serious sanctions, including dismissal. If you have
any questions about these procedures you should consult the
Manager of Corporate Compliance. Interpretive issues that
arise under these procedures shall be decided by, and are
subject to the discretion of, the Manager of Corporate
Compliance.
Restricted List - The Manager of Corporate Compliance will
maintain a list (the "Restricted List") of companies whose
securities are deemed appropriate for implementation of
trading restrictions for Insider Risk Associates.
Restricted List(s) will not be distributed outside of the
Risk Management and Compliance Department. From time to
time, such trading restrictions may be appropriate to
protect Mellon and its Insider Risk Associates from
potential violations, or the appearance of violations, of
securities laws. The inclusion of a company on the
Restricted List provides no indication of the advisability
of an investment in the company's securities or the
existence of material nonpublic information on the company.
Nevertheless, the contents of the Restricted List will be
treated as confidential information to avoid unwarranted
inferences.
To assist the Manager of Corporate Compliance in
identifying companies that may be appropriate for inclusion
on the Restricted List, the department heads of sections in
which Insider Risk Associates are employed will inform the
Manager of Corporate Compliance in writing of any companies
they believe should be included on the Restricted List,
based upon facts known or readily available to such
department heads. Although the reasons for inclusion on the
Restricted List may vary, they could typically include the
following:
o Mellon is involved as a lender, investor or adviser in a
merger, acquisition or financial restructuring involving
the company;
o Mellon is involved as a selling shareholder in a public
distribution of the company's securities;
<PAGE>
o Mellon is involved as an agent in the distribution of the
company's securities;
o Mellon has received material nonpublic information on the
company;
o Mellon is considering the exercise of significant
creditors' rights against the company; or
o The company is a Mellon borrower in Credit Recovery.
Department heads of sections in which Insider Risk
Associates are employed are also responsible for notifying
the Manager of Corporate Compliance in writing of any
change in circumstances making it appropriate to remove a
company from the Restricted List.
PERSONAL SECURITIES TRANSACTIONS REPORTS
o Brokerage Accounts - All Insider Risk Associates are
required to instruct their brokers to submit directly to
the Manager of Corporate Compliance copies of all trade
confirmations and statements relating to their account. An
example of an instruction letter to a broker is contained
in Exhibit B1.
o Report of Transactions in Mellon Securities - Insider Risk
Associates must also report in writing to the Manager of
Corporate Compliance within ten calendar days whenever they
purchase or sell Mellon securities if the transaction was
not through a brokerage account as described above.
Purchases and sales of Mellon securities include the
following:
DRIP Optional Cash Purchases - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
Stock Options - The sale of stock received upon the
exercise of an associate stock option unless the sale is
part of a "netting of shares" or "cashless exercise"
administered by the Human Resources Department (for which
the Human Resources Department will forward information to
the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under
the DRIP, changes in elections under Mellon's Retirement
Savings Plan, the receipt of stock under Mellon's
Restricted Stock Award Plan and the receipt or exercise of
options under Mellon's Long-Term Profit Incentive Plan are
not considered purchases or sales for the purpose of this
reporting requirement.
An example of a written report to the Manager of Corporate
Compliance is contained in Exhibit A.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE,
ALL PERSONAL SECURITIES TRANSACTION REPORTS AND ALL REPORTS
OF SECURITIES HOLDINGS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND BY
OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
<PAGE>
PART III - APPLICABLE TO
INVESTMENT ASSOCIATES ONLY
- ------------------------------
Because of their particular responsibilities, Investment
Associates are subject to different preclearance and
personal securities reporting requirements as discussed
below.
SPECIAL STANDARDS OF CONDUCT FOR INVESTMENT ASSOCIATES
Conflict of Interest - No Investment Associate may
recommend a securities transaction for a Mellon customer to
whom a fiduciary duty is owed, or for Mellon, without
disclosing any interest he or she has in such securities or
issuer (other than an interest in publicly traded
securities where the total investment is equal to or less
than $25,000), including:
o any direct or indirect beneficial ownership of any
securities of such issuer;
o any contemplated transaction by the Investment Associate in
such securities;
o any position with such issuer or its affiliates; and
o any present or proposed business relationship between such
issuer or its affiliates and the Investment Associate or
any party in which the Investment Associate has a
beneficial ownership interest (see "Beneficial Ownership"
in Section Four, "Restrictions On Transactions in Mellon
Securities").
Portfolio Information - No Investment Associate may divulge
the current portfolio positions, or current or anticipated
portfolio transactions, programs or studies, of Mellon or
any Mellon customer to anyone unless it is properly within
his or her job responsibilities to do so.
Material Nonpublic Information - No Investment Associate
may engage in or recommend a securities transaction, for
his or her own benefit or for the benefit of others,
including Mellon or its customers, while in possession of
material nonpublic information regarding such securities.
No Investment Associate may communicate material nonpublic
information to others unless it is properly within his or
her job responsibilities to do so.
Short-Term Trading - Any Investment Associate who purchases
and sells, or sells and purchases, the same (or equivalent)
securities within any 60-calendar-day period is required to
disgorge all profits realized on such transaction in
accordance with procedures established by senior
management. For this purpose, securities will be deemed to
be equivalent if one is convertible into the other, if one
entails a right to purchase or sell the other, or if the
value of one is expressly dependent on the value of the
other (e.g., derivative securities).
Additional Restrictions For Dreyfus Associates and
Associates of Mellon Entities Registered Under The
Investment Advisers Act of 1940 ONLY ("40 Act
Associates")
o Outside Activities - No 40 Act associate may serve on the
board of directors/trustees or as a general partner of any
publicly traded company (other than Mellon) without the
prior approval of the Manager of Corporate Compliance.
<PAGE>
o Gifts - All 40 Act associates are prohibited from accepting
gifts from outside companies, or their representatives,
with an exception for gifts of (1) a de minimis value and
(2) an occasional meal, a ticket to a sporting event or the
theater, or comparable entertainment for the 40 Act
associate and, if appropriate, a guest, which is neither so
frequent nor extensive as to raise any question of
impropriety. A gift shall be considered de minimis if it
does not exceed an annual amount per person fixed
periodically by the National Association of Securities
Dealers, which is currently $100 per person.
o Blackout Period - 40 Act associates will not be given
clearance to execute a transaction in any security that is
being considered for purchase or sale by an affiliated
investment company, managed account or trust, for which a
pending buy or sell order for such affiliated account is
pending, and for two business days after the transaction in
such security for such affiliated account has been
effected. This provision does not apply to transactions
effected or contemplated by index funds.
In addition, portfolio managers for the investment
companies are prohibited from buying or selling a security
within seven calendar days before and after such investment
company trades in that security. Any violation of the
foregoing will require the violator to disgorge all profit
realized with respect to such transaction.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - All
Investment Associates must notify the Preclearance
Compliance Officer (see Glossary) in writing and receive
preclearance before they engage in any purchase or sale of
a security.
Exemptions from Requirement to Preclear - Preclearance is
not required for the following transactions:
o purchases or sales of "Exempt Securities" (see Glossary);
o purchases or sales effected in any account over which an
associate has no direct or indirect control over the
investment decision-making process (i.e., nondiscretionary
trading accounts). Nondiscretionary trading accounts may
only be maintained, without being subject to preclearance
procedures, when the Preclearance Compliance Officer, after
a thorough review, is satisfied that the account is truly
nondiscretionary;
O transactions which are non-volitional on the part of an
associate (such as stock dividends);
o the sale of stock received upon the exercise of an
associate stock option if the sale is part of a "netting of
shares" or "cashless exercise" administered by the Human
Resources Department (for which the Human Resources
Department will forward information to the manager of
Corporate Compliance);
o purchases which are part of an automatic reinvestment of
dividends under a DRIP (Preclearance is required for
optional cash purchases under a DRIP);
o purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities, to
the extent such rights were acquired from such issuer;
o sales of rights acquired from an issuer, as described
above; and/or
o those situations where the Preclearance Compliance Officer
determines, after taking into consideration the particular
facts and circumstances, that prior approval is not
necessary.
<PAGE>
Requests for Preclearance - All requests for preclearance
for a securities transaction shall be submitted to the
Preclearance Compliance Officer by completing a
Preclearance Request Form. (Investment Associates other
than Dreyfus associates are to use the Preclearance Request
Form shown as Exhibit C1. Dreyfus associates are to use the
Preclearance Request Form shown as Exhibit C2.)
The Preclearance Compliance Officer will notify the
Investment Associate whether the request is approved or
denied without disclosing the reason for such approval or
denial.
Notifications may be given in writing or verbally by the
Preclearance Compliance Officer to the Investment
Associate. A record of such notification will be maintained
by the Preclearance Compliance Officer. However, it shall
be the responsibility of the Investment Associate to obtain
a written record of the Preclearance Compliance Officer's
notification within 24 hours of such notification. The
Investment Associate should retain a copy of this written
record.
As there could be many reasons for preclearance being
granted or denied, Investment Associates should not infer
from the preclearance response anything regarding the
security for which preclearance was requested.
Although making a preclearance request does not obligate an
Investment Associate to do the transaction, it should be
noted that:
o preclearance authorization will expire at the end of the
day on which preclearance is given;
o preclearance requests should not be made for a transaction
that the Investment Associate does not intend to make; and
o Investment Associates should not discuss with anyone else,
inside or outside Mellon, the response the Investment
Associate received to a preclearance request.
Every Investment Associate must follow these procedures or
risk serious sanctions, including dismissal. If you have
any questions about these procedures, consult the
Preclearance Compliance Officer. Interpretive issues that
arise under these procedures shall be decided by, and are
subject to the discretion of, the Manager of Corporate
Compliance.
Restricted List - Each Preclearance Compliance Officer will
maintain a list (the "Restricted List") of companies whose
securities are deemed appropriate for implementation of
trading restrictions for Investment Associates in their
area. From time to time, such trading restrictions may be
appropriate to protect Mellon and its Investment Associates
from potential violations, or the appearance of violations,
of securities laws. The inclusion of a company on the
Restricted List provides no indication of the advisability
of an investment in the company's securities or the
existence of material nonpublic information on the company.
Nevertheless, the contents of the Restricted List will be
treated as confidential information in order to avoid
unwarranted inferences.
In order to assist the Preclearance Compliance Officer in
identifying companies that may be appropriate for inclusion
on the Restricted List, the head of the
entity/department/area in which Investment Associates are
employed will inform the appropriate Preclearance
Compliance Officer in writing of any companies that they
believe should be included on the Restricted List based
upon facts known or readily available to such department
heads.
<PAGE>
PERSONAL SECURITIES TRANSACTIONS REPORTS
o Brokerage Accounts - All Investment Associates are required
to instruct their brokers to submit directly to the Manager
of Corporate Compliance copies of all trade confirmations
and statements relating to their account. Examples of
instruction letters to a broker are contained in Exhibits
B1 and B2.
o Report of Transactions in Mellon Securities - Investment
Associates must also report in writing to the Manager of
Corporate Compliance within ten calendar days whenever they
purchase or sell Mellon securities if the transaction was
not through a brokerage account as described above.
Purchases and sales of Mellon securities include the
following:
DRIP Optional Cash Purchases - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
Stock Options - The sale of stock received upon the
exercise of an associate stock option unless the sale is
part of a "netting of shares" or "cashless exercise"
administered by the Human Resources Department (for which
the Human Resources Department will forward information to
the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under
the DRIP, changes in elections under Mellon's Retirement
Savings Plan, the receipt of stock under Mellon's
Restricted Stock Award Plan, and the receipt or exercise of
options under Mellon's Long-Term Profit Incentive Plan are
not considered purchases or sales for the purpose of this
reporting requirement.
An example of a written report to the Manager of Corporate
Compliance is contained in Exhibit A.
o Statement of Securities Holdings - Within ten days of
receiving this Policy and on an annual basis thereafter,
all Investment Associates must submit to the Manager of
Corporate Compliance a statement of all securities in which
they presently have any direct or indirect beneficial
ownership other than Exempt Securities, as defined in the
Glossary. Investment Associates should refer to "Beneficial
Ownership" in Section Four, "Restrictions on Transactions
in Mellon Securities," which is also applicable to
Investment Associates. Such statements should be in the
format shown in Exhibit D. The annual report must be
submitted by January 31 and must report all securities
holdings other than Exempt Securities. The annual statement
of securities holdings contains an acknowledgment that the
Investment Associate has read and complied with this
Policy.
o Special Requirement with Respect to Affiliated Investment
Companies - The portfolio managers, research analysts and
other Investment Associates specifically designated by the
Manager of Corporate Compliance are required within ten
calendar days of receiving this Policy (and by no later
than ten calendar days after the end of each calendar
quarter) to report every transaction in the securities
issued by an affiliated investment company occurring in an
account in which the Investment Associate has a beneficial
ownership interest. The quarterly reporting requirement may
be satisfied by notifying the Manager of Corporate
Compliance of the name of the investment company, account
name and account number for which such quarterly reports
must be submitted.
<PAGE>
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE,
ALL PERSONAL SECURITIES TRANSACTION REPORTS AND ALL REPORTS
OF SECURITIES HOLDINGS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES, AND BY
OTHER PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
DOCUMENTS RECEIVED FROM DREYFUS ASSOCIATES ARE ALSO
AVAILABLE FOR INSPECTION BY THE BOARDS OF DIRECTORS OF
DREYFUS AND BY THE BOARDS OF DIRECTORS (OR TRUSTEES OR
MANAGING GENERAL PARTNERS, AS APPLICABLE) OF THE INVESTMENT
COMPANIES MANAGED OR ADMINISTERED BY DREYFUS.
<PAGE>
PART IV - APPLICABLE TO
OTHER ASSOCIATES ONLY
- ------------------------------
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS - Except
for private placements, Other Associates are permitted to
engage in personal securities transactions without
obtaining prior approval from the Manager of Corporate
Compliance (for preclearance of private placements, use the
Preclearance Request Form shown as Exhibit C1.)
PERSONAL SECURITIES TRANSACTIONS REPORTS - Other Associates
are not required to report their personal securities
transactions other than margin transactions and
transactions involving Mellon securities as discussed
below. Other Associates are required to instruct their
brokers to submit directly to the Manager of Corporate
Compliance copies of all confirmations and statements
pertaining to margin accounts. Examples of an instruction
letter to a broker are shown in Exhibit B1.
Report of Transactions in Mellon Securities - Other
Associates must report in writing to the Manager of
Corporate Compliance within ten calendar days whenever they
purchase or sell Mellon securities. Purchases and sales of
Mellon securities include the following:
o DRIP Optional Cash Purchases - Optional cash purchases
under Mellon's Dividend Reinvestment and Common Stock
Purchase Plan (the "Mellon DRIP").
o Stock Options - The sale of stock received upon the
exercise of an associate stock option unless the sale is
part of a "netting of shares" or "cashless exercise"
administered by the Human Resources Department (for which
the Human Resources Department will forward information to
the Manager of Corporate Compliance).
It should be noted that the reinvestment of dividends under
the DRIP, changes in elections under Mellon's Retirement
Savings Plan, the receipt of stock under Mellon's
Restricted Stock Award Plan and the receipt or exercise of
options under Mellon's Long-Term Profit Incentive Plan are
not considered purchases or sales for the purpose of this
reporting requirement.
An example of a written report to the Manager of Corporate
Compliance is contained in Exhibit A.
RESTRICTIONS ON TRANSACTIONS IN OTHER SECURITIES
Margin Transactions - Prior to establishing a margin
account, Other Associates must obtain the written
permission of the Manager of Corporate Compliance. Other
Associates having a margin account prior to the effective
date of this Policy must notify the Manager of Corporate
Compliance of the existence of such account.
<PAGE>
All associates having margin accounts, other than described
below, must designate the Manager of Corporate Compliance
as an interested party on each account. Associates must
ensure that the Manager of Corporate Compliance promptly
receives copies of all trade confirmations and statements
relating to the accounts directly from the broker. If
requested by a brokerage firm, please contact the Manager
of Corporate Compliance to obtain a letter (sometimes
referred to as a "407 letter") granting permission to
maintain a margin account. Trade confirmations and
statements are not required on margin accounts established
at Dreyfus Investment Services Corporation for the sole
purpose of cashless exercises of Mellon employee stock
options. In addition, products may be offered by a
broker/dealer that, because of their characteristics, are
considered margin accounts but have been determined by the
Manager of Corporate Compliance to be outside the scope of
this Policy (e.g., a Cash Management account which provides
overdraft protection for the customer). Any questions
regarding the establishment, use and reporting of margin
accounts should be directed to the Manager of Corporate
Compliance. An example of an instruction letter to a broker
is shown in Exhibit B1.
Private Placements - Other Associates are prohibited from
acquiring any security in a private placement unless they
obtain the prior written approval of the Manager of
Corporate Compliance and the Associate's department head.
Approval must be given by both of the aforementioned
persons for the acquisition to be considered approved.
As there could be many reasons for preclearance being
granted or denied, Other Associates should not infer from
the preclearance response anything regarding the security
for which preclearance was requested.
Although making a preclearance request does not obligate an
Other Associate to do the transaction, it should be noted
that:
o preclearance authorization will expire at the end of the
third business day after it is received (the day
authorization is granted is considered the first business
day);
o preclearance requests should not be made for a transaction
that the Other Associate does not intend to make; and
o Other Associates should not discuss with anyone else,
inside or outside Mellon, the response they received to a
preclearance request.
Every Other Associate must follow these procedures or risk
serious sanctions, including dismissal. If you have any
questions about these procedures you should consult the
Manager of Corporate Compliance. Interpretive issues that
arise under these procedures shall be decided by, and are
subject to the discretion of, the Manager of Corporate
Compliance.
CONFIDENTIAL TREATMENT
THE MANAGER OF CORPORATE COMPLIANCE WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL REQUESTS FOR PRECLEARANCE,
ALL PERSONAL SECURITIES TRANSACTION REPORTS AND ALL REPORTS
OF SECURITIES HOLDINGS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER
PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
<PAGE>
PART V - APPLICABLE TO
NONMANAGEMENT BOARD MEMBER
- ------------------------------
NONMANAGEMENT BOARD MEMBER -
You are considered to be a Nonmanagement Board Member if
you are:
o a director of Dreyfus who is not also an officer or
employee of Dreyfus ("Dreyfus Board Member"); or
o a director, trustee or managing general partner of any
investment company who is not also an officer or employee
of Dreyfus ("Mutual Fund Board Member").
The term "Independent" Mutual Fund Board Member means those
Mutual Fund Board Members who are not deemed "interested
persons" of an investment company, as defined by the
Investment Company Act of 1940, as amended.
STANDARDS OF CONDUCT FOR NONMANAGEMENT BOARD MEMBER
Outside Activities - Nonmanagement Board Members are
prohibited from:
o accepting nomination or serving as a director, trustee or
managing general partner of an investment company not
advised by Dreyfus, without the express prior approval of
the board of directors of Dreyfus and the board of
directors/trustees or managing general partners of the
pertinent Dreyfus-managed fund(s) for which a Nonmanagement
Board Member serves as a director, trustee or managing
general partner;
o accepting employment with or acting as a consultant to any
person acting as a registered investment adviser to an
investment company without the express prior approval of
the board of directors of Dreyfus;
o owning Mellon securities if the Nonmanagement Board Member
is an "Independent" Mutual Fund Board Member, (since that
would destroy his or her "independent" status); and/or
o buying or selling Mellon's publicly traded securities
during a blackout period, which begins the 16th day of the
last month of each calendar quarter and ends three business
days after Mellon publicly announces the financial results
for that quarter.
Insider Trading and Tipping - The provisions set forth in
Section Two, "Insider Trading and Tipping," are applicable
to Nonmanagement Board Members.
<PAGE>
Conflict of Interest - No Nonmanagement Board Member may
recommend a securities transaction for Mellon, Dreyfus or
any Dreyfus-managed fund without disclosing any interest he
or she has in such securities or issuer thereof (other than
an interest in publicly traded securities where the total
investment is less than or equal to $25,000), including:
o any direct or indirect beneficial ownership of any
securities of such issuer;
o any contemplated transaction by the Nonmanagement Board
Member in such securities;
o any position with such issuer or its affiliates; and
o any present or proposed business relationship between such
issuer or its affiliates and the Nonmanagement Board Member
or any party in which the Nonmanagement Board Member has a
beneficial ownership interest (see "Beneficial Ownership",
Section Four, "Restrictions on Transaction in Mellon
Securities").
Portfolio Information - No Nonmanagement Board Member may
divulge the current portfolio positions, or current or
anticipated portfolio transactions, programs or studies, of
Mellon, Dreyfus or any Dreyfus-managed fund, to anyone
unless it is properly within his or her responsibilities as
a Nonmanagement Board Member to do so.
Material Nonpublic Information - No Nonmanagement Board
Member may engage in or recommend any securities
transaction, for his or her own benefit or for the benefit
of others, including Mellon, Dreyfus or any Dreyfus-managed
fund, while in possession of material nonpublic
information. No Nonmanagement Board Member may communicate
material nonpublic information to others unless it is
properly within his or her responsibilities as a
Nonmanagement Board Member to do so.
PRECLEARANCE FOR PERSONAL SECURITIES TRANSACTIONS -
Nonmanagement Board Members are permitted to engage in
personal securities transactions without obtaining prior
approval from the Preclearance Compliance Officer.
<PAGE>
PERSONAL SECURITY TRANSACTIONS REPORTS -
o "Independent" Mutual Fund Board Members - Any "Independent"
Mutual Fund Board Members, as defined above, who effects a
securities transaction where he or she knew, or in the
ordinary course of fulfilling his or her official duties
should have known, that during the 15-day period
immediately preceding or after the date of such
transaction, the same security was purchased or sold, or
was being considered for purchase or sale by Dreyfus
(including any investment company or other account managed
by Dreyfus), are required to report such personal
securities transaction. In the event a personal securities
transaction report is required, it must be submitted to the
Preclearance Compliance Officer not later than ten days
after the end of the calendar quarter in which the
transaction to which the report relates was effected. The
report must include the date of the transaction, the title
and number of shares or principal amount of the security,
the nature of the transaction (e.g., purchase, sale or any
other type of acquisition or disposition), the price at
which the transaction was effected and the name of the
broker or other entity with or through whom the transaction
was effected. This reporting requirement can be satisfied
by sending a copy of the confirmation statement regarding
such transactions to the Preclearance Compliance Officer
within the time period specified. Notwithstanding the
foregoing, personal securities transaction reports are not
required with respect to any securities transaction
described in "Exemption from the Requirement to Preclear"
in Part III.
o Dreyfus Board Members and "Interested" Mutual Fund Board
Members - Dreyfus Board Members and Mutual Fund Board
Members who are "interested persons" of an investment
company, as defined by the Investment Company Act of 1940,
are required to report their personal securities
transactions. Personal securities transaction reports are
required with respect to any securities transaction other
than those described in "Exemptions from Requirement to
Preclear" on Page 21. Personal securities transaction
reports are required to be submitted to the Preclearance
Compliance Officer not later than ten days after the end of
the calendar quarter in which the transaction to which the
report relates was effected. The report must include the
date of the transaction, the title and number of shares or
principal amount of the security, the nature of the
transaction (e.g., purchase, sale or any other type of
acquisition or disposition), the price at which the
transaction was effected and the name of the broker or
other entity with or through whom the transaction was
effected. This reporting requirement can be satisfied by
sending a copy of the confirmation statement regarding such
transactions to the Preclearance Compliance Officer within
the time period specified.
CONFIDENTIAL TREATMENT
THE PRECLEARANCE COMPLIANCE OFFICER WILL USE HIS OR HER
BEST EFFORTS TO ASSURE THAT ALL PERSONAL SECURITIES
TRANSACTION REPORTS ARE TREATED AS "PERSONAL AND
CONFIDENTIAL." HOWEVER, SUCH DOCUMENTS WILL BE AVAILABLE
FOR INSPECTION BY APPROPRIATE REGULATORY AGENCIES AND OTHER
PARTIES WITHIN AND OUTSIDE MELLON AS ARE NECESSARY TO
EVALUATE COMPLIANCE WITH OR SANCTIONS UNDER THIS POLICY.
<PAGE>
GLOSSARY
- ------------------------------
DEFINITIONS
o APPROVAL - written consent or written notice of
nonobjection.
o ASSOCIATE - any employee of Mellon Bank Corporation or its
direct or indirect subsidiaries; does not include outside
consultants or temporary help.
o BENEFICIAL OWNERSHIP - securities owned of record or held
in the associate's name are generally considered to be
beneficially owned by the associate.
Securities held in the name of any other person are deemed
to be beneficially owned by the associate if by reason of
any contract, understanding, relationship, agreement or
other arrangement, the associate obtains therefrom benefits
substantially equivalent to those of ownership, including
the power to vote, or to direct the disposition of, such
securities. Beneficial ownership includes securities held
by others for the associate's benefit (regardless of record
ownership), e.g. securities held for the associate or
members of the associate's immediate family, defined below,
by agents, custodians, brokers, trustees, executors or
other administrators; securities owned by the associate,
but which have not been transferred into the associate's
name on the books of the company; securities which the
associate has pledged; or securities owned by a corporation
that should be regarded as the associate's personal holding
corporation. As a natural person, beneficial ownership is
deemed to include securities held in the name or for the
benefit of the associate's immediate family, which includes
the associate's spouse, the associate's minor children and
stepchildren and the associate's relatives or the relatives
of the associate's spouse who are sharing the associate's
home, unless because of countervailing circumstances, the
associate does not enjoy benefits substantially equivalent
to those of ownership. Benefits substantially equivalent to
ownership include, for example, application of the income
derived from such securities to maintain a common home,
meeting expenses that such person otherwise would meet from
other sources, and the ability to exercise a controlling
influence over the purchase, sale or voting of such
securities. An associate is also deemed the beneficial
owner of securities held in the name of some other person,
even though the associate does not obtain benefits of
ownership, if the associate can vest or revest title in
himself at once, or at some future time.
In addition, a person will be deemed the beneficial owner
of a security if he has the right to acquire beneficial
ownership of such security at any time (within 60 days)
including but not limited to any right to acquire: (1)
through the exercise of any option, warrant or right; (2)
through the conversion of a security; or (3) pursuant to
the power to revoke a trust, nondiscretionary account or
similar arrangement.
<PAGE>
With respect to ownership of securities held in trust,
beneficial ownership includes ownership of securities as a
trustee in instances where either the associate as trustee
or a member of the associate's "immediate family" has a
vested interest in the income or corpus of the trust, the
ownership by the associate of a vested beneficial interest
in the trust and the ownership of securities as a settlor
of a trust in which the associate as the settlor has the
power to revoke the trust without obtaining the consent of
the beneficiaries. Certain exemptions to these trust
beneficial ownership rules exist, including an exemption
for instances where beneficial ownership is imposed solely
by reason of the associate being settlor or beneficiary of
the securities held in trust and the ownership, acquisition
and disposition of such securities by the trust is made
without the associate's prior approval as settlor or
beneficiary. "Immediate family" of an associate as trustee
means the associate's son or daughter (including any
legally adopted children) or any descendant of either, the
associate's stepson or stepdaughter, the associate's father
or mother or any ancestor of either, the associate's
stepfather or stepmother and his spouse.
To the extent that stockholders of a company use it as a
personal trading or investment medium and the company has
no other substantial business, stockholders are regarded as
beneficial owners, to the extent of their respective
interests, of the stock thus invested or traded in. A
general partner in a partnership is considered to have
indirect beneficial ownership in the securities held by the
partnership to the extent of his pro rata interest in the
partnership. Indirect beneficial ownership is not, however,
considered to exist solely by reason of an indirect
interest in portfolio securities held by any holding
company registered under the Public Utility Holding Company
Act of 1935, a pension or retirement plan holding
securities of an issuer whose employees generally are
beneficiaries of the plan and a business trust with over 25
beneficiaries.
Any person who, directly or indirectly, creates or uses a
trust, proxy, power of attorney, pooling arrangement or any
other contract, arrangement or device with the purpose or
effect of divesting such person of beneficial ownership as
part of a plan or scheme to evade the reporting
requirements of the Securities Exchange Act of 1934 shall
be deemed the beneficial owner of such security.
The final determination of beneficial ownership is a
question to be determined in light of the facts of a
particular case. Thus, while the associate may include
security holdings of other members of his family, the
associate may nonetheless disclaim beneficial ownership of
such securities.
o "CHINESE WALL" POLICY - procedures designed to restrict the
flow of information within Mellon from units or individuals
who are likely to receive material nonpublic information to
units or individuals who trade in securities or provide
investment advice. (see pages 12-14).
o CORPORATION - Mellon Bank Corporation.
o DREYFUS - The Dreyfus Corporation and its subsidiaries.
o DREYFUS ASSOCIATE - any employee of Dreyfus; does not
include outside consultants or temporary help.
<PAGE>
o EXEMPT SECURITIES - Exempt Securities are defined as:
- securities issued or guaranteed by the United States
government or agencies or instrumentalities;
- bankers' acceptances;
- bank certificates of deposit and time deposits;
- commercial paper;
- repurchase agreements; and
- securities issued by open-end investment companies.
o GENERAL COUNSEL - General Counsel of Mellon Bank
Corporation or any person to whom relevant authority is
delegated by the General Counsel.
o INDEX FUND - an investment company which seeks to mirror
the performance of the general market by investing in the
same stocks (and in the same proportion) as a broad-based
market index.
o INITIAL PUBLIC OFFERING (IPO) - the first offering of a
company's securities to the public.
o INVESTMENT COMPANY - a company that issues securities that
represent an undivided interest in the net assets held by
the company. Mutual funds are investment companies that
issue and sell redeemable securities representing an
undivided interest in the net assets of the company.
o MANAGER OF CORPORATE COMPLIANCE - - the associate within
the Risk Management and Compliance Department of Mellon
Bank Corporation who is responsible for administering the
Confidential Information and Securities Trading Policy, or
any person to whom relevant authority is delegated by the
Manager of Corporate Compliance.
o MELLON - Mellon Bank Corporation and all of its direct and
indirect subsidiaries.
o NAKED OPTION - an option sold by the investor which
obligates him or her to sell a security which he or she
does not own.
o NONDISCRETIONARY TRADING ACCOUNT - an account over which
the associated person has no direct or indirect control
over the investment decision-making process.
o OPTION - a security which gives the investor the right but
not the obligation to buy or sell a specific security at a
specified price within a specified time.
o PRECLEARANCE COMPLIANCE OFFICER - a person designated by
the Manager of Corporate Compliance, to administer, among
other things, associates' preclearance request for a
specific business unit.
o PRIVATE PLACEMENT - an offering of securities that is
exempt from registration under the Securities Act of 1933
because it does not constitute a public offering.
o SENIOR MANAGEMENT COMMITTEE - the Senior Management
Committee of Mellon Bank Corporation.
o SHORT SALE - the sale of a security that is not owned by
the seller at the time of the trade.
<PAGE>
INDEX OF EXHIBITS
- ------------------------------
EXHIBIT A SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
EXHIBIT B SAMPLE INSTRUCTION LETTER TO BROKER
EXHIBIT C PRECLEARANCE REQUEST FORM
EXHIBIT D PERSONAL SECURITIES HOLDINGS FORM
<PAGE>
EXHIBIT A
- ------------------------------
SAMPLE REPORT TO MANAGER OF CORPORATE COMPLIANCE
- --------------------------------------------------------------------------------
MELLON INTEROFFICE
MEMORANDUM
Date: From: Associate
To: Manager, Corporate Compliance Dept:
Aim #:
Aim #: 151-4342 Phone:
Fax:
- --------------------------------------------------------------------------------
RE: REPORT OF SECURITIES TRADE
Type of Associate: ____________ Insider Risk
____________ Investment
____________ Other
Type of Security: ____________ Mellon Bank Corporation
____________ Mellon Bank Corporation - optional
cash purchases under Dividend
Reinvestment and Common Stock
Purchase Plan
____________ Mellon Bank Corporation - exercise
of an employee stock option
Attached is a copy of the confirmation slip for a securities trade I
engaged in on _____________________, 19xx.
or
On _____________________, 19xx, I (purchased/sold)__________________
shares of ___________________________ through (broker). I will
arrange to have a copy of the confirmation slip for this trade
delivered to you as soon as possible.
<PAGE>
EXHIBIT B1
- ------------------------------
FOR NON-DREYFUS ASSOCIATES
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm
noted above, please be advised that the Risk Management and
Compliance Department of Mellon Bank should be noted as an
"Interested Party" with respect to my accounts. They should,
therefore, be sent copies of all trade confirmations and account
statements relating to my account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Manager, Corporate Compliance (151-4342)
<PAGE>
EXHIBIT B2
- ------------------------------
FOR DREYFUS ASSOCIATES
Date
Broker ABC
Street Address
City, State ZIP
Re: John Smith & Mary Smith
Account No. xxxxxxxxxxxxx
In connection with my existing brokerage accounts at your firm
noted above, please be advised that the Risk Management and
Compliance Department of Dreyfus Corporation should be noted as an
"Interested Party" with respect to my accounts. They should,
therefore, be sent copies of all trade confirmations and account
statements relating to my account.
Please send the requested documentation ensuring the account
holder's name appears on all correspondence to:
Compliance Officer at The Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
Thank you for your cooperation in this request.
Sincerely yours,
Associate
cc: Dreyfus Compliance
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
EXHIBIT C1
- ------------------------------
PRECLEARANCE REQUEST FORM Non Dreyfus Associates
====================================================================================================
To: Manager, Corporate Compliance 151-4342 (All Insider and Other Associates)
Designated Preclearance Compliance Officer (All Investment Associates excluding Dreyfus)
- ----------------------------------------------------------------------------------------------------
Associate Name: Title: Date:
- ----------------------------------------------------------------------------------------------------
Phone #: AIM #: Social Security #: Department:
- ----------------------------------------------------------------------------------------------------
====================================================================================================
ACCOUNT INFORMATION
- ----------------------------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- ----------------------------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- ----------------------------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
====================================================================================================
TRANSACTION DETAIL
- ----------------------------------------------------------------------------------------------------
Buy: Sell: Security/Contract: No. of Shares:
- ----------------------------------------------------------------------------------------------------
If sale, date acquired: Margin Transaction: Initial Public Offering: Private Placement:
/ / Yes / / Yes / / Yes
- ----------------------------------------------------------------------------------------------------
====================================================================================================
DISCLOSURE STATEMENT
- ----------------------------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the registered account holder is
(1) attempting to benefit personally from any existing business relationship between the issuer and
Mellon or any Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive
trading activity; (3) in possession of any material non-public information concerning the security
to which is request relates.
- ----------------------------------------------------------------------------------------------------
Associate Signature: Date:
- ----------------------------------------------------------------------------------------------------
====================================================================================================
COMPLIANCE OFFICER USE ONLY
- ----------------------------------------------------------------------------------------------------
Approved: Disapproved: Authorized Signatory: Date:
- ----------------------------------------------------------------------------------------------------
Comments:
- ----------------------------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on __________________, 19__.
If you decide not to effect the trade, please notify me.
- ----------------------------------------------------------------------------------------------------
Date: By:
- ----------------------------------------------------------------------------------------------------
<PAGE>
EXHIBIT C2
- ------------------------------
PRECLEARANCE REQUEST FORM Dreyfus Associates Only
====================================================================================================
To: Dreyfus Compliance Officer
- ----------------------------------------------------------------------------------------------------
Associate Name: Title: Date:
- ----------------------------------------------------------------------------------------------------
Phone #: AIM #: Social Security #: Department:
- ----------------------------------------------------------------------------------------------------
====================================================================================================
ACCOUNT INFORMATION
- ----------------------------------------------------------------------------------------------------
Account Name: Account Number: Name of Broker/Bank:
- ----------------------------------------------------------------------------------------------------
Relationship to registered owner(s) (if other than associate)
- ----------------------------------------------------------------------------------------------------
I hereby request approval to execute the following trade in the above account:
====================================================================================================
TRANSACTION DETAIL
- ----------------------------------------------------------------------------------------------------
Buy: Sell: Security/Contract: Symbol:
- ----------------------------------------------------------------------------------------------------
Amount: Current Market Price: If sale, date acquired: Margin Transaction:
- ----------------------------------------------------------------------------------------------------
Is this a New Issue? Is this a Private Placement?
/ / Yes / / No / / Yes / / No
- ----------------------------------------------------------------------------------------------------
Reason for Transaction, identify source:
- ----------------------------------------------------------------------------------------------------
====================================================================================================
DISCLOSURE STATEMENT
- ----------------------------------------------------------------------------------------------------
I hereby represent that, to the best of my knowledge, neither I nor the registered account holder is
(1) attempting to benefit personally from any existing business relationship between the issuer and
Mellon or any Mellon-related fund or affiliate; (2) engaging in any manipulative or deceptive
trading activity; (3) in possession of any material non-public information concerning the security
to which is request relates.
- ----------------------------------------------------------------------------------------------------
Associate Signature: Date:
- ----------------------------------------------------------------------------------------------------
====================================================================================================
COMPLIANCE OFFICER USE ONLY
- ----------------------------------------------------------------------------------------------------
Approved: Disapproved: Authorized Signatory: Date:
- ----------------------------------------------------------------------------------------------------
Comments:
- ----------------------------------------------------------------------------------------------------
Note: This preclearance will lapse at the end of the day on __________________, 19__.
If you decide not to effect the trade, please notify me.
- ----------------------------------------------------------------------------------------------------
Date: By:
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT D1
- ------------------------------
Return to: Manager, Corporate Compliance
Mellon Bank
P.O. Box 3130
Pittsburgh, PA 15230-3130
STATEMENT OF SECURITY HOLDINGS
As of
1. List of all securities in which you, your immediate family, any other
member of your immediate household, or any trust or estate of which you
or your spouse is a trustee or fiduciary or beneficiary, or of which your
minor child is a beneficiary, or any person for whom you direct or effect
transactions under a power of attorney or otherwise, maintain a
beneficial ownership - (see Glossary in Policy). If none, write NONE.
Securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities, bankers' acceptances, bank certificates of deposit and
time deposits, commercial paper, repurchase agreements and shares of
registered investment companies need not be listed. IF YOUR LIST IS
EXTENSIVE, PLEASE ATTACH A COPY OF THE MOST RECENT STATEMENT FROM YOUR
BROKER(S), RATHER THAN LIST THEM ON THIS FORM.
-----------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
2. List the names and addresses of any broker/dealers holding accounts in
which you have a beneficial interest, including the name of your
registered representative (if applicable), the account registration and
the relevant account numbers. If none, write NONE.
-----------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief, and are made in good faith. I
acknowledge I have read, understood and complied with the Confidential
Information and Securities Trading Policy.
-----------------------------------------------------------------------------
Date: Printed Name:
-----------------------------------------------------------------------------
Signature:
-----------------------------------------------------------------------------
<PAGE>
EXHIBIT D2
- ------------------------------
Return to: Compliance Officer at the Dreyfus Corporation
200 Park Avenue
Legal Department
New York, NY 10166
STATEMENT OF SECURITY HOLDINGS
As of
1. List of all securities in which you, your immediate family, any other
member of your immediate household, or any trust or estate of which you
or your spouse is a trustee or fiduciary or beneficiary, or of which your
minor child is a beneficiary, or any person for whom you direct or effect
transactions under a power of attorney or otherwise, maintain a
beneficial interest. If none, write NONE. Securities issued or guaranteed
by the U.S. government or its agencies or instrumentalities, bankers'
acceptances, bank certificates of deposit and time deposits, commercial
paper, repurchase agreements and shares of registered investment
companies need not be listed. IF YOUR LIST IS EXTENSIVE, PLEASE ATTACH A
COPY OF THE MOST RECENT STATEMENT FROM YOUR BROKER(S), RATHER THAN LIST
THEM ON THIS FORM.
-----------------------------------------------------------------------------
NAME OF SECURITY TYPE OF SECURITY AMOUNT OF SHARES
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
2. List the names and addresses of any broker/dealers holding accounts in
which you have a beneficial interest, including the name of your
registered representative (if applicable), the account registration and
the relevant account numbers. If none, write NONE.
-----------------------------------------------------------------------------
BROKER/ ADDRESS NAME OF ACCOUNT ACCOUNT
DEALER REGISTERED REGISTRATION NUMBER(S)
REPRESENTATIVE
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief, and are made in good faith. I
acknowledge I have read, understood and complied with the Confidential
Information and Securities Trading Policy.
-----------------------------------------------------------------------------
Date: Printed Name:
-----------------------------------------------------------------------------
Signature:
-----------------------------------------------------------------------------
PIMCO CODE OF ETHICS
Effective as of March 31, 2000
INTRODUCTION
GENERAL PRINCIPLES
This Code of Ethics is based on the principle that you, as a director,
officer or other Advisory Employee of Pacific Investment Management Company
("PIMCO"), owe a fiduciary duty to, among others, the shareholders of the Funds
and other clients (together with the Funds, the "Advisory Clients") for which
PIMCO serves as an advisor or subadvisor. Accordingly, you must avoid
activities, interests and relationships that might interfere or appear to
interfere with making decisions in the best interests of our Advisory Clients.
At all times, you must observe the following GENERAL RULES:
1. YOU MUST PLACE THE INTERESTS OF OUR ADVISORY CLIENTS FIRST. In other
words, as a fiduciary you must scrupulously avoid serving your own
personal interests ahead of the interests of our Advisory Clients. You
must adhere to this general fiduciary principle as well as comply with
the Code's specific provisions. Technical compliance with the Code's
procedures will not automatically insulate from scrutiny any trades
that indicate an abuse of your fiduciary duties or that create an
appearance of such abuse.
Your fiduciary obligation applies not only to your personal trading
activities but also to actions taken on behalf of Advisory Clients. In
particular, you may not cause an Advisory Client to take action, or
not to take action, for your personal benefit rather than the benefit
of the Advisory Client. For example, you would violate this Code if
you caused an Advisory Client to purchase a Security or Futures
Contract you owned for the purpose of increasing the value of that
Security or Futures Contract. If you are a portfolio manager or an
employee who provides information or advice to a portfolio manager or
helps execute a portfolio manager's decisions, you would also violate
this Code if you made a personal investment in a Security or Futures
Contract that might be an appropriate investment for an Advisory
Client without first considering the Security or Futures Contract as
an investment for the Advisory Client.
2. YOU MUST CONDUCT ALL OF YOUR PERSONAL INVESTMENT TRANSACTIONS IN FULL
COMPLIANCE WITH THIS CODE, THE PIMCO ADVISORS L.P. INSIDER TRADING
POLICY AND PROCEDURES (THE "INSIDER TRADING POLICY"), AND THE PIMCO
ADVISORS L.P. POLICY REGARDING SPECIAL TRADING PROCEDURES FOR
SECURITIES OF PIMCO
<PAGE>
ADVISORS L.P. (THE "SPECIAL TRADING PROCEDURES")1 AND IN SUCH A MANNER
AS TO AVOID ANY ACTUAL OR POTENTIAL CONFLICT OF INTEREST OR ANY ABUSE
OF YOUR POSITION OF TRUST AND RESPONSIBILITY. PIMCO encourages you and
your family to develop personal investment programs. However, those
investment programs must remain within boundaries reasonably necessary
to ensure that appropriate safeguards exist to protect the interests
of our Advisory Clients and to avoid even the APPEARANCE of unfairness
or impropriety. Accordingly, YOU MUST COMPLY WITH THE POLICIES AND
PROCEDURES SET FORTH IN THIS CODE UNDER THE HEADING PERSONAL
INVESTMENT TRANSACTIONS. In addition, you must comply with the
policies and procedures set forth in the INSIDER TRADING POLICY AND
SPECIAL TRADING PROCEDURES, which are attached to this Code as
Appendix II and III, respectively. Doubtful situations should be
resolved in favor of our Advisory Clients and against your personal
trading.
3. YOU MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF YOUR POSITION. The
receipt of investment opportunities, perquisites, gifts or gratuities
from persons seeking business with PIMCO directly or on behalf of an
Advisory Client could call into question the independence of your
business judgment. Accordingly, you must comply with the policies and
procedures set forth in this Code under the heading GIFTS AND SERVICE
AS A DIRECTOR. Doubtful situations should be resolved against your
personal interest.
THE GENERAL SCOPE OF THE CODE'S
APPLICATIONS TO PERSONAL INVESTMENT ACTIVITIES
The Code reflects the fact that PIMCO specializes in the management of
fixed income portfolios. The vast majority of assets PIMCO purchases and sells
on behalf of its Advisory Clients consist of corporate debt Securities, U.S. and
foreign government obligations, asset-backed Securities, money market
instruments, foreign currencies, and futures contracts and options with respect
to those instruments. For its StocksPLUS Funds, PIMCO also purchases futures and
options on the S & P 500 index and, on rare occasions, may purchase or sell
baskets of the stocks represented in the S & P 500. For its Convertible Bond
Fund and other Advisory Clients, PIMCO purchases convertible securities that may
be converted or exchanged into underlying shares of common stock. Other PIMCO
Funds may also invest in convertible securities. The Convertible Bond Fund and
other Advisory Clients may also invest a portion of their assets in common
stocks.
Rule 17j-1 under the Investment Company Act of 1940 requires REPORTING of
all personal transactions in Securities (other than certain Exempt Securities)
by certain persons, whether or not they are Securities that might be purchased
or sold by PIMCO on behalf of its Advisory Clients. The Code implements that
reporting requirement.
- --------
1 PIMCO expects Allianz of America ("AZOA") to acquire a majority interest in
PIMCO Advisors L.P. ("PALP") in the second quarter of 2000. When that
acquisition is consummated, the Special Trading Procedures for PALP securities
will no longer apply since PALP securities will not be publicly owned or traded.
2
<PAGE>
However, since the purpose of the Code is to avoid conflicts of interest
arising from personal trading activities in Securities and other instruments
that are held or might be acquired on behalf of our Advisory Clients, this Code
only places RESTRICTIONS on personal trading activities in such investments. As
a result, this Code does not place restrictions (beyond reporting) on personal
trading in most individual equity Securities. Except for the small number of
Portfolio Employees who are responsible for PIMCO's Municipal Bond Fund, this
Code also does not place restrictions (beyond reporting) on personal trading in
Tax-Exempt Municipal Bonds. Although equities and Tax-Exempt Municipal Bonds are
Securities, they are not purchased or sold by PIMCO on behalf of the vast
majority of PIMCO's Advisory Clients and PIMCO has established special
procedures to avoid conflicts of interest that might otherwise arise from
personal trading in those Securities. On the other hand, this Code does require
reporting and restrict trading in certain Futures Contracts which, although they
are not Securities, are instruments in which PIMCO frequently trades for many of
its Advisory Clients.
This Code applies to PIMCO's officers and directors as well as to all of
its Advisory Employees. The Code recognizes that portfolio managers and the
investment personnel who provide them with advice and who execute their
decisions occupy more sensitive positions than other Advisory Employees and that
it is appropriate to subject their personal investment activities to greater
restrictions.
THE ORGANIZATION OF THE CODE
The remainder of this Code is divided into three sections. The first
section concerns PERSONAL INVESTMENT TRANSACTIONS. The second section describes
the restrictions on GIFTS AND SERVICE AS A DIRECTOR. The third section
summarizes the methods for ensuring COMPLIANCE under the Code. In addition, the
following APPENDICES are also a part of this Code:
I. Definitions of Capitalized Terms.
II. The PIMCO Advisors L.P. Insider Trading Policy and Procedures.
III. The PIMCO Advisors L.P. Policy Regarding Special Trading Procedures
for Securities of PIMCO Advisors L.P.
IV. Form for Acknowledgment of Receipt of this Code.
V. Form for Annual Certification of Compliance with this Code.
VI. Form for Initial Report of Accounts.
VII. Form for Quarterly Report of Investment Transactions.
VIII. Form for Annual Holdings Report.
IX. Preclearance Request Form
X. List of PIMCO Compliance Officers.
QUESTIONS
Questions regarding this Code should be addressed to a Compliance Officer
listed on Appendix X. Those Compliance Officers compose the PIMCO Compliance
Committee.
3
<PAGE>
PERSONAL INVESTMENT TRANSACTIONS
IN GENERAL
Subject to the limited exceptions described below, you are required to
report all Investment Transactions in SECURITIES AND FUTURES CONTRACTS made by
you, a member of your Immediate Family or a trust in which you have an interest,
or on behalf of any account in which you have an interest or which you direct.
In addition, you must PRECLEAR certain Investment Transactions in SECURITIES AND
FUTURES CONTRACTS THAT PIMCO HOLDS OR MAY ACQUIRE ON BEHALF OF AN ADVISORY
CLIENT, INCLUDING CERTAIN INVESTMENT TRANSACTIONS IN RELATED SECURITIES.
The details of these reporting and preclearance requirements are described
below. This Code uses a number of capitalized terms, e.g. Advisory Employee,
Beneficial Ownership, Designated Equity Security, Exempt Security, Fixed Income
Security, Fund, Futures Contract, Immediate Family, Initial Public Offering,
Investment Transaction, Personal Account, Portfolio Employee, Private Placement,
Qualified Foreign Government, Related Account, Related Security, and Security.
The definitions of these capitalized terms are set forth in Appendix I. TO
UNDERSTAND YOUR RESPONSIBILITIES UNDER THE CODE, IT IS IMPORTANT THAT YOU REVIEW
AND UNDERSTAND THE DEFINITIONS IN APPENDIX I.
REPORTING OBLIGATIONS
Notification Of Reporting Obligations
As an Advisory Employee, you are required to report accounts and Investment
Transactions in accordance with the requirements of this Code.
Use Of Broker-Dealers And Futures Commission Merchants
Unless you are an independent director, YOU MUST USE A REGISTERED
BROKER-DEALER OR REGISTERED FUTURES COMMISSION MERCHANT to engage in any
purchase or sale of a publicly-traded Security or Publicly-Traded Futures
Contract. This requirement also applies to any purchase or sale of a
publicly-traded Security or of a Publicly-Traded Futures Contract in which you
have, or by reason of the Investment Transaction will acquire, a Beneficial
Ownership interest. Thus, as a general matter, any Investment Transaction in
publicly-traded Securities or Publicly-Traded Futures Contracts by members of
your Immediate Family will need to be made through a registered broker-dealer or
futures commission merchant.
Initial Report
Within 10 days after commencing employment or within 10 days of any event
that causes you to become subject to this Code (e.g. promotion to a position
that makes you an Advisory Employee), you shall supply to a Compliance Officer
copies of the most recent statements for each and every Personal Account and
Related Account that holds or is likely to hold a Security or a Futures Contract
in which you have a Beneficial Ownership interest, as well as copies of
4
<PAGE>
confirmations for any and all Investment Transactions subsequent to the
effective date of those statements. These documents shall be supplied to the
Compliance Officer by attaching them to the form appended hereto as Appendix VI.
On that same form you shall supply the name of any broker, dealer, bank or
futures commission merchant and the number for any Personal Account and Related
Account that holds or is likely to hold a Security or a Futures Contract in
which you have a Beneficial Ownership interest for which you cannot supply the
most recent account statement. You shall also certify, where indicated on the
form, that the contents of the form and the documents attached thereto disclose
all such Personal Accounts and Related Accounts.
In addition, you shall also supply, where indicated on the form, the
following information for each Security or Futures Contract in which you have a
Beneficial Ownership interest, to the extent that this information is not
available from the statements attached to the form:
1. A description of the Security or Futures Contract, including its name
or title;
2. The quantity (e.g. in terms of numbers of shares, units or contracts)
and principal amount (in dollars) of the Security or Futures Contract;
and
3. The name of any broker, dealer, bank or futures commission merchant
with which you maintained an account in which the Security or Futures
Contract was held.
New Accounts
Immediately upon the opening of a NEW Personal Account or a Related Account
that holds or is likely to hold a Security or a Futures Contract, you shall
supply a Compliance Officer with the name of the broker, dealer, bank or futures
commission merchant for that account, the identifying number for that Personal
Account or Related Account, and the date the account was established.
Timely Reporting Of Investment Transactions
You must cause each broker, dealer, bank or futures commission merchant
that maintains a Personal Account or a Related Account that holds a Security or
a Futures Contract in which you have a Beneficial Ownership interest to provide
to a Compliance Officer, on a timely basis, duplicate copies of trade
confirmations of all Investment Transactions in that account and of periodic
statements for that account ("duplicate broker reports").
In addition, you must report to a Compliance Officer, on a timely basis,
any Investment Transaction in a Security or a Futures Contract in which you have
or acquired a Beneficial Ownership interest that was established without the use
of a broker, dealer, bank or futures commission merchant.
5
<PAGE>
Quarterly Certifications And Reporting
At the end of the first, second and third calendar quarters, a Compliance
Officer will provide you with a list of all accounts that you have previously
identified to PIMCO as a Personal Account or a Related Account that holds or is
likely to hold a Security or Futures Contract. Within 10 days after the end of
that calendar quarter, you shall make any necessary additions, corrections or
deletions to that list and return it to a Compliance Officer with a
certification that: (a) the list, as modified (if necessary), represents a
complete list of the Personal Accounts and Related Accounts that hold Securities
or Futures Contracts in which you have or had a Beneficial Ownership interest
and for which PIMCO should have received or will receive timely duplicate broker
reports for the calendar quarter just ended, and (b) the broker, dealer, bank or
futures commission merchant for each account on the list has been instructed to
send a Compliance Officer timely duplicate broker reports for that account.
You shall provide, on a copy of the form attached hereto as Appendix VII,
the following information for each Investment Transaction during the calendar
quarter just ended, to the extent that the duplicate broker reports for that
calendar quarter did not supply this information to PIMCO:
1. The date of the Investment Transaction, the title, the interest rate
and maturity date (if applicable), the number of shares or contracts,
and the principal amount of each Security or Futures Contract
involved;
2. The nature of the Investment Transaction (i.e. purchase, sale or any
other type of acquisition or disposition);
3. The price of the Security or Futures Contract at which the transaction
was effected; and
4. The name of the broker, dealer, bank, or futures commission merchant
with or through which the transaction was effected.
You shall provide similar information for the fourth calendar quarter on a
copy of the form attached hereto as Appendix VIII, which form shall also be
used for the Annual Holdings Report described below.
Annual Holdings Reports
Beginning with calendar year 2000, a Compliance Officer will provide to
you, promptly after the end of the calendar year, a list of all accounts that
you have previously identified to PIMCO as a Personal Account or a Related
Account that held or was likely to hold a Security or Futures Contract during
that calendar year. Within 10 days after the end of that calendar year, you
shall make any necessary additions, corrections or deletions to that list and
return it to a Compliance Officer with a certification that: (a) the list, as
modified (if necessary), represents a complete list of the Personal Accounts and
Related Accounts that held Securities or Futures Contracts in which you had a
Beneficial Ownership interest as of the end of that calendar year and for which
PIMCO should have received or will receive an account statement of holdings as
of the end of that calendar year, and (b) the broker, dealer, bank or futures
commission merchant for each account on the list has been instructed to send a
Compliance Officer such an account statement.
6
<PAGE>
You shall provide, on a copy of the form attached hereto as Appendix VIII,
the following information for each Security or Futures Contract in which you had
a Beneficial Ownership interest, as of the end of the previous calendar year, to
the extent that the previously referenced account statements have not supplied
or will not supply this information to PIMCO:
1. The title, quantity (e.g. in terms of numbers of shares, units or
contracts) and principal amount of each Security or Futures Contract
in which you had any Beneficial Ownership interest; and
2. The name of any broker, dealer, bank or futures commission merchant
with which you maintain an account in which any such Securities or
Futures Contracts have been held or are held for your benefit.
In addition, you shall also provide, on that same form, Investment
Transaction information for the fourth quarter of the calendar year just
ended. This information shall be of the type and in the form required for
the quarterly reports described above.
Related Accounts
The reporting and certification obligations described above also apply to
any Related Account (as defined in Appendix I) and to any Investment Transaction
in a Related Account.
It is important for you to recognize that the definitions of "Related
Account" and "Beneficial Ownership" in Appendix I may require you to provide, or
to arrange for the broker, dealer, bank or futures commission merchant to
furnish, copies of reports for any account used by or for a member of your
Immediate Family or a trust in which you or a member of your Immediate Family
has any vested interest, as well as for any other accounts in which you may have
the opportunity, directly or indirectly, to profit or share in the profit
derived from any Investment Transaction in that account.
Exemptions From Reporting
You need not report Investment Transactions in any account over which
neither you nor an Immediate Family Member has or had any direct or indirect
influence or control.
You also need not report Investment Transactions in Exempt Securities (as
defined in Appendix I) nor need you furnish, or require a broker, dealer, bank
or futures commission merchant to furnish, copies of confirmations or periodic
statements for accounts that hold only Exempt Securities. This includes accounts
that only hold U.S. Government Securities, money market interests, or shares in
open-end mutual funds. This exemption from reporting shall end immediately,
however, at such time as there is an Investment Transaction in that account in a
Futures Contract or in a Security that is not an Exempt Security.
7
<PAGE>
PROHIBITED INVESTMENT TRANSACTIONS
Initial Public Offerings of Equity Securities
If you are a Portfolio Employee (as defined in Appendix I), you may not
acquire Beneficial Ownership of any equity Security in an Initial Public
Offering.
Private Placements and Initial Public Offering of Debt Securities
If you are a Portfolio Employee, you may not acquire a Beneficial Ownership
interest in any Security through a Private Placement (or subsequently sell it),
or acquire a Beneficial Ownership interest in any debt Security in an Initial
Public Offering unless you have received the prior written approval of the Chief
Executive Officer of PIMCO or of a Compliance Officer listed on Appendix X.
Approval will not be given unless a determination is made that the investment
opportunity should not be reserved for one or more Advisory Clients, and that
the opportunity to invest has not been offered to you by virtue of your position
with PIMCO.
If, after receiving the necessary approval, you have acquired a Beneficial
Ownership interest in Securities through a Private Placement, you must DISCLOSE
that investment when you play a part in any consideration of any investment by
an Advisory Client in the issuer of the Securities, and any decision to make
such an investment must be INDEPENDENTLY REVIEWED by a portfolio manager who
does not have a Beneficial Ownership interest in any Securities of the issuer.
PIMCO Advisors L.P.
You may not engage in any Investment Transaction in interests in PIMCO
Advisors L.P. ("PALP"), except in compliance with the Special Trading Procedures
applicable to such transactions.2
PRECLEARANCE
All Investment Transactions in Securities and Futures Contracts in a
Personal Account or Related Account, or in which you otherwise have or will
acquire a Beneficial Ownership interest, must be precleared by a Compliance
Officer unless an Investment Transaction, Security or Futures Contract falls
into one of the following categories that are identified as "exempt from
preclearance."
Preclearance Procedure
Preclearance shall be requested by completing and submitting a copy of the
preclearance request form attached hereto as Appendix IX to a Compliance
Officer. No Investment Transaction subject to preclearance may be effected prior
to receipt of written authorization of
- ------
As indicated in note 1, above, those procedures will expire and no longer
be effective after AZOA completes its acquisition of a majority interest in
PALP.
8
<PAGE>
the transaction by a Compliance Officer. The authorization and the date of
authorization will be reflected on the preclearance request form. Unless
otherwise specified, that authorization shall be effective, unless revoked,
until the earlier of: (a) the close of business on the day the authorization is
given, or (b) until you discover that the information on the preclearance
request form is no longer accurate.
The Compliance Officer from whom authorization is sought may undertake such
investigation as he or she considers necessary to determine that the Investment
Transaction for which preclearance has been sought complies with the terms of
this Code and is consistent with the general principles described at the
beginning of the Code.
Before deciding whether to authorize an Investment Transaction in a
particular Security or Futures Contract, the Compliance Officer shall determine
and consider, based upon the information reported or known to that Compliance
Officer, whether within the most recent 15 days: (a) the Security, the Futures
Contract or any Related Security is or has been held by an Advisory Client, or
(b) is being or has been considered for purchase by an Advisory Client. The
Compliance Officer shall also determine whether there is a pending BUY or SELL
order in the same Security or Futures Contract, or in a Related Security, on
behalf of an Advisory Client. If such an order exists, authorization of the
personal Investment Transaction shall not be given until the Advisory Client's
order is executed or withdrawn. This prohibition may be waived by a Compliance
Officer if he or she is convinced that: (a) your personal Investment Transaction
is necessary, (b) your personal Investment Transaction will not adversely affect
the pending order of the Advisory Client, and (c) provision can be made for the
Advisory Client trade to take precedence (in terms of price) over your personal
Investment Transaction.
Exemptions From Preclearance
Preclearance shall NOT be required for the following Investment
Transactions, Securities and Futures Contracts. They are exempt only from the
Code's preclearance requirement, and, unless otherwise indicated, remain subject
to the Code's other requirements, including its reporting requirements.
Investment Transactions Exempt From Preclearance
Preclearance shall NOT be required for any of the following Investment
Transactions:
1. Any transaction in a Security or Futures Contract in an account that
is managed or held by a broker, dealer, bank, futures commission
merchant, investment adviser, commodity trading advisor or trustee and
over which you do not exercise investment discretion, have notice of
transactions prior to execution, or otherwise have any direct or
indirect influence or control. There is a presumption that you can
influence or control accounts held by members of your Immediate Family
sharing the same household. This presumption may be rebutted only by
convincing evidence.
2. Purchases of Securities under dividend reinvestment plans.
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3. Purchases of Securities by exercise of rights issued to the holders of
a class of Securities pro rata, to the extent they are issued with
respect to Securities in which you have a Beneficial Ownership
interest.
4. Acquisitions or dispositions of Securities as the result of a stock
dividend, stock split, reverse stock split, merger, consolidation,
spin-off or other similar corporate distribution or reorganization
applicable to all holders of a class of Securities in which you have a
Beneficial Ownership interest.
Securities Exempt From Preclearance
Regardless Of Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Securities or Related Securities, regardless of the size of that
transaction:
1. All "Exempt Securities" defined in Appendix I, i.e. U.S. Government
Securities, shares in open-end mutual funds, and high quality
short-term debt instruments.
2. All closed-end mutual funds (other than PIMCO Commercial Mortgage
Securities Trust, Inc.), and rights distributed to shareholders in
closed-end mutual funds.
3. All options on any index of equity Securities.
4. All Fixed Income Securities issued by agencies or instrumentalities
of, or unconditionally guaranteed by, the Government of the United
States.
5. All options on foreign currencies or baskets of foreign currencies
(whether or not traded on an exchange or board of trade).
6. EXCEPT FOR DESIGNATED EQUITY SECURITIES (as defined in Appendix I and
discussed below), all equity Securities or options, warrants or other
rights to equity Securities.
Securities Exempt from Preclearance
Depending On Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Securities or Related Securities if they do not exceed the specified
transaction size thresholds (which thresholds may be increased or decreased by
PIMCO upon written notification to employees in the future depending on the
depth and liquidity of Fixed Income Securities or Tax-Exempt Municipal Bonds
market):
1. Purchases or sales of up to $1,000,000 (in market value or face amount
whichever is greater) per calendar month per issuer of Fixed Income
Securities issued by a Qualified Foreign Government.
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2. Purchases or sales of the following dollar values (measured in market
value or face amount, whichever is greater) of corporate debt
Securities, mortgage-backed and other asset-backed Securities,
Tax-Exempt Municipal Bonds, taxable state, local and municipal Fixed
Income Securities, structured notes and loan participations, and
foreign government debt Securities issued by non-qualified foreign
governments (hereinafter collectively referred to as "Relevant Debt
Securities"):
a. Purchases or sales of up to $100,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was less than $50 million;
b. Purchases or sales of up to $500,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was at least $50 million but less than
$100 million; or
c. Purchases or sales of up to $1,000,000 per calendar month per
issuer if the original issue size of any Relevant Debt Security
being purchased or sold was at least $100 million.
Preclearance of Designated Equity Securities
If a Compliance Officer receives notification from a Portfolio Employee
that an equity Security or an option, warrant or other right to an equity
Security is being considered for purchase or sale by PIMCO on behalf of one of
its Advisory Clients, the Compliance Officer will send you an e-mail message or
similar transmission notifying you that this equity Security or option, warrant
or other right to an equity Security is now a "Designated Equity Security." A
current list of Designated Equity Securities (if any) will also be available on
the PIMCO intranet site. You must preclear any Investment Transaction in a
Designated Equity Security or a Related Security during the period when that
designation is in effect.
Futures Contracts Exempt From Preclearance
Regardless Of Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Futures Contracts, regardless of the size of that transaction (as
indicated in Appendix I, for these purposes a "Futures Contract" includes a
futures option):
1. Currency Futures Contracts.
2. U.S. Treasury Futures Contracts.
3. Eurodollar Futures Contracts.
4. Futures Contracts an any index of equity Securities.
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5. Futures Contracts on physical commodities or indices thereof (e.g.
contracts for future delivery of grain, livestock, fiber or metals
whether for physical delivery or cash).
6. Privately-Traded Contracts.
Futures Contracts Exempt From Preclearance
Depending On Transaction Size
Preclearance shall NOT be required for an Investment Transaction in the
following Futures Contracts if the total number of contracts purchased or sold
during a calendar month does not exceed the specified limitations:
1. Purchases or sales of up to 50 PUBLICLY-TRADED FUTURES CONTRACTS to
acquire Fixed Income Securities issued by a particular Qualified
Foreign Government.
2. Purchases or sales of up to 10 OF EACH OTHER INDIVIDUAL
PUBLICLY-TRADED FUTURES CONTRACT if the open market interest for such
Futures Contract as reported in The Wall Street Journal on the date of
your Investment Transaction (for the previous trading day) is at least
1,000 contracts. Examples of Futures Contracts for which this
exemption would be available include a Futures Contract on a foreign
government debt Security issued by a non-qualified foreign government
as well as a 30-day federal funds Futures Contract.
For purposes of these limitations, a Futures Contract is defined by its
expiration month. For example, you need not obtain preclearance to purchase
50 December Futures Contracts on German Government Bonds and 50 March
Futures Contracts on German Government Bonds. Similarly, you may roll over
10 September Fed Funds Futures Contracts by selling those 10 contracts and
purchasing 10 October Fed Funds Futures Contracts since the contracts being
sold and those being purchased have different expiration months. On the
other hand, you could not purchase 10 January Fed Funds Future Contracts if
the open interest for those contracts was less than 1,000 contracts, even
if the total open interest for all Fed Funds Futures Contracts was greater
than 1,000 contracts.
Additional Exemptions From Preclearance
The Compliance Committee may exempt other classes of Investment
Transactions, Securities or Futures Contracts from the Code's preclearance
requirement upon a determination that they do not involve a realistic
possibility of violating the general principles described at the beginning of
the Code.
Preclearance Required
Given the exemptions described above, preclearance shall be required for
Investment Transactions in:
1. Designated Equity Securities.
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2. Relevant Debt Securities (as defined under the section "Securities
Exempt from Preclearance Depending on Transaction Size, paragraph 2")
in excess of the per calendar month per issuer thresholds specified
for purchases or sales of those Securities.
3. More than $1,000,000 per calendar month in debt Securities of a
Qualified Foreign Government.
4. Related Securities that are exchangeable for or convertible into one
of the Securities requiring preclearance under (1), (2), or (3) above.
5. More than 50 Publicly-Traded Futures Contracts per calendar month to
acquire Fixed Income Securities issued by a particular Qualified
Foreign Government.
6. More than 10 of any other individual Publicly-Traded Futures Contract
or any Publicly-Traded Futures Contract for which the open market
interest as reported in The Wall Street Journal on the date of your
Investment Transaction (for the previous trading day) is less than
1,000 contracts, unless the Futures Contract is exempt from
preclearance regardless of transaction size.
7. Any other Security or Publicly-Traded Futures Contract that is not
within the "exempt" categories listed above.
8. PIMCO Commercial Mortgage Securities Trust, Inc.
SHORT-TERM TRADING PROFITS
You may not profit from the purchase and sale, or the sale and purchase,
within 60 calendar days, of FIXED INCOME SECURITIES, TAX-EXEMPT MUNICIPAL BONDS
OR RELATED SECURITIES. Portfolio Employees may not profit from the purchase and
sale, or the sale and purchase, within 60 calendar days, of DESIGNATED EQUITY
SECURITIES. Any such short-term trade must be unwound, or if that is not
practical, the profits must be contributed to a charitable organization.
This ban does NOT apply to Investment Transactions in U.S. Government
Securities, most equity Securities, mutual fund shares, index options or Futures
Contracts. This ban also does not apply to a purchase or sale in connection with
one of the four categories of Investment Transactions Exempt From Preclearance
described on pages 9-10, above.
You are considered to profit from a short-term trade if Securities in which
you have a Beneficial Ownership interest are sold for more than their purchase
price, even though the Securities purchased and the Securities sold are held of
record or beneficially by different persons or entities.
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BLACKOUT PERIODS
You MAY NOT purchase or sell a Security, a Related Security or a Futures
Contract at a time when you intend or know of another's intention to purchase or
sell that Security or Futures Contract on behalf of any Advisory Client.
As noted previously in the description of the Preclearance Process, a
Compliance Officer may not preclear an Investment Transaction in a Security or a
Futures Contract at a time when there is a pending BUY OR SELL order in the same
Security or Futures Contract, or a Related Security, until that order is
executed or withdrawn.
These prohibitions do not apply to Investment Transactions in any Futures
Contracts that are exempt from preclearance regardless of transaction size.
GIFTS AND SERVICE AS A DIRECTOR
GIFTS
You MAY NOT accept any investment opportunity, gift, gratuity or other
thing of more than nominal value from any person or entity that does business,
or desires to do business, with PIMCO directly or on behalf of an Advisory
Client (a "Giver"). You MAY, however, accept gifts from a single Giver so long
as their aggregate annual value does not exceed $500, and you MAY attend
business meals, sporting events and other entertainment events at the expense of
a Giver (without regard to their aggregate annual value), so long as the expense
is reasonable and both you and the Giver are present.
SERVICE AS A DIRECTOR
If you are an Advisory Employee, you may not serve on the board of
directors or other governing board of a publicly traded entity, other than of a
Fund for which PIMCO is an advisor or subadvisor, unless you have received the
prior written approval of the Chief Executive Officer and the Chief Legal
Officer of PIMCO. Approval will not be given unless a determination is made that
your service on the board would be consistent with the interests of our Advisory
Clients. If you are permitted to serve on the board of a publicly traded entity,
you will be ISOLATED from those Advisory Employees who make investment decisions
with respect to the Securities of that entity, through a "Chinese Wall" or other
procedures.
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COMPLIANCE
CERTIFICATIONS
Upon Receipt Of This Code
Upon commencement of your employment or the effective date of this Code,
whichever occurs later, you shall be required to acknowledge receipt of your
copy of this Code by completing and returning a copy of the form attached hereto
as Appendix IV. By that acknowledgment, you will also agree:
1. To read the Code, to make a reasonable effort to understand its
provisions, and to ask questions about those provisions you find
confusing or difficult to understand.
2. To comply with the Code, including its general principles, its
reporting requirements, its preclearance requirements, and its
provisions regarding gifts and service as a director.
3. To advise the members of your Immediate Family about the existence of
the Code, its applicability to their personal trading activity, and
your responsibility to assure that their personal trading activity
complies with the Code.
4. To cooperate fully with any investigation or inquiry by or on behalf
of a Compliance Officer to determine your compliance with the
provisions of the Code.
In addition, your acknowledgment will recognize that any failure to comply
with the Code and to honor the commitments made by your acknowledgment may
result in disciplinary action, including dismissal.
Annual Certificate Of Compliance
You are required to certify on an annual basis, on a copy of the form
attached hereto as Appendix V, that you have complied with each provision of
your initial acknowledgment (see above). In particular, your annual
certification will require that you certify that you have read and that you
understand the Code, that you recognize you are subject to its provisions, that
you complied with the requirements of the Code during the year just ended and
that you have disclosed, reported, or caused to be reported all Investment
Transactions required to be disclosed or reported pursuant to the requirements
of the Code.
POST-TRADE MONITORING
The Compliance Officers will review the duplicate broker reports and other
information supplied to them concerning your personal Investment Transactions so
that they can detect and prevent potential violations of the Code. The
Compliance Officers will perform such investigation and make such inquiries as
they consider necessary to perform this function. You agree to cooperate with
any such investigation and to respond to any such inquiry. You should expect
that, as a matter of course, the Compliance Officers will make inquiries
regarding any personal Investment Transaction in a Security or Futures Contract
that occurs on the same day as a transaction in the same Security or Futures
Contract on behalf of an Advisory Client.
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REMEDIAL ACTIONS
If you violate this Code, you are subject to remedial actions, which may
include, but are not limited to, disgorgement of profits, imposition of a fine,
censure, demotion, suspension or dismissal. As part of any sanction, you may be
required to reverse an Investment Transaction and to forfeit any profit or to
absorb any loss from the transaction.
The Compliance Committee shall have the ultimate authority to determine
whether you have violated the Code and, if so, the remedial actions it considers
appropriate. In making its determination, the Compliance Committee shall
consider, among other factors, the gravity of your violation, the frequency of
your violations, whether any violation caused harm or the potential of harm to
any Advisory Client, your efforts to cooperate with their investigation, and
your efforts to correct any conduct that led to a violation.
REPORTS TO DIRECTORS AND TRUSTEES
Reports Of Significant Remedial Actions
The General Counsel of PIMCO Advisors L.P. and the directors or trustees of
any affected Fund that is an Advisory Client will be informed on a timely basis
of each SIGNIFICANT REMEDIAL ACTION taken in response to a violation of this
Code. For this purpose, a significant remedial action will include any action
that has a significant financial effect on the violator.
Reports of Material Changes To The Code
PIMCO will promptly advise the directors or trustees of any Fund that is an
Advisory Client if PIMCO makes any material change to this Code.
Annual Reports
PIMCO's management will furnish a written report annually to the General
Counsel of PIMCO Advisors L.P. and to the directors or trustees of each Fund
that is an Advisory Client. Each report, at a minimum, will:
1. Describe any significant issues arising under the Code, or under
procedures implemented by PIMCO to prevent violations of the Code,
since management's last report, including, but not limited to,
information about material violations of the Code or those procedures
and sanctions imposed in response to material violations; and
2. Certify that PIMCO has adopted procedures reasonably necessary to
prevent Advisory Employees from violating the Code.
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RECORDKEEPING
Beginning on the effective date of this Code, PIMCO will maintain, at its
principal place of business, the following records, which shall be available to
the Securities and Exchange Commission or any representative of the Commission
at any time and from time to time for reasonable periodic, special or other
examination:
1. PIMCO's Chief Compliance Officer shall maintain, in any easily
accessible place:
(a) a copy of PIMCO's current Code and of each predecessor of that
Code that was in effect at any time within the previous five (5)
years;
(b) a record of any violation of the Code, and of any action taken as
a result of the violation, for at least five (5) years after the
end of the fiscal year in which the violation occurred;
(c) a copy of each report made by an Advisory Employee pursuant to
this Code, including any duplicate broker report submitted on
behalf of that Advisory Employee, for at least two (2) years
after the end of the fiscal year in which that report was made or
that information was provided;
(d) a record of all persons, currently or within the past five (5)
years, who are or were required to make reports pursuant to this
Code or who are or were responsible for reviewing such reports;
and
(e) a copy of each report to the General Counsel of PIMCO Advisors
L.P. or to the directors or trustees of each Fund that is an
Advisory Client for at least two (2) years after the end of the
fiscal year in which that report was made.
2. PIMCO shall also maintain the following additional records:
(a) a copy of each report made by an Advisory Employee pursuant to
this Code, including any duplicate broker report submitted on
behalf of that Advisory Employee, for at least five (5) years
after the end of the fiscal year in which that report was made or
that information was provided;
(b) a copy of each report to the General Counsel of PIMCO Advisors
L.P. or to the directors or trustees of each Fund that is an
Advisory Client for at least five (5) years after the end of the
fiscal year in which that report was made; and
(c) a record of any decision, and the reasons supporting the
decision, to approve the acquisition by a Portfolio Employee of a
Beneficial Ownership interest in any Security in an Initial
Public Offering or in a Private Placement for at least five (5)
years after the end of the fiscal year in which such approval was
granted.
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APPENDIX I
DEFINITIONS OF CAPITALIZED TERMS
The following definitions apply to the capitalized terms used in the Code:
ADVISORY EMPLOYEE
The term "Advisory Employee" means: (1) a director, officer, general
partner or employee of PIMCO who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of a Security or Futures Contract by PIMCO on behalf of an
Advisory Client, or whose functions relate to the making of any recommendations
with respect to such purchases or sales, or (2) or a natural person in a control
relationship to PIMCO, or an employee of any company in a control relationship
to PIMCO, who: (a) makes, participates in, or obtains information regarding the
purchase or sale of a Security by a Fund that is an Advisory Client, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales, or (b) obtains information concerning recommendations to a
Fund with regard to the purchase or sale of a Security by the Fund.
BENEFICIAL OWNERSHIP
As a GENERAL MATTER, you are considered to have a "Beneficial Ownership"
interest in a Security or a Futures Contract if you have the opportunity,
directly or indirectly, to profit or share in any profit derived from an
Investment Transaction in that Security or Futures Contract. YOU ARE PRESUMED TO
HAVE A BENEFICIAL OWNERSHIP INTEREST IN ANY SECURITY OR FUTURES CONTRACT HELD,
INDIVIDUALLY OR JOINTLY, BY YOU OR A MEMBER OF YOUR IMMEDIATE FAMILY (AS DEFINED
BELOW). In addition, unless specifically excepted by a Compliance Officer based
on a showing that your interest in a Security or Futures Contract is
sufficiently attenuated to avoid the possibility of conflict, you will be
considered to have a Beneficial Ownership interest in a Security or Futures
Contract held by: (1) a JOINT ACCOUNT to which you are a party, (2) a
PARTNERSHIP in which you are a general partner, (3) a LIMITED LIABILITY COMPANY
in which you are a manager-member, or (4) a TRUST in which you or a member of
your Immediate Family has a vested interest.
As a TECHNICAL MATTER, the term "Beneficial Ownership" for purposes of this
Code shall be interpreted in the same manner as it would be under SEC Rule
16a-1(a)(2) (17 C.F.R. ss.240.16a-1(a)(2)) in determining whether a person has a
beneficial ownership interest in a Security for purposes of Section 16 of the
Securities Exchange Act of 1934 and the rules and regulations thereunder.
DESIGNATED EQUITY SECURITY
The term "Designated Equity Security" shall mean any equity Security,
option, warrant or other right to an equity Security designated as such by a
Compliance Officer, after receiving notification from a Portfolio Employee that
said Security is being considered for purchase or sale by PIMCO on behalf of one
of its Advisory Clients.
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EXEMPT SECURITY
The term "Exempt Security" shall mean any Security not included within the
definition of Covered Security in SEC Rule 17j-l(a)(4) (17 C.F.R. ss.
17j-1(a)(4)), including:
1. Direct obligations of the Government of the United States;
2. Shares issued by open-end Funds; and
3. Bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements. For these purposes, a "high quality short-term debt
instrument" means any instrument having a maturity at issuance of less
than 366 days and that is rated in one of the two highest rating
categories by a Nationally Recognized Statistical Rating Organization.
FIXED INCOME SECURITY
For purposes of this Code, the term "Fixed Income Security" shall mean a
fixed income Security issued by an agency or instrumentality of, or
unconditionally guaranteed by, the Government of the United States, a corporate
debt Security, a mortgage-backed or other asset-backed Security, a taxable fixed
income Security issued by a state or local government or a political subdivision
thereof, a structured note or loan participation, a foreign government debt
Security, or a debt Security of an international agency or a supranational
agency. For purposes of this Code, the term "Fixed Income Security" shall not be
interpreted to include a U.S. Government Security or any other Exempt Security
(as defined above) nor shall it be interpreted to include a Tax-Exempt Municipal
Bond (as defined below).
FUND
The term "Fund" means an investment company registered under the Investment
Company Act.
FUTURES CONTRACT
The term "Futures Contract" includes (a) a futures contract and an option
on a futures contract traded on a United States or foreign board of trade, such
as the Chicago Board of Trade, the Chicago Mercantile Exchange, the London
International Financial Futures Exchange or the New York Mercantile Exchange (a
"Publicly-Traded Futures Contract"), as well as (b) a forward contract, a swap,
a cap, a collar, a floor and an over-the-counter option (other than an option on
a foreign currency, an option on a basket of currencies, an option on a Security
or an option on an index of Securities) (a "Privately-Traded Contract"). Consult
with a Compliance Officer prior to entering into a transaction in case of any
doubt. For purposes of this definition, a Publicly-Traded Futures Contract is
defined by its expiration month, i.e. a Publicly-Traded Futures Contract on a
U.S. Treasury Bond that expires in June is treated as a separate Publicly-Traded
Futures Contract, when compared to a Publicly-Traded Futures Contract on a U.S.
Treasury Bond that expires in July.
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IMMEDIATE FAMILY
The term "Immediate Family" means any of the following persons who RESIDE
IN YOUR HOUSEHOLD OR DEPEND ON YOU FOR BASIC LIVING SUPPORT: your spouse, any
child, stepchild, grandchild, parent, stepparent, grandparent, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including any adoptive relationships.
INITIAL PUBLIC OFFERING
The term "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933 (15 U.S.C. ss. 77a), the issuer of
which, immediately before the registration, was not subject to the reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934 (15
U.S.C. ss. 78m or ss. 78o(d)).
INVESTMENT TRANSACTION
For purposes of this Code, the term "Investment Transaction" means any
transaction in a Security or Futures Contract in which you have, or by reason of
the transaction will acquire, a Beneficial Ownership interest, and includes,
among other things, the writing of an option to purchase or sell a Security.
PERSONAL ACCOUNT
The term "Personal Account" means the following accounts that hold or are
likely to hold a Security (as defined below) or a Futures Contract (as defined
above) in which you have a Beneficial Ownership interest: any account in your
individual name; any joint or tenant-in-common account in which you have an
interest or are a participant; any account for which you act as trustee,
executor, or custodian; any account over which you have investment discretion or
otherwise can exercise control (other than non-related clients' accounts over
which you have investment discretion), including the accounts of entities
controlled directly or indirectly by you; and any other account in which you
have a Beneficial Ownership interest (other than such accounts over which you
have no investment discretion and cannot otherwise exercise control).
PORTFOLIO EMPLOYEE
The term "Portfolio Employee" means: (1) a portfolio manager or any
employee of PIMCO (or of any company in a control relationship with PIMCO) who,
in connection with his or her regular functions or duties, makes or participates
in making recommendations regarding the purchase or sale of securities by a
Fund, or (2) any natural person who controls PIMCO and who obtains information
concerning recommendations made to a Fund that is an Advisory Client regarding
the purchase or sale of Securities by the Fund. For these purposes, "control"
has the same meaning as in Section 2(a)(9) of the Investment Advisers Act (15
U.S.C. ss. 80a-2(a)(9)).
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PRIVATE PLACEMENT
The term "Private Placement" means an offering that is exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) or
Section 4(6) (15 U.S.C. ss. 77d(2) or ss. 77d(6)) or pursuant to SEC Rules 504,
505 or 506 (17 C.F.R. ss.ss. 230.504, 230.505, or 230.506) under the Securities
Act of 1933.
QUALIFIED FOREIGN GOVERNMENT
The term "Qualified Foreign Government" means a national government of a
developed foreign country with outstanding Fixed Income Securities in excess of
fifty billion dollars. A list of Qualified Foreign Governments will be prepared
as of the last business day of each calendar quarter, will be available from the
Chief Compliance Officer, and will be effective for the following calendar
quarter.
RELATED ACCOUNT
The term "Related Account" means any account, other than a Personal
Account, that holds a Security or Futures Contract in which you have a
Beneficial Ownership interest.
RELATED SECURITY
The term "Related Security" shall mean any option to purchase or sell, and
any Security convertible into or exchangeable for, a Security that is or has
been held by PIMCO on behalf of one of its Advisory Clients or any Security that
is being or has been considered for purchase by PIMCO on behalf of one of its
Advisory Clients.
SECURITY
As a GENERAL MATTER, the term "Security" shall mean any stock, note, bond,
debenture or other evidence of indebtedness (including any loan participation or
assignment), limited partnership interest or investment contract OTHER THAN AN
EXEMPT SECURITY (as defined above). The term "Security" includes an option on a
Security, on an index of Securities, on a currency or on a basket of currencies,
including such an option traded on the Chicago Board of Options Exchange or on
the New York, American, Pacific or Philadelphia Stock Exchanges, as well as such
an option traded in the over-the-counter market. The term "Security" shall not
include a Futures Contract or a physical commodity (such as foreign exchange or
a precious metal).
As a TECHNICAL MATTER, the term "Security" shall have the meaning set forth
in Section 2(a)(36) of the Investment Company Act of 1940 (15 U.S.C. ss.
80a-2(a)(36)), which defines a Security to mean:
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Any note, stock, treasury stock, bond debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate of subscription,
transferable share, investment contract, voting-trust certificate, certificate
of deposit for a security, fractional undivided interest in oil, gas, or other
mineral rights, any put, call, straddle, option, or privilege on any security
(including a certificate of deposit) or on any group or index of securities
(including any interest therein or based on the value thereof), or any put,
call, straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a "security", or any certificate of interest or
instrument commonly known as a "security", or any certificate of interest or
participation in, temporary or interim certificate for, receipt for, guarantee
of, warrant or right to subscribe to or purchase, any of the foregoing, except
that the term "Security" shall not include any Security that is an Exempt
Security (as defined above), a Futures Contract or a physical commodity (such as
foreign exchange or precious metal).
TAX-EXEMPT MUNICIPAL BOND
The term "Tax-Exempt Municipal Bond" shall mean any Fixed Income Security
exempt from federal income tax that is issued by a state or local government or
a political subdivision thereof.
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APPENDIX II
INSIDER TRADING POLICY AND PROCEDURES
PIMCO ADVISORS L.P.
Effective as of May 1, 1996
SECTION I. POLICY STATEMENT ON INSIDER TRADING.
A. POLICY STATEMENT ON INSIDER TRADING.
PIMCO ADVISORS L.P. ("PALP"), ITS AFFILIATED SUBPARTNERSHIPS, PIMCO
PARTNERS, G.P. ("PIMCO GP") AND PIMCO FUNDS DISTRIBUTORS LLC ("PFD")
(collectively the "Company" or "PIMCO Advisors") FORBID ANY OF THEIR OFFICERS,
DIRECTORS OR EMPLOYEES FROM TRADING, EITHER PERSONALLY OR ON BEHALF OF OTHERS
(such as, mutual funds and private accounts managed by PALP or its affiliated
Subpartnerships), ON THE BASIS OF MATERIAL, NON-PUBLIC INFORMATION OR
COMMUNICATING MATERIAL, NON-PUBLIC INFORMATION TO OTHERS IN VIOLATION OF THE
LAW. THIS CONDUCT IS FREQUENTLY REFERRED TO AS "INSIDER TRADING."
The term "insider trading" is not defined in the federal securities laws,
but generally is used to refer to the use of material, non-public information to
trade in securities or to communications of material, non-public information to
others in breach of a fiduciary duty.
While the law concerning insider trading is not static, it is generally
understood that the law prohibits:
(1) trading by an insider, while in possession of material, non-public
information; or
(2) trading by a non-insider, while in possession of material, non-public
information, where the information was disclosed to the non-insider in
violation of an insider's duty to keep it confidential; or
(3) communicating material, non-public information to others in breach of
a fiduciary duty.
This communication applies to every such officer, director and employee and
extends to activities within and outside their duties at PIMCO Advisors. Every
officer, director and employee must read and retain this policy statement. Any
questions regarding this policy statement and the related procedures set forth
herein should be referred to a Compliance Officer of PALP or the applicable
subpartnership.
The remainder of this memorandum discusses in detail the elements of
insider trading, the penalties for such unlawful conduct and the procedures
adopted by the Company to implement its policy against insider trading.
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1. TO WHOM DOES THIS POLICY APPLY?
This Policy applies to all employees, officers and directors (direct or
indirect) of the Company ("Covered Persons"), as well as to any transactions in
any securities participated by family members, trusts or corporations controlled
by such persons. In particular, this Policy applies to securities transactions
by:
o the Covered Person's spouse;
o the Covered Person's minor children;
o any other relative living in the Covered Person's household;
o a trust in which the Covered Person has a beneficial interest, unless
such person has no direct or indirect control over the trust;
o a trust as to which the Covered Person is a trustee;
o a revocable trust as to which the Covered Person is a settlor;
o a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
o a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
2. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the
information is material. "Material information" generally is defined as
information for which there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment decisions,
or information that is reasonably certain to have a substantial effect on the
price of a company's securities.
Although there is no precise, generally accepted definition of materiality,
information is likely to be "material" if it relates to significant changes
affecting such matters as:
dividend or earnings expectations;
write-downs or write-offs of assets;
additions to reserves for bad debts or contingent liabilities;
expansion or curtailment of company or major division operations;
proposals or agreements involving a joint venture, merger, acquisition,
divestiture, or leveraged buy-out;
new products or services;
exploratory, discovery or research developments;
criminal indictments, civil litigation or government investigations;
disputes with major suppliers or customers or significant changes in the
relationships with such parties;
labor disputes including strikes or lockouts;
substantial changes in accounting methods;
major litigation developments;
major personnel changes;
debt service or liquidity problems;
bankruptcy or insolvency;
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extraordinary management developments;
public offerings or private sales of debt or equity securities;
calls, redemptions or purchases of a company's own stock;
issuer tender offers; or
recapitalizations.
Information provided by a company could be material because of its expected
effect on a particular class of the company's securities, all of the company's
securities, the securities of another company, or the securities of several
companies. Moreover, the resulting prohibition against the misuses of "material"
information reaches all types of securities (whether stock or other equity
interests, corporate debt, government or municipal obligations, or commercial
paper) as well as any option related to that security (such as a put, call or
index security).
Material information does not have to relate to a company's business. For
example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered
as material certain information about the contents of a forthcoming newspaper
column that was expected to affect the market price of a security. In that case,
a reporter for The Wall Street Journal was found criminally liable for
disclosing to others the dates that reports on various companies would appear in
the Journal and whether those reports would be favorable or not.
3. WHAT IS NON-PUBLIC INFORMATION?
In order for issues concerning insider trading to arise, information must
not only be "material," it must be "non-public." "Non-public" information is
information which has not been made available to investors generally.
Information received in circumstances indicating that it is not yet in general
circulation or where the recipient knows or should know that the information
could only have been provided by an "insider" is also deemed "non-public"
information.
At such time as material, non-public information has been effectively
distributed to the investing public, it is no longer subject to insider trading
restrictions. However, for "non-public" information to become public
information, it must be disseminated through recognized channels of distribution
designed to reach the securities marketplace.
To show that "material" information is public, you should be able to point
to some fact verifying that the information has become generally available, for
example, disclosure in a national business and financial wire service (Dow Jones
or Reuters), a national news service (AP or UPI), a national newspaper (The Wall
Street Journal or The New York Times), or a publicly disseminated disclosure
document (a proxy statement or prospectus). The circulation of rumors or "talk
on the street," even if accurate, widespread and reported in the media, does not
constitute the requisite public disclosure. The information must not only be
publicly disclosed, there must also be adequate time for the market as a whole
to digest the information. Although timing may vary depending upon the
circumstances, a good rule of thumb is that information is considered non-public
until the third business day after public disclosure.
Material, non-public information is not made public by selective
dissemination. Material
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information improperly disclosed only to institutional investors or to a fund
analyst or a favored group of analysts retains its status as "non-public"
information which must not be disclosed or otherwise misused. Similarly, partial
disclosure does not constitute public dissemination. So long as any material
component of the "inside" information possessed by the Company has yet to be
publicly disclosed, the information is deemed "non-public" and may not be
misused.
Information Provided in Confidence. Occasionally, one or more directors,
officers, or employees of companies in PIMCO Advisors may become temporary
"insiders" because of a fiduciary or commercial relationship. For example,
personnel at PALP or a subpartnership may become insiders when an external
source, such as a company whose securities are held by one or more of the
accounts managed by PALP or a subpartnership, entrusts material, non-public
information to the Company portfolio managers or analysts with the expectation
that the information will remain confidential.
As an "insider," the Company has a fiduciary responsibility not to breach
the trust of the party that has communicated the "material, non-public"
information by misusing that information. This fiduciary duty arises because the
Company has entered or has been invited to enter into a commercial relationship
with the client or prospective client and has been given access to confidential
information solely for the corporate purposes of that client or prospective
client. This obligation remains whether or not the Company ultimately
participates in the transaction.
Information Disclosed in Breach of a Duty. Analysts and portfolio managers
at PIMCO Advisors must be especially wary of "material, non-public" information
disclosed in breach of a corporate insider's fiduciary duty. Even where there is
no expectation of confidentiality, a person may become an "insider" upon
receiving material, non-public information in circumstances where a person
knows, or should know, that a corporate insider is disclosing information in
breach of the fiduciary duty he or she owes the corporation and its
shareholders. Whether the disclosure is an improper "tip" that renders the
recipient a "tippee" depends on whether the corporate insider expects to benefit
personally, either directly or indirectly, from the disclosure. In the context
of an improper disclosure by a corporate insider, the requisite "personal
benefit" may not be limited to a present or future monetary gain. Rather, a
prohibited personal benefit could include a reputational benefit, an expectation
of a quid pro quo from the recipient or the recipient's employer by a gift of
the "inside" information.
A person may, depending on the circumstances, also become an "insider" or
"tippee" when he or she obtains apparently material, non-public information by
happenstance, including information derived from social situations, business
gatherings, overheard conversations, misplaced documents, and "tips" from
insiders or other third parties.
4. IDENTIFYING MATERIAL INFORMATION?
Before trading for yourself or others, including investment companies or
private accounts managed by PALP or its affiliated Subpartnerships, in the
securities of a company about which you may have potential material, non-public
information, ask yourself the following questions:
i. Is this information that an investor could consider important in
making his or her investment decisions? Is this information that could
substantially affect the market price of the securities if generally
disclosed?
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ii. To whom has this information been provided? Has the information been
effectively communicated to the marketplace by being published in
Reuters, The Wall Street Journal or other publications of general
circulation.
Given the potentially severe regulatory, civil and criminal sanctions to
which you and PIMCO Advisors and its personnel could be subject, any director,
officer and employee uncertain as to whether the information he or she possesses
is "material, non-public" information should immediately take the following
steps:
i. Report the matter immediately to a Compliance Officer or the Chief
Executive Officer of PALP;
ii. Do not purchase or sell the securities on behalf of yourself or
others, including investment companies or private accounts managed by
PALP or the applicable affiliated subpartnership; and
iii. Do not communicate the information inside or outside the Company,
other than to a Compliance Officer or the Chief Executive Officer
of PALP.
After a Compliance Officer or the Chief Executive Officer has reviewed the
issue, you will be instructed to continue the prohibitions against trading and
communication or will be allowed to trade and communicate the information.
5. PENALTIES FOR INSIDER TRADING.
Penalties for trading on or communicating material, non-public information
are severe, both for individuals involved in such unlawful conduct and their
employers. A person can be subject to some or all of the penalties below even if
he or she does not personally benefit from the violation. Penalties include:
civil injunctions
treble damages
disgorgement of profits
jail sentences
fines for the person who committed the violation of up to three times the
profit gained or loss avoided, whether or not the person actually
benefited, and
fines for the employer or other controlling person of up to the greater of
$1,000,000 or three times the amount of the profit gained or loss avoided.
In addition, any violation of this policy statement can be expected to
result in serious sanctions by PIMCO Advisors, including dismissal of the
persons involved.
SECTION II. PROCEDURES TO IMPLEMENT PIMCO ADVISORS' POLICY.
A. PROCEDURES TO IMPLEMENT THE POLICY AGAINST INSIDER TRADING.
The following procedures have been established to aid the officers,
directors and employees of PIMCO Advisors in avoiding insider trading, and to
aid the Company in preventing, detecting and imposing sanctions against insider
trading. Every officer, director and employee of PIMCO Advisors must follow
these procedures or risk serious sanctions, including dismissal, substantial
personal liability and criminal penalties.
TRADING RESTRICTIONS AND REPORTING REQUIREMENTS
1. No employee, officer or director of the Company who possesses material,
non-public information relating to the Company or any of its affiliates or
subsidiaries, may buy or sell any securities of the Company or engage in
any other action to take advantage of, or pass on to others, such material,
non-public information.
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2. No employee, officer or director of the Company who obtains material,
non-public information which relates to any other company or entity in
circumstances in which such person is deemed to be an insider or is
otherwise subject to restrictions under the federal securities laws may buy
or sell securities of that company or otherwise take advantage of, or pass
on to others, such material, non-public information.
3. No employee, officer or director of the Company shall engage in a
securities transaction with respect to the securities of PIMCO Advisors,
except in accordance with the specific procedures published from time to
time by the company.
4. Each employee, officer or director of the Company shall submit reports of
every securities transaction involving securities of PIMCO Advisors to a
Compliance Officer in accordance with the terms of the Company's Code of
Ethics as they relate to any other securities transaction.
5. No Employee (as such term is defined in the applicable Code of Ethics)
shall engage in a securities transaction with respect to any securities of
any other company, except in accordance with the specific procedures set
forth in the Company's Code of Ethics.
6. Employees shall submit reports concerning each securities transaction in
accordance with the terms of the Code of Ethics and verify their personal
ownership of securities in accordance with the procedures set forth in the
Code of Ethics.
7. Because even inadvertent disclosure of material, non-public information to
others can lead to significant legal difficulties, officers, directors and
employees of the Company should not discuss any potentially material,
non-public information concerning the Company or other companies, including
other officers, employees and directors, except as specifically required in
the performance of their duties.
B. CHINESE WALL PROCEDURES.
The Insider Trading and Securities Fraud Enforcement Act requires the
establishment and strict enforcement of procedures reasonably designed to
prevent the misuse of "inside" information.1 Accordingly, you should not discuss
material, non-public information about the Company or other companies with
anyone, including other employees, except as required in the performance of your
regular duties. In addition, care should be taken so that such information is
secure. For example, files containing material, non-public information should be
sealed; access to computer files containing material, non-public information
should be restricted.
C. RESOLVING ISSUES CONCERNING INSIDER TRADING.
The federal securities laws, including the laws governing insider trading,
are complex. If you have any doubts or questions as to the materiality or
non-public nature of information in your possession or as to any of the
applicability or interpretation of any of the foregoing procedures or as to the
propriety of any action, you should contact a Compliance Officer. Until advised
to the contrary by a Compliance Officer, you should presume that the information
is material and non-public and you should NOT trade in the securities or
disclose this information to anyone.
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1 The antifraud provisions of United States securities laws reach insider
trading or tipping activity worldwide which defrauds domestic securities
markets. In addition, the Insider Trading and Securities Fraud Enforcement Act
specifically authorizes the SEC to conduct investigations at the request of
foreign governments, without regard to whether the conduct violates United
States law.
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APPENDIX III
PIMCO ADVISORS L.P.
POLICY REGARDING SPECIAL TRADING PROCEDURES
FOR SECURITIES OF PIMCO ADVISORS L.P.
Effective as of May 1, 1996
INTRODUCTION
PIMCO Advisors L.P. (as defined below) has adopted an Insider Trading
Policy and Procedures applicable to all personnel which prohibits insider
trading in any securities, and prohibits all employees from improperly using or
disclosing material, non-public information, a copy of which has been supplied
to you.
For the purposes of this memorandum, the term the "Company" shall include
PIMCO Advisors L.P. ("PALP"), PIMCO Partners, G.P. ("PIMCO GP"), PIMCO Funds
Distributors LLC ("PFD") and any entity in relation to which PALP acts as a
general partner or owns 50% or more of one the issued and outstanding stock.
PERSONS TO WHOM THIS SPECIAL TRADING POLICY APPLIES
This Policy applies to all employees of the Company and, in the case of
PALP, the inside members of the Operating Board and the Equity Board ("Covered
Persons"), as well as to any transactions in securities participated in by
family members, trusts or corporations controlled by a Covered Person. In
particular, this Policy applies to securities transactions by:
a. the Covered Person's spouse;
b. the Covered Person's minor children;
c. any other relatives living in the Covered Person's household;
d. a trust in which the Covered Person has a beneficial interest, unless
such Covered Person has no direct or indirect control over the trust;
e. a trust as to which the Covered Person is a trustee;
f. a revocable trust as to which the Covered Person is a settlor;
g. a corporation of which the Covered Person is an officer, director or
10% or greater stockholder; or
h. a partnership of which the Covered Person is a partner (including most
investment clubs), unless the Covered Person has no direct or indirect
control over the partnership.
The family members, trust and corporations listed above are hereinafter
referred to as "Related persons."
SECURITIES TO WHICH THIS SPECIAL TRADING POLICY APPLIES
Unless stated otherwise, the following Special Trading Procedures apply to
all transactions by Covered Persons and their Related Persons involving any
class or series of units of limited partner interest of PALP or other securities
of PALP, including options and other derivative securities (such as a put, call
or index security) in relation to such securities (the "PALP Securities").
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SPECIAL TRADING PROCEDURES RELATING TO SECURITIES OF PIMCO ADVISORS L.P.
1. TRADING WINDOWS
There are times when the Company may be engaged in a material non-public
development or transaction. Even if you are not aware of this development or
transaction, if you trade PALP's Securities before such development or
transaction is disclosed to the public, you might expose yourself and the
Company to a charge of insider trading that could be costly and difficult to
refute. In addition, such a trade by you could result in adverse publicity to
you or the company.
Therefore, the following rule shall apply: each Covered Person and all of
such person's Related Persons may only purchase or sell PALP Securities during
four "trading windows" that occur each year. The four trading windows consist of
the months of February, May, August and November. TRADING ON THE BASIS OF
MATERIAL NON-PUBLIC INFORMATION OR COMMUNICATING MATERIAL NON-PUBLIC INFORMATION
TO OTHERS AT ANY TIME, INCLUDING IN A TRADING WINDOW, IS A VIOLATION OF THE LAW
AND A VIOLATION OF THIS POLICY.
In accordance with the procedure for waivers described below, in special
circumstances a waiver may be given to allow a trade to occur outside of a
trading window.
Employees of PALP should be aware that there are potential tax consequences
for such employees resulting from the ownership of PALP Securities. Each such
employee contemplating purchasing PALP Securities should discuss the matter with
such employee's tax advisor.
The exercise of options to purchase PALP Securities for cash are not
Covered to the procedures outlined above, but the securities so acquired may not
be sold except during a trading window and after all other requirements of this
policy have been satisfied.
2. POST-TRADE REPORTING
All Covered Persons shall submit to a Compliance Officer a report of every
securities transaction in PALP Securities in which they and any of their Related
Persons have participated as soon as practicable following the transaction and
in any event not later than the fifth day after the end of the month in which
the transaction occurred. The report shall include: (1) the date of the
transaction and the title and number of shares or principal amount of each
security involved; (2) the nature of the transaction (i.e., purchase, sale or
any other type of acquisition or disposition); (3) the price at which the
transaction was effected; and (4) the name of the broker/dealer with or through
whom the transaction was effected. In addition, on an annual basis, each Covered
Person must confirm the amount of PALP Securities which such person and his her
Related Persons beneficially own.
Each Covered Person (and not the Company) is personally responsible for
insuring that his or her transactions comply fully with any and all applicable
securities laws, including, but not limited to, the restrictions imposed under
Section 16(b) of the Securities and Exchange Act of 1934 and Rule 144 under the
Securities Act of 1933.
3. RESOLVING ISSUES CONCERNING INSIDER TRADING
If you have any doubts or questions as to whether information is material
or non-public, or as to the applicability or interpretation of any of the
foregoing procedures, or as to the propriety of any action, you should contact a
Compliance Officer before trading or communicating the information to anyone.
Until these doubts or questions are satisfactorily resolved, you should presume
that the information is material and non-public and you should NOT trade in the
securities or communicate this information to anyone.
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4. MODIFICATIONS AND WAIVERS
The Company reserves the right to amend or modify this policy statement at
any time. Waiver of any provision of this policy statement in a specific
instance may be authorized in writing by a Compliance Officer and either the
Chief Executive Officer of PALP or any member of the Operating Committee of
PALP, and any such waiver shall be reported to the Equity and Operating Boards
of PALP at the next regularly scheduled meeting of each.
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The Prudential Investment Corporation
Code of Ethics Adopted Pursuant to Rule 17j-1
Under the Investment Company Act of 1940
(the Code)
1. Purposes
The Code has been adopted by the Board of Directors/Trustees or the Duly
Appointed Officer-In-Charge of the Fund, the Manager, the Adviser/Subadviser,
and the Principal Underwriter in accordance with Rule 17j-1(c) under the
Investment Company Act of 1940 (the Act) and in accordance with the following
general principles:
(1) The duty at all times to place the interests of shareholders first.
Investment company personnel should scrupulously avoid serving their
own personal interests ahead of shareholders' interests in any decision
relating to their personal investments.
(2) The requirement that all personal securities transactions be conducted
consistent with the Code and in such a manner as to avoid any actual or
potential conflict of interest or any abuse of an individual's position of
trust and responsibility.
Investment company personnel must not only seek to achieve technical
compliance with the Code but should strive to abide by its spirit and the
principles articulated herein.
(3) The fundamental standard that investment company personnel should not
take inappropriate advantage of their positions.
Investment company personnel must avoid any situation that might
compromise, or call into question, their exercise of fully independent
judgment in the interest of shareholders, including, but not limited to the
receipt of unusual investment opportunities, perquisites, or gifts of more
than a de minimis value from persons doing or seeking business with the
Fund.
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Rule 17j-1 under the Act generally proscribes fraudulent or manipulative
practices with respect to a purchase or sale of a security held or to be
acquired (as such term is defined in Section 2.) by an investment company, if
effected by an associated person of such company.
The purpose of the Code is to establish procedures consistent with the Act
and Rule 17j-1 to give effect to the following general prohibitions as set forth
in Rule 17j-1(b) as follows:
(a) It shall be unlawful for any affiliated person of or Principal
Underwriter for a registered investment company, or any affiliated person
of an investment adviser of or principal underwriter for a registered
investment company in connection with the purchase or sale, directly or
indirectly, by such person of a security held or to be acquired, by such
registered investment company:
(1) To employ any device, scheme or artifice to defraud such
registered investment company;
(2) To make to such registered investment company any untrue
statement of a material fact or omit to state to such registered
investment company a material fact necessary in order to make the
statements made, in light of the circumstances under which they are
made, not misleading;
(3) To engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon any such
registered investment company; or
(4) To engage in any manipulative practice with respect to such
registered investment company.
2. Definitions
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(a) "Access Person" means any director/trustee, officer, general
partner or Advisory Person (including any Investment Personnel, as that
term is defined herein) of the Fund, the Manager, the Adviser/Subadviser,
or the Principal Underwriter.
(b) "Adviser/Subadviser" means the Adviser or Subadviser of the Fund
or both as the context may require.
(c) "Advisory Person" means (i) any employee of the Fund, Manager or
Adviser/Subadviser (or of any company in a control relationship to the
Fund, Manager or Adviser/Subadviser) who, in connection with his or her
regular functions or duties, makes, participates in, or obtains information
regarding the purchase or sale of a security by the Fund, or whose
functions relate to the making of any recommendations with respect to such
purchases or sales; and (ii) any natural person in a control relationship
to the Fund who obtains information concerning recommendations made to the
Fund with regard to the purchase or sale of a security.
(d) "Beneficial Ownership" will be interpreted in the same manner as
it would be under Securities Exchange Act Rule 16a-1(a)(2) in determining
which security holdings of a person are subject to the reporting and
short-swing profit provisions of Section 16 of the Securities Exchange Act
of 1934 and the rules and regulations thereunder, except that the
determination of direct or indirect beneficial ownership will apply to all
securities which an Access Person has or acquires (Exhibit A).
(e) "Complex" means the group of registered investment companies for
which Prudential Investments Fund Management LLC serves as Manager;
provided, however, that with respect to Access Persons of the Subadviser
(including any unit or subdivision thereof), "Complex" means the group of
registered investment companies in the Complex advised by the Subadviser or
unit or subdivision thereof.
(f) "Compliance Officer" means the person designated by the Manager,
the Adviser/Subadviser, or Principal Underwriter (including his or her
designee) as having responsibility for compliance with the requirements of
the Code.
(g) "Control" will have the same meaning as that set forth in Section
2(a)(9) of the Act.
(h) "Disinterested Director/Trustee" means a Director/ Trustee of the
Fund who is not an "interested person" of the Fund within the meaning of
Section 2(a)(19) of the Act.
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An interested Director/Trustee who would not otherwise be deemed to be
an Access Person, shall be treated as a Disinterested Director/Trustee for
purposes of compliance with the provisions of the Code.
(i) "Initial Public Offering" means an offering of securities
registered under the Securities Act of 1933, the issuer of which,
immediately before the registration, was not subject to the reporting
requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934.
(j) "Investment Personnel" means: (a) Portfolio Managers and other
Advisory Persons who provide investment information and/or advice to the
Portfolio Manager(s) and/or help execute the Portfolio Manager's(s')
investment decisions, including securities analysts and traders ; and (b)
any natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to the
purchase or sale of a security.
(k) "Manager" means Prudential Investments Fund Management, LLC.
(l) "Portfolio Manager" means any Advisory Person who has the direct
responsibility and authority to make investment decisions for the Fund.
(m) "Private placement" means a limited offering that is exempt from
registration under the Securities Act of 1933 pursuant to section 4(2) or
section 4(6) or pursuant to rule 504, rule 505 or rule 506 under such
Securities Act.
(n) "Security" will have the meaning set forth in Section 2(a)(36) of
the Act, except that it will not include shares of registered open-end
investment companies, direct obligations of the Government of the United
States, , short-term debt securities which are "government securities"
within the meaning of Section 2(a)(16) of the Act, bankers' acceptances,
bank certificates of deposit, commercial paper and such other money market
instruments as are designated by the Compliance Officer. For purposes of
the Code, an "equivalent Security" is one that has a substantial economic
relationship to another Security. This would include, among other things,
(1) a Security that is exchangeable for or convertible into another
Security, (2) with respect to an equity Security, a Security having the
same issuer (including a private issue by the same issuer) and any
derivative, option or warrant relating to that Security and (3) with
respect to a fixed-income Security, a Security having the same issuer,
maturity, coupon and rating.
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(o) Security held or to be acquired means any Security or any
equivalent Security which, within the most recent 15 days: (1) is or has
been held by the Fund; or (2) is being considered by the Fund or its
investment adviser for purchase by the Fund.
3. Applicability
The Code applies to all Access Persons and the Compliance Officer shall
provide each Access Person with a copy of the Code. The prohibitions described
below will only apply to a transaction in a Security in which the designated
Access Person has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership. The Compliance Officer will maintain a list of
all Access Persons who are currently, and within the past five years, subject to
the Code.
4. Prohibited Purchases and Sales
A. Initial Public Offerings
No Investment Personnel may acquire any Securities in an initial public
offering. For purposes of this restriction, "Initial Public Offerings" shall not
include offerings of government and municipal securities.
B. Private Placements
No Investment Personnel may acquire any Securities in a private placement
without prior approval.
(i) Prior approval must be obtained in accordance with the
preclearance procedure described in Section 6 below. Such approval will
take into account, among other factors, whether the investment opportunity
should be reserved for the Fund and its shareholders and
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whether the opportunity is being offered to the Investment Personnel by
virtue of his or her position with the Fund. The Adviser/Subadviser shall
maintain a record of such prior approval and reason for same, for at least
5 years after the end of the fiscal year in which the approval is granted.
(ii) Investment Personnel who have been authorized to acquire
Securities in a private placement must disclose that investment to the
chief investment officer (including his or her designee) of the
Adviser/Subadviser (or of any unit or subdivision thereof) or the
Compliance Officer when they play a part in any subsequent consideration of
an investment by the Fund in the issuer. In such circumstances, the Fund's
decision to purchase Securities of the issuer will be subject to an
independent review by appropriate personnel with no personal interest in
the issuer.
C. Blackout Periods
(i) Except as provided in Section 5 below, Access Persons are
prohibited from executing a Securities transaction on a day during which
any investment company in the Complex has a pending "buy" or "sell" order
in the same or an equivalent Security and until such time as that order is
executed or withdrawn; provided, however, that this prohibition shall not
apply to Disinterested Directors/Trustees except if they have actual
knowledge of trading by any fund in the Complex and, in any event, only
with respect to those funds on whose boards they sit.
6
<PAGE>
This prohibition shall also not apply to Access Persons of the
Subadviser who do not, in the ordinary course of fulfilling his or her
official duties, have access to information regarding the purchase and sale
of Securities for the Fund and are not engaged in the day-to-day operations
of the Fund; provided that Securities investments effected by such Access
Persons during the proscribed period are not effected with knowledge of the
purchase or sale of the same or equivalent Securities by any fund in the
Complex.
A "pending 'buy' or 'sell' order" exists when a decision to purchase
or sell a Security has been made and communicated.
(ii) Portfolio Managers are prohibited from buying or selling a
Security within seven calendar days before or after the Fund trades in the
same or an equivalent Security. Nevertheless, a personal trade by any
Investment Personnel shall not prevent a Fund in the same Complex from
trading in the same or an equivalent security. However, such a transaction
shall be subject to independent review by the Compliance Officer.
(iii) If trades are effected during the periods proscribed in (i) or
(ii) above, except as provided in (iv) below with respect to (i) above, any
profits realized on such trades will be promptly required to be disgorged
to the Fund.
(iv) A transaction by Access Persons (other than Investment Personnel)
inadvertently effected during the period proscribed in (i) above will not
be considered a violation of the Code and disgorgement will not be required
so long as the transaction was effected in accordance with the preclearance
procedures described in Section 6 below and without prior knowledge of
trading by any fund
7
<PAGE>
in the Complex in the same or an equivalent Security.
D. Short-Term Trading Profits
Except as provided in Section 5 below, Investment Personnel are prohibited
from profiting from a purchase and sale, or sale and purchase, of the same or an
equivalent Security within any 60 calendar day period. If trades are effected
during the proscribed period, any profits realized on such trades will be
immediately required to be disgorged to the Fund.
E. Short Sales
No Access Person may sell any security short which is owned by any Fund in
the Complex. Access Persons may, however make short sales when he/she owns an
equivalent amount of the same security.
F. Options
No Access Person may write a naked call option or buy a naked put option on
a security owned by any Fund in the Complex. Access Persons may purchase options
on securities not held by any Fund in the Complex, or purchase call options or
write put options on securities owned by any Fund in the Complex, subject to
preclearance and the same restrictions applicable to other securities. Access
Persons may write covered call options or buy covered put options on a security
owned by any Fund in the Complex at the discretion of the Compliance Officer.
G. Investment Clubs
No Access Person may participate in an investment club.
5. Exempted Transactions
Subject to preclearance in accordance with Section 6 below with respect to
8
<PAGE>
subitems (b), (e), (f), (g) and (i) hereof, the prohibitions of Sections 4(C)
and 4(D) will not apply to the following:
(a) Purchases or sales of Securities effected in any account over
which the Access Person has no direct or indirect influence or control or
in any account of the Access Person which is managed on a discretionary
basis by a person other than such Access Person and with respect to which
such Access Person does not in fact influence or control such transactions.
(b) Purchases or sales of Securities (or their equivalents) which are
not eligible for purchase or sale by any fund in the Complex.
(c) Purchases or sales of Securities which are non-volitional on the
part of either the Access Person or any fund in the Complex.
(d) Purchases of Securities which are part of an automatic dividend
reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
(f) Any equity Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 500 shares
or less in the aggregate, if (i) the Access Person has no prior knowledge
of activity in such security by any fund in the Complex and (ii) the issuer
is listed on The New York Stock Exchange or has a market capitalization
(outstanding shares multiplied by the current price per share) greater than
$1 billion (or a corresponding market capitalization in foreign markets).
(g) Any fixed-income Securities transaction, or series of related
transactions effected over a 30 calendar day period, involving 100 units
($100,000 principal amount) or less in the aggregate, if the Access Person
has no prior knowledge of transactions in such Securities by any fund in
the Complex.
(h) Any transaction in index options effected on a broad-based index
(See Exhibit B.)(1)
(i) Purchases or sales of Securities which receive the prior
- ----------
(1) Exhibit B will be amended by the Compliance Officer as necessary.
9
<PAGE>
approval of the Compliance Officer (such person having no personal interest
in such purchases or sales), based on a determination that no abuse is
involved and that such purchases and sales are not likely to have any
economic impact on any fund in the Complex or on its ability to purchase or
sell Securities of the same class or other Securities of the same issuer.
(j) Purchases or sales of Unit Investment Trusts.
6. Preclearance
Access Persons (other than Disinterested Directors/Trustees) must preclear
all personal Securities investments with the exception of those identified in
subparts (a), (c), (d), (h) and (j) of Section 5 above.
All requests for preclearance must be submitted to the Compliance Officer
for approval. All approved orders must be executed no later than 5:00 p.m. local
time on the business day following the date preclearance is granted. If any
order is not timely executed, a request for preclearance must be resubmitted.
7. Reporting
(a) Disinterested Directors/Trustees shall report to the Secretary of the
Fund or the Compliance Officer the information described in Section 7(b) hereof
with respect to transactions in any Security in which such Disinterested
Director/Trustee has, or by reason of such transaction acquires, any direct or
indirect Beneficial Ownership in the Security only if such Disinterested
Director/Trustee, at the time of that transaction knew or, in the ordinary
course of fulfilling his or her official duties as a Director/Trustee of the
Fund, should have known that, during the 15-day period immediately preceding or
subsequent to the date of the transaction in a Security by such
Director/Trustee, such Security is or was purchased or sold by the Fund or was
being considered for purchase
10
<PAGE>
or sale by the Fund, the Manager or Adviser/Subadviser; provided, however, that
a Disinterested Director/Trustee is not required to make a report with respect
to transactions effected in any account over which such Director/Trustee does
not have any direct or indirect influence or control or in any account of the
Disinterested Director/Trustee which is managed on a discretionary basis by a
person other than such Director/Trustee and with respect to which such
Director/Trustee does not in fact influence or control such transactions. The
Secretary of the Fund or the Compliance Officer shall maintain such reports and
such other records to the extent required by Rule 17j-1 under the Act.
(b) Every report required by Section 7(a) hereof shall be made not later
than ten days after the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall contain the following
information:
(i) The date of the transaction, the title and the number of shares, and
the principal amount of each Security involved;
(ii) The nature of the transaction (i.e., purchase, sale or any other type
of acquisition or disposition);
(iii) The price at which the transaction was effected;
(iv) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(v) The date that the report is submitted.
(c) Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he or she has
any direct or indirect Beneficial Ownership in the Security to which the report
relates.
8. Records of Securities Transactions and Post-Trade Review
Access Persons (other than Disinterested Directors/Trustees) are required
to
11
<PAGE>
direct their brokers to supply, on a timely basis, duplicate copies of
confirmations of all personal Securities transactions and copies of periodic
statements for all Securities accounts in which such Access Persons have a
Beneficial Ownership interest to the Compliance Officer. Such instructions must
be made upon becoming an Access Person and promptly as new accounts are
established, but no later than ten days after the end of a calendar quarter,
with respect to any account established by the Access Person in which any
securities were held during the quarter for the direct or indirect beneficial
interest of the Access Person. Notification must be made in writing and a copy
of the notification must be submitted to Compliance. This notification will
include the broker, dealer or bank with which the account was established and
the date the account was established.
Compliance with this Code requirement will be deemed to satisfy the
reporting requirements imposed on Access Persons under Rule 17j-1(d), provided,
however, that such confirmations and statements contain all the information
required by Section 7. b. hereof and are furnished within the time period
required by such section.
The Compliance Officer will periodically review the personal investment
activity and holdings reports of all Access Persons (including Disinterested
Directors/Trustees with respect to Securities transactions reported pursuant to
Section 7 above).
9. Disclosure of Personal Holdings
Within ten days after an individual first becomes and Access Person and
thereafter on an annual basis, each Access Person (other than Disinterested
Directors/Trustees) must disclose all personal Securities holdings. Such
disclosure must be made in writing and be as of the date the individual first
became an Access
12
<PAGE>
Person with respect to the initial report and by January 30 of each year,
including holdings information as of December 31, with respect to the annual
report. All such reports shall include the following: title, number of shares
and principal amount of each security held, name of broker, dealer or bank with
whom these securities are held and the date of submission by the Access Person.
10. Gifts
Access Persons are prohibited from receiving any gift or other thing of
more than $100 in value from any person or entity that does business with or on
behalf of the Fund. Occasional business meals or entertainment (theatrical or
sporting events, etc.) are permitted so long as they are not excessive in number
or cost.
11. Service As a Director
Investment Personnel are prohibited from serving on the boards of directors
of publicly traded companies, absent prior authorization based upon a
determination that the board service would be consistent with the interests of
the Fund and its shareholders. In the limited instances that such board service
is authorized, Investment Personnel will be isolated from those making
investment decisions affecting transactions in Securities issued by any publicly
traded company on whose board such Investment Personnel serves as a director
through the use of "Chinese Wall" or other procedures designed to address the
potential conflicts of interest.
12. Certification of Compliance with the Code
Access Persons are required to certify annually as follows:
(i) that they have read and understood the Code;
(ii) that they recognize that they are subject to the Code;
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<PAGE>
(iii) that they have complied with the requirements of the Code; and
(iv) that they have disclosed or reported all personal Securities
transactions required to be disclosed or reported pursuant to the
requirements of the Code.
13. Code Violations
All violations of the Code will be reported to the Board of
Directors/Trustees of the Fund on a quarterly basis. The Board of
Directors/Trustees may take such action as it deems appropriate.
14. Review by the Board of Directors/Trustees
The Board of Directors/Trustees will be provided with an annual report
which at a minimum:
(i) certifies to the Board that the Fund, Manager, Investment
Adviser/Subadviser, and Principal Underwriter has adopted procedures reasonably
necessary to prevent its Access persons from violating its Code.
(ii) summarizes existing procedures concerning personal investing and any
changes in the procedures made during the preceding year;
(iii) identifies material Code or procedural violations and sanctions
imposed in response to those material violations; and
(iv) identifies any recommended changes in existing restrictions or
procedures based upon the Fund's experience under the Code, evolving industry
practices, or developments in applicable laws and regulations.
The Board will review such report and determine if any further action is
required.
14
<PAGE>
Explanatory Notes to Code
1. No comparable Code requirements have been imposed upon Prudential Mutual
Fund Services LLC, the Fund's transfer agent, or Prudential Investment
Management Services, LLC , which acts as the Fund's distributor, or those of
their directors or officers who are not Directors/Trustees or Officers of the
Fund since they are deemed not to constitute Access Persons or Advisory Persons
as defined in paragraphs (e)(1) and (2) of Rule 17j-1.
15
<PAGE>
Exhibit A
Definition of Beneficial Ownership
The term "beneficial ownership" of securities would include not only
ownership of securities held by an access person for his or her own benefit,
whether in bearer form or registered in his or her own name or otherwise, but
also ownership of securities held for his or her benefit by other (regardless of
whether or how they are registered) such as custodians, brokers, executors,
administrators, or trustees (including trusts in which he or she has only a
remainder interest), and securities held for his or her account by pledges,
securities owned by a partnership in which he or she should regard as a personal
holding corporation. Correspondingly, this term would exclude securities held by
an access person for the benefit of someone else.
Ordinarily, this term would not include securities held by executors or
administrators in estates in which an access person is a legatee or beneficiary
unless there is a specific legacy to such person of such securities or such
person is the sole legatee or beneficiary and there are other assets in the
estate sufficient to pay debts ranking ahead of such legacy, or the securities
are held in the estate more than a year after the decedent's death.
Securities held in the name of another should be considered as
"beneficially" owned by an access person where such person enjoys "benefits
substantially equivalent to ownership". The SEC has said that although the final
determination of beneficial ownership is a question to be determined in the
light of the facts of the particular case, generally a person is regarded as the
beneficial owner of securities held in the name of his or her spouse and their
minor children. Absent special circumstances such relationship ordinarily
results in such person obtaining benefits substantially equivalent to ownership,
e.g., application of the income derived from such securities to maintain a
common home, to meet expenses which such person otherwise would meet from other
sources, or the ability to exercise a controlling influence over the purchase,
sale or voting of such securities.
An access person also may be regarded as the beneficial owner of securities
held in the name of another person, if by reason of any contact, understanding,
relationship, agreement or other arrangement, he obtains therefrom benefits
substantially equivalent to those of ownership. Moreover, the fact that the
holder is a relative or relative of a spouse and sharing the same home as an
access person may in itself indicate that the access person would obtain
benefits substantially equivalent to those of ownership from securities held in
the name of such relative. Thus, absent countervailing facts, it is expected
that securities held by relatives who share the same home as an access person
will be treated as being beneficially owned by the access person.
An access person also is regarded as the beneficial owner of securities
held in the name of a spouse, minor children or other person, even though he
does not obtain therefrom the aforementioned benefits of ownership, if he can
vest or revest title in himself at once or at some future time.
<PAGE>
Exhibit B
INDEX OPTIONS ON A BROAD-BASED INDEX
TICKER SYMBOL DESCRIPTION
- --------------------------------------------------------------------------------
NIK Nikkei 300 Index CI/Euro
- --------------------------------------------------------------------------------
OEX S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEW S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
OEY S&P 100 Close/Amer Index
- --------------------------------------------------------------------------------
SPB S&P 500 Index
- --------------------------------------------------------------------------------
SPZ S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SPX S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
SXZ S&P 500 (Wrap)
- --------------------------------------------------------------------------------
SXB S&P 500 Open/Euro Index
- --------------------------------------------------------------------------------
RUZ Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
RUT Russell 2000 Open/Euro Index
- --------------------------------------------------------------------------------
MID S&P Midcap 400 Open/Euro Index
- --------------------------------------------------------------------------------
NDX NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDU NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NDV NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
NCZ NASDAQ- 100 Open/Euro Index
- --------------------------------------------------------------------------------
SML S&P Small Cap 600
- --------------------------------------------------------------------------------
TPX U.S. Top 100 Sector
- --------------------------------------------------------------------------------
SPL S&P 500 Long-Term Close
- --------------------------------------------------------------------------------
ZRU Russell 2000 L-T Open./Euro
- --------------------------------------------------------------------------------
VRU Russell 2000 Long-Term Index
- --------------------------------------------------------------------------------
JENNISON ASSOCIATES LLC
CODE OF ETHICS,
POLICY ON INSIDER TRADING
AND
PERSONAL TRADING POLICY
As Amended December 6, 1999
<PAGE>
SECTION I
CODE OF ETHICS
FOR
JENNISON ASSOCIATES LLC
This Code sets forth rules, regulations and standards of conduct for the
employees of Jennison Associates LLC. It bears the approval of the Corporation's
Board of Directors and applies to Jennison Associates and all subsidiaries.
The Code incorporates The Prudential Insurance Company of America's ethics
policies as well as additional policies specific to Jennison Associates LLC.
Prudential's Code of Ethics, "Making the Right Choices", may be found as Exhibit
Q in Jennison Associates' Compliance Manual.
The prescribed guidelines assure that the high ethical standards long
maintained by Jennison continue to be applied. The purpose of the Code is to
preclude circumstances which may lead to or give the appearance of conflicts of
interest, insider trading, or unethical business conduct. The rules prohibit
certain activities and personal financial interests as well as require
disclosure of personal investments and related business activities of all
directors, officers and employees.
ERISA and the federal securities laws define an investment advisor as a
fiduciary who owes his clients a duty of undivided loyalty, who shall not engage
in any activity in conflict with the interests of the client. As a fiduciary,
our personal and corporate ethics must be above reproach. Actions which expose
any of us or the organization to even the appearance of impropriety must not
occur.
The excellent name of our firm continues to be a direct reflection of the
conduct of each of us in everything we do.
Being fully aware of and strictly adhering to the Code of Ethics is the
responsibility of each Jennison Associates employee.
1
<PAGE>
CONFIDENTIAL INFORMATION
Employees may become privy to confidential information (information not
generally available to the public) concerning the affairs and business
transactions of Jennison, companies researched by us for investment, our present
and prospective clients, suppliers, officers and other staff members.
Confidential information also includes trade secrets and other proprietary
information of the Corporation such as business or product plans, systems,
methods, software, manuals and client lists. Safeguarding confidential
information is essential to the conduct of our business. Caution and discretion
are required in the use of such information and in sharing it only with those
who have a legitimate need to know.
A) Personal Use: Confidential information obtained or developed as a result
of employment with the Corporation is not to be used or disclosed for the
purpose of furthering any private interest or as a means of making any personal
gain. Use or disclosure of such information could result in civil or criminal
penalties against the Corporation or the individual responsible for disclosing
such information.
Further guidelines pertaining to confidential information are contained in
the "Policy Statement on Insider Trading." (Set forth on page 8 in the section
dedicated specifically to Insider Trading.)
B) Release of Client Information: Information concerning a client which has
been requested by third persons, organizations or governmental bodies may only
be released with the consent of the client involved. All requests for
information concerning a client (other than routine credit inquiries), including
requests pursuant to the legal process (such as subpoenas or court orders) must
be promptly referred to Karen E. Kohler. No information may be released, nor
should the client involved be contacted, until so directed by Karen E. Kohler.
In order to preserve the rights of our clients and to limit the firm's
liability concerning the release of client proprietary information, care must be
taken to:
* Limit use and discussion of information obtained on the job to normal
business activities.
* Request and use only information which is related to our business needs.
* Restrict access to records to those with proper authorization and
legitimate business needs.
* Include only pertinent and accurate data in files which are used as a
basis for taking action or making decisions.
2
<PAGE>
CONFLICTS OF INTEREST
You should avoid actual or apparent conflicts of interest - that is, any
personal interest outside the Company which could be placed ahead of your
obligations to our clients, Jennison Associates or The Prudential Insurance
Company of America. Conflicts may exist even when no wrong is done. The
opportunity to act improperly may be enough to create the appearance of a
conflict.
We recognize and respect an employee's right of privacy concerning personal
affairs, but we must require a full and timely disclosure of any situation which
could result in a conflict of interest or even the appearance of a conflict.
Whether or not a conflict exists will be determined by the Company, not by the
employee involved.
To reinforce our commitment to the avoidance of potential conflicts of
interest, the following rules have been adopted:
1) YOU MAY NOT, without first having secured prior approval from the Board
of Directors, serve as a director, officer, employee, partner or trustee - nor
hold any other position of substantial interest - in any outside business
enterprise. You do not need prior approval, however, if the following three
conditions are met: one, the enterprise is a family firm owned principally by
other members of your family; two, the family business is not doing business
with Jennison or The Prudential; and three, the services required will not
interfere with your duties or your independence of judgment. Significant
involvement by employees in outside business activity is generally unacceptable.
In addition to securing prior approval for outside business activities, you will
be required to disclose all relationships with outside enterprises annually.
* Note - The above deals only with positions in business enterprises. It
does not effect Jennison's practice of permitting employees to be associated
with governmental, educational, charitable, religious or other civic
organizations. These activities may be entered into without prior consent, but
must still be disclosed on an annual basis.
2) YOU MAY NOT act on behalf of Jennison in connection with any transaction
in which you have a personal interest. This rule does not apply to any personal
interest resulting from your participation in any Jennison or Prudential plan in
the nature of incentive compensation, or in the case of a plan which provides
for direct participation in specific transactions by Jennison's Board of
Directors.
3) YOU MAY NOT, without prior approval from the Board of Directors, have a
substantial interest in any outside business which, to your knowledge, is
involved currently in a business transaction with Jennison or The Prudential, or
is engaged in businesses similar to any business engaged in by Jennison. A
substantial interest includes any investment in the outside business involving
an amount greater than 10 percent of your gross assets, or $10,000 if that
amount is larger, or involving an ownership interest greater than 2 percent of
the outstanding equity interests. You do not need approval to invest in
open-ended registered investment companies such as investments in mutual funds
and similar enterprises which are publicly owned.
3
<PAGE>
4) YOU MAY NOT, without prior approval of the Board of Directors, engage in
any transaction involving the purchase of products and/or services from
Jennison, except on the same terms and conditions as they are offered to the
public. Plans offering services to employees approved by the Board of Directors
are exempt from this rule.
5.) YOU MAY NOT purchase an equity interest in any competitor. Employees
and their immediate families are also prohibited from investing in securities of
a client or supplier with whom the staff member regularly deals even if the
securities are widely traded.
OTHER BUSINESS ACTIVITIES
ISSUES REGARDING THE RETENTION OF SUPPLIERS: The choice of our suppliers
must be based on quality, reliability, price, service, and technical advantages.
GIFTS: Jennison employees and their immediate families should not solicit,
accept, retain or provide any gifts or favors which might influence decisions
you or the recipient must make in business transactions involving Jennison or
which others might reasonably believe could influence those decisions. Even a
nominal gift should not be accepted if, to a reasonable observer, it might
appear that the gift would influence your business decisions.
Modest gifts and favors, which would not be regarded by others as improper,
may be accepted or given on an occasional basis. Examples of such gifts are
those received as normal business courtesies (i.e. meals or golf games);
non-cash gifts of nominal value (such as received at Holiday time); gifts
received because of kinship, marriage or social relationships entirely beyond
and apart from an organization in which membership or an official position is
held as approved by the Corporation. Entertainment which satisfies these
requirements and conforms to generally accepted business practices also is
permissible. Please reference the Gifts and Entertainment section of Jennison
Associates' Compliance Manual for a more detailed explanation of Jennison's
policy towards gifts and entertainment.
IMPROPER PAYMENTS - KICKBACKS: In the conduct of the Corporation's
business, no bribes, kickbacks, or similar remuneration or consideration of any
kind are to be given or offered to any individual or organization or to any
intermediaries such as agents, attorneys or other consultants, for the purpose
of influencing such individual or organization in obtaining or retaining
business for, or directing business to, the Corporation.
BOOKS, RECORDS AND ACCOUNTS: The integrity of the accounting records of the
Corporation is essential. All receipts and expenditures, including personal
expense statements must be supported by documents that accurately and properly
describe such expenses. Staff members responsible for approving expenditures or
for keeping books, records and accounts for the Corporation are required to
approve and record all expenditures and other entries based upon proper
supporting documents so that the accounting records of the Corporation are
maintained in reasonable detail, reflecting accurately and fairly all
transactions of the Corporation including the
4
<PAGE>
disposition of its assets and liabilities. The falsification of any book, record
or account of the Corporation, the submission of any false personal expense
statement, claim for reimbursement of a non-business personal expense, or false
claim for an employee benefit plan payment are prohibited. Disciplinary action
will be taken against employees who violate these rules, which may result in
dismissal.
LAWS AND REGULATIONS: The activities of the Corporation must always be in
full compliance with applicable laws and regulations. It is the Company's policy
to be in strict compliance with all laws and regulations applied to our
business. We recognize, however, that some laws and regulations may be ambiguous
and difficult to interpret. Good faith efforts to follow the spirit and intent
of all laws is expected. To ensure compliance, the Corporation intends to
educate its employees on laws related to Jennison's activities which may include
periodically issuing bulletins, manuals and memoranda. Staff members are
expected to read all such materials and be familiar with their content.
OUTSIDE ACTIVITIES & POLITICAL AFFILIATIONS: Jennison Associates does not
contribute financial or other support to political parties or candidates for
public office except where lawfully permitted and approved in advance in
accordance with procedures adopted by Jennison's Board of Directors. Employees
may, of course, make political contributions, but only on their own behalf; they
will not be reimbursed by the Company for such contributions.
Legislation generally prohibits the Corporation or anyone acting on its
behalf from making an expenditure or contribution of cash or anything else of
monetary value which directly or indirectly is in connection with an election to
political office; as, for example granting loans at preferential rates or
providing non-financial support to a political candidate or party by donating
office facilities. Otherwise, individual participation in political and civic
activities conducted outside of normal business hours is encouraged, including
the making of personal contributions to political candidates or activities.
Employees are free to seek and hold an elective or appointive public
office, provided you do not do so as a representative of the Company. However,
you must conduct campaign activities and perform the duties of the office in a
manner that does not interfere with your responsibilities to the firm.
5
<PAGE>
COMPLIANCE WITH THE CODE & CONSEQUENCES IF VIOLATION OF THE CODE OCCURS:
Each year all employees will be required to complete a form certifying that
they have read this booklet, understand their responsibilities, and are in
compliance with the requirements set forth in this statement.
This process should remind us of the Company's concern with ethical issues
and its desire to avoid conflicts of interest or their appearance. It should
also prompt us to examine our personal circumstances in light of the Company's
philosophy and policies regarding ethics.
Certain key employees will be required to complete a form verifying that
they have complied with all company procedures and filed disclosures of
significant personal holdings and corporate affiliations.
If any staff member has reason to believe that any situation may have
resulted in a violation of any provision of the Code of Ethics, whether by that
staff member or by another, the matter must be reported promptly to Karen E.
Kohler.
Violation of any provision of the Code of Ethics by any staff member may
constitute grounds for disciplinary action, including dismissal.
6
<PAGE>
SECTION II
INSIDER TRADING
As a result of recent legislative events, particularly the enactment of the
Insider Trading and Securities Fraud Enforcement Act of 1988, the Securities
Exchange Acts and the Investment Advisors Act of 1940 require that all
investment advisors establish, maintain and enforce policies and supervisory
procedures designed to prevent the misuse of material, non-public information by
such investment advisor, and any associated person.
This section of the Code sets forth Jennison Associates' policy statement
on insider trading. It explains some of the terms and concepts associated with
insider trading, as well as the civil and criminal penalties for insider trading
violations. In addition, it sets forth the necessary procedures required to
implement Jennison Associates' Insider Trading Policy Statement.
This policy applies to all Jennison Associates' employees, as well as the
employees of all affiliated companies.
7
<PAGE>
JENNISON ASSOCIATES' POLICY STATEMENT
AGAINST INSIDER TRADING
When contemplating a transaction for your personal account, or an account
in which you may have a direct or indirect personal or family interest, we must
be certain that such transaction is not in conflict with the interests of our
clients. Specific rules in this area are difficult, and in the final analysis,
each of us must make our own determination as to whether a transaction is in
conflict with client interests. Although it is not possible to anticipate all
potential conflicts of interest, we have tried to set a standard that protects
the firm's clients, yet is also practical for our employees. The Company
recognizes the desirability of giving its corporate personnel reasonable freedom
with respect to their investment activities, on behalf of themselves, their
families, and in some cases non-client accounts (i.e. charitable or educational
organizations on whose boards of directors corporate personnel serve). However,
personal investment activity may conflict with the interests of the Company's
clients. In order to avoid such conflicts -- or even the appearance of conflicts
- -- the Company has adopted the following policy:
Jennison Associates LLC forbids any director, officer or employee from
trading, either personally or on behalf of clients or others, on material,
non-public information or communicating material, non-public information to
others in violation of the law. Said conduct is deemed to be "insider trading."
Such policy applies to every director, officer and employee and extends to
activities within and outside their duties at Jennison Associates.
Every director, officer, and employee is required to read and retain this
policy statement. Questions regarding Jennison Associates' Insider Trading
policy and procedures should be referred to Karen E. Kohler or John H. Hobbs.
EXPLANATION OF RELEVANT TERMS AND CONCEPTS
Although insider trading is illegal, Congress has not defined "insider",
"material" or "non-public information". Instead the courts have developed
definitions of these terms. Set forth below are very general descriptions of
these terms. However, it is usually not easily determined whether information is
"material" or "non-public" and, therefore, whenever you have any questions as to
whether information is material or non-public, consult with Karen E. Kohler. Do
not make this decision yourself.
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1) Who is an Insider?
The concept of an "insider" is broad. It includes officers, directors and
employees of a company. A person may be a "temporary insider" if he or she
enters into a special confidential relationship in the conduct of a company's
affairs and as a result is given access to information solely for the company's
purposes. Examples of temporary insiders are the company's attorneys,
accountants, consultants and bank lending officers, as well as the employees of
such organizations. Jennison Associates and its employees may become "temporary
insiders" of a company in which we invest, in which we advise, or for which we
perform any other service. An outside individual may be considered an insider,
according to the Supreme Court, if the company expects the outsider to keep the
disclosed non-public information confidential or if the relationship suggests
such a duty of confidentiality.
2) What is Material Information?
Trading on inside information is not a basis for liability unless the
information is material. Material Information is defined, as:
* Information, for which there is a substantial likelihood, that a
reasonable investor would consider important in making his or her investment
decisions, or
* Information that is reasonably certain to have a substantial effect on
the price of a company's securities.
Information that directors, officers and employees should consider material
includes, but is not limited to: dividend changes, earnings estimates, changes
in previously released earnings estimates, a significant increase or decline in
orders, significant new products or discoveries, significant merger or
acquisition proposals or agreements, major litigation, liquidation problems, and
extraordinary management developments.
In addition, knowledge about Jennison Associates' trading information and
patterns may be deemed material.
3) What is Non-public Information?
Information is "non-public" until it has been effectively communicated to
the market place. One must be able to point to some fact to show that the
information is generally available to the public. For example, information found
in a report filed with the SEC, or appearing in Dow Jones, Reuters Economics
Services, The Wall Street Journal or other publications of general circulation
would be considered public.
4) Misappropriation Theory
Under the "misappropriation" theory liability is established when trading
occurs on material non-public information that is stolen or misappropriated from
any other person. In U.S. v. Carpenter, a columnist defrauded The Wall Street
Journal by stealing non-public information from the Journal and using it for
trading in the securities markets. Note that the misappropriation
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theory can be used to reach a variety of individuals not previously thought to
be encompassed under the fiduciary duty theory.
5) Who is a controlling person?
"Controlling persons" include not only employers, but any person with power
to influence or control the direction of the management, policies or activities
of another person. Controlling persons may include not only the Company, but its
directors and officers.
PENALTIES FOR INSIDER TRADING VIOLATIONS
Penalties for trading on or communicating material non-public information
are more severe than ever. The individuals involved in such unlawful conduct may
be subject to both civil and criminal penalties. A controlling person may be
subject to civil or criminal penalties for failing to establish, maintain and
enforce Jennison Associates' Policy Statement against Insider Trading and/or if
such failure permitted or substantially contributed to an insider trading
violation.
Individuals can be subject to some or all of the penalties below even if he
or she does not personally benefit from the violation. Penalties include:
a. CIVIL INJUNCTIONS
b. TREBLE DAMAGES
c. DISGORGEMENT OF PROFITS
d. JAIL SENTENCES - Under the new laws, the maximum jail sentences for
criminal securities law violations increased from 5 years to 10 years.
e. CIVIL FINES - Persons who committed the violation may pay up to three
times the profit gained or loss avoided, whether or not the person actually
benefited.
f. CRIMINAL FINES - The employer or other "controlling persons" may pay up
to $2,500,000.
g. Violators will be barred from the securities industry.
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SECTION III
IMPLEMENTATION PROCEDURES & POLICY
The following procedures have been established to assist the officers,
directors and employees of Jennison Associates in preventing and detecting
insider trading as well as to impose sanctions against insider trading. Every
officer, director and employee must follow these procedures or risk serious
sanctions, including possible dismissal, substantial personal liability and
criminal penalties. If you have any questions about these procedures you should
consult Karen E. Kohler or John H. Hobbs.
1) Identifying Inside Information
Before trading for yourself or others, including client accounts managed by
Jennison Associates, in the securities of a company about which you may have
potential inside information, ask yourself the following questions:
i. Is the information material? *Would an investor consider this
information important in making his or her investment decisions? ** Would
this information substantially effect the market price of the securities if
generally disclosed?
ii. Is the information non-public? * To whom has this information been
provided? ** Has the information been effectively communicated to the
marketplace by being published in Reuters, The Wall Street Journal, or
other publications of general circulation?
If, after consideration of the above, you believe that the information is
material and non-public, or if you have questions as to whether the information
is material and non-public, you should take the following steps:
i. Report the matter immediately to Karen E. Kohler or John H. Hobbs.
If neither are available you should contact Mr. Louis Begley, our attorney
at Debevoise and Plimpton ((212)909-6000).
ii. Do not repurchase or sell the securities on behalf of yourself or
others, including client accounts managed by Jennison Associates.
iii. Do not communicate the information inside or outside Jennison
Associates, other than to Karen E. Kohler, John H. Hobbs, or Mr. Begley our
outside counsel.
iv. After Karen E. Kohler, John H. Hobbs, or Mr. Begley has reviewed
the issue, you will be instructed to continue the prohibitions against
trading and communication, or you will be allowed to trade and communicate
the information.
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2) Restricting Access to Material Non-public Information
Information that you identify as material and non-public may not be
communicated to anyone, including persons within Jennison Associates LLC, except
as provided above. In addition, care should be taken so that such information is
secure. For example, files containing material non-public information should be
locked; access to computer files containing non-public information should be
restricted.
Jennison employees have no obligation to the clients of Jennison Associates
to trade or recommend trading on the basis of material, non-public (inside)
information in their possession. Jennison's fiduciary responsibility to its
clients requires that the firm and its employees regard the limitations imposed
by Federal securities laws.
3) Allocation of Brokerage
To supplement its own research and analysis, to corroborate data compiled
by its staff, and to consider the views and information of others in arriving at
its investment decisions, Jennison Associates, consistent with its efforts to
secure best price and execution, allocates brokerage business to those
broker-dealers in a position to provide such services.
It is the firm's policy not to allocate brokerage in consideration of the
attempted furnishing of material non-public (inside) information. Employees, in
recommending the allocation of brokerage to broker-dealers, should not give
consideration to the provision of any material non-public (inside) information.
The policy of Jennison Associates as set forth in this statement should be
brought to the attention of such broker-dealer.
4) Resolving Issues Concerning Insider Trading
If doubt remains as to whether information is material or non-public, or if
there is any unresolved question as to the applicability or interpretation of
the foregoing procedures and standards, or as to the propriety of any action, it
must be discussed with Karen E. Kohler or John H. Hobbs before trading or
communicating the information to anyone.
This code will be distributed to all Jennison Associates personnel.
Periodically or upon request, Karen E. Kohler will meet with such personnel to
review this statement of policy, including any developments in the law and to
answer any questions of interpretation or application of this policy.
From time to time this statement of policy will be revised in the light of
developments in the law, questions of interpretation and application, and
practical experience with the procedures contemplated by the statement.
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SECTION IV
JENNISON ASSOCIATES PERSONAL TRADING POLICY
1. GENERAL POLICY AND PROCEDURES
The management of Jennison Associates is fully aware of and in no way
wishes to deter the security investments of its individual employees. The
securities markets, whether equity, fixed income, international or domestic,
offer individuals alternative methods of enhancing their personal investments.
Due to the nature of our business and our fiduciary responsibility to our
client funds, we must protect the firm and its employees from the possibilities
of both conflicts of interest and illegal insider trading in regard to their
personal security transactions.
We have adopted the following policies and procedures on employee personal
trading to insure against violations of the law. These policies and procedures
are in addition to those set forth in the Code of Ethics and the Policy
Statement Against Insider Trading.
2. RECORDKEEPING REQUIREMENTS
Jennison Associates, as an investment advisor, is required by Rule 204-2 of
the under the Investment Advisers Act of 1940, to keep records of every
transaction in securities in which any of its personnel has any direct or
indirect beneficial ownership, except transactions effected in any account over
which neither the investment adviser nor any advisory representative of the
investment adviser has any direct or indirect influence or control and
transactions in securities which are direct obligations of the United States,
mutual funds and high-quality short-term instruments. This includes transactions
for the personal accounts of an employee, as well as, transactions for the
accounts of other members of their immediate family (including the spouse, minor
children, and adults living in the same household with the officer, director, or
employee) for which they or their spouse have any direct or indirect influence
or control and trusts of which they are trustees or other accounts in which they
have any direct or indirect beneficial interest or direct or indirect influence
or control, unless the investment decisions for the account are made by an
independent investment manager in a fully discretionary account. Jennison
recognizes that some of its employees may, due to their living arrangements, be
uncertain as to their obligations under this Personal Trading Policy. If an
employee has any question or doubt as to whether they have direct or indirect
influence or control over an account, he or she must consult with the Compliance
Department as to their status and obligations with respect to the account in
question.
In addition, Jennison, as a subadviser to investment companies registered
under the Investment Company Act of 1940 (e.g., mutual funds), is required by
Rule 17j-1 under the
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Investment Company Act to review and keep records of personal investment
activities of "access persons" of these funds, unless the access person does not
have direct or indirect influence or control of the accounts. An "access person"
is defined as any director, officer, general partner or Advisory Person of a
Fund or Fund's Investment Adviser. "Advisory Person" is defined as any employee
of the Fund or investment adviser (or of any company in a control relationship
to the Fund or investment adviser) who, in connection with his or her regular
functions or duties, makes, participates in, or obtains information regarding
the purchase or sale of investments by a Fund, or whose functions relate to the
making of any recommendations with respect to the purchases or sales. Therefore,
Jennison's "access persons" and "advisory persons" include the following:
portfolio managers, investment analysts, traders, officers and directors.
1) Access Persons: Portfolio Managers, Investment Analysts, Traders, and other
Jennison Officers and Directors
Access Persons are required to provide the Compliance Department with the
following:
A) Initial Holdings Reports:
Within 10 days of commencement of employment, an initial holdings report
detailing all personal investments (including private placements, and index
futures contracts and options thereon, but excluding US Treasury
securities, mutual fund shares, and short-term high quality debt
instruments). The report should contain the following information:
1. the title, number of shares and principal amount of each
investment in which the Access Person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were held
for the direct or indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
A) Quarterly Reports:
1. Transaction Reporting:Within 10 days after the end of a calendar
quarter, with respect to any transaction during the quarter in
investments in which the Access Person had any direct or indirect
beneficial ownership:
a. The date of the transaction, the title, the interest rate
and maturity date (if applicable), the number of shares and
the principal amount of each investment involved;
b. The nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
c. The price of the investment at which the transaction was
effected;
d. The name of the broker, dealer or bank with or through which
the transaction was effected; and
e. The date that the report is submitted by the Access Person.
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2. Personal Securities Account Reporting:Within 10 days after the
end of a calendar quarter, with respect to any account
established by the Access Person in which any securities were
held during the quarter for the direct or indirect benefit of the
Access Person:
a. The name of the broker, dealer or bank with whom the Access
Person established the account;
b. The date the account was established; and
c. The date that the report is submitted by the Access Person.
To facilitate compliance with this reporting requirement, Jennison
Associates requires that a duplicate copy of all trade confirmations and
brokerage statements be supplied directly to Jennison Associates'
Compliance Department and to the Prudential's Corporate Compliance
Department. In addition, the Compliance Department must also be notified
immediately upon the creation of any new personal investment accounts.
B) Annual Holdings Reports
Annually, the following information (which information must be current as
of a date no more than 30 days before the report is submitted):
1. The title, number of shares and principal amount of each
investment in which the Access Person had any direct or indirect
beneficial ownership;
2. The name of any broker, dealer or bank with whom the Access
Person maintains an account in which any securities are held for
the direct or indirect benefit of the Access Person; and
3. The date that the report is submitted by the Access Person.
D) A copy of all discretionary investment advisory contracts or
agreements between the officer, director or employee and his
investment advisors.
E) A copy of Schedule B, Schedule D, and Schedule E from federal income
tax returns on an annual basis.
2) All OtherEmployees of Jennison Associates
In order to ensure compliance with these regulations, all other employees
of Jennison Associates shall submit to the Compliance Department:
A.) Upon commencement of employment and no less than annually thereafter,
a report of all personal securities holdings and a report of every
personal brokerage account in which they have any direct or indirect
beneficial interest. The Compliance Department must also be notified
immediately upon the creation of any new personal investment accounts.
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The report must disclose the following material:
* Name and type of account - single, joint, trust, partnership, etc.
* A statement disclosing the general purpose of the account (e.g., as a
trustee of XYZ College, I have agreed in accordance with the school's
Board of Directors to invest funds on behalf of XYZ for the benefit of
its annual scholarship fund).
* The institution, bank, or otherwise, where the account is maintained.
B.) A report, including confirmation and quarter-end brokerage statements,
of every security transaction in which they, their immediate families
(including the spouse, minor children, and adults living in the same
household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control), and
trusts of which they are trustees or any other account in which they
have a beneficial interest and have participated or direct or indirect
influence or control.
To facilitate this aspect of employee securities trading, Jennison
Associates requires that a duplicate copy of all trade confirmations
and brokerage statements be supplied directly to Jennison Associates'
Compliance Department and to the Prudential's Corporate Compliance
Department.
C.) A copy of all discretionary investment advisory contracts or
agreements between the officer, director or employee and his
investment advisors.
D.) A copy of Schedule B, Schedule D, and Schedule E from federal income
tax returns on an annual basis.
3) Non-Employee Directors
A.) Jennison recognizes that a director not employed by Jennison (i.e.,
directors designated by The Prudential Insurance Company of America to
sit on Jennison's Board of Directors) is subject to his or her
employer's own code of ethics, a copy of which and any amendments
thereto shall have been made available to Jennison's Compliance
Department. The Compliance Department of the non-employee director's
employer must represent quarterly to the Jennison Compliance
Department that the non-employee director has complied with the
recordkeeping and other procedures of its code of ethics during the
most recent calendar quarter. Such representation shall also state
that such policies and procedures shall be deemed adequate for
compliance with both Prudential's and Jennison's Codes of Ethics. If
there have been any violations of the employer's code of ethics by
such non-employee director, the employer's Compliance Department must
submit a detailed report of such violations and what remedial action,
if any was taken.
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B.) Non-employee directors shall be exempt from supplying a copy of
Schedule B, D, and Schedule E from their federal income tax returns.
C.) Additionally, all non-employee directors shall be exempt from the
pre-clearance procedures as described below.
3. PRE-CLEARANCE PROCEDURES
All directors, officers, and employees of Jennison Associates may need to
obtain clearance from the Personal Investment Committee prior to effecting any
securities transaction in which they or their immediate families (including the
spouse, minor children, and adults living in the same household with the
officer, director, or employee) for which they or their spouse have any direct
or indirect influence or control, have a beneficial interest on behalf of a
trust of which they are trustee, or for any other account in which they have a
beneficial interest or direct or indirect influence or control. Determination as
to whether or not a particular transaction requires pre-approval should be made
by consulting the "Compliance and Reporting of Personal Transactions Matrix"
found on Exhibit A.
Please note, voluntary tender offers are a recent addition to the
"Compliance and Reporting of Personal Transactions" matrix. They are both a
reportable transaction and one that requires pre-approval. Approval of tendering
shares into a tender offer shall be determined on a case-by-case basis by the
Personal Investment Committee.
The Personal Investment Committee will make its decision of whether to
clear a proposed trade on the basis of the personal trading restrictions set
forth -below. A member of the Compliance Department shall promptly notify the
officer, director, or employee of approval or denial to trade the requested
security. Notification of approval or denial to trade may be verbally given as
soon as possible; however, it shall be confirmed in writing within 24 hours of
the verbal notification. Please note that the approval granted will be valid
only for that day in which the approval has been obtained; provided, however,
that approved orders for securities traded in certain foreign markets may be
executed within 2 business days from the date pre-clearance is granted,
depending on the time at which approval is granted and the hours of the markets
on which the security is traded are open. In other words, if a trade was not
effected on the day for which approval was originally sought, a new approval
form must be re-submitted on each subsequent day in which trading may occur. Or,
if the security for which approval has been granted is traded on foreign
markets, approval is valid for an additional day (i.e., the day for which
approval was granted and the day following the day for which approval was
granted).
Only transactions where the investment decisions for the account are made
by an independent investment manager in a fully discretionary account will be
exempt from the pre-clearance procedures. Copies of the agreement of such
discretionary accounts, as well as transaction statements or another comparable
portfolio report, must be submitted on a quarterly basis to the Compliance
Department for review and record retention.
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Written notice of your intended securities activities must be filed for
approval prior to effecting any transaction for which prior approval is
required. The name of the security, the date, the nature of the transaction
(purchase or sale), the price, the name and relationship to you of the account
holder (self, son, daughter, spouse, father, etc.), and the name of the
broker-dealer or bank involved in the transaction must be disclosed in such
written notice. Such written notice should be submitted on the Pre-Clearance
Transaction Request Forms (Equity/Fixed Income) which can be obtained from the
Compliance Department. If proper procedures are not complied with, action will
be taken against the employee. All violations shall go before the Personal
Investment Committee and Jennison's Compliance Committee. The violators may be
asked to reverse the transaction and/or transfer the security or profits gained
over to the accounts of Jennison Associates. In addition, penalties for personal
trading violations shall be determined in accordance with the penalties schedule
set forth in Section 5, "Penalties for Violating Jennison Associates' Personal
Trading Policies." Each situation and its relevance will be given due weight. If
non-compliance with the pre-clearance procedure becomes repetitive, dismissal,
by the Board of Directors, of the employee can result.
4. PERSONAL TRADING POLICY
The following rules, regulations and restrictions have been set forth by
the Board of Directors and apply to the personal security transactions of all
employees. These rules will govern whether clearance for a proposed transaction
will be granted. These rules also apply to the sale of securities once the
purchase of a security has been pre-approved and completed.
No director, officer or employee of the Company may effect for himself, an
immediate family member (including the spouse, minor children, and adults living
in the same household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control, or any trust of
which they are trustee, or any other account in which they have a beneficial
interest or direct or indirect influence or control any transaction in a
security, or recommend any such transaction in a security, of which, to his/her
knowledge, the Company has effected the same for any of its clients, if such
transaction would in any way conflict with, or be detrimental to, the interests
of such client, or if such transaction was effected with prior knowledge of
material, non-public information.
Except in particular cases in which the Personal Investment Committee has
determined in advance that proposed transactions would not conflict with the
foregoing policy, the following rules shall govern all transactions (and
recommendations) by all corporate personnel for their own accounts, for their
immediate family's accounts (including accounts of the spouse, minor children,
and adults living in the same household with the officer, director, or employee)
for which they or their spouse have any direct or indirect influence or control,
and any trust of which they are trustee, or any other account in which they have
a beneficial interest or direct or indirect influence or control. The provisions
of the following paragraphs do not necessarily imply that the Personal
Investment Committee will conclude that the transactions or recommendations to
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which they relate are in violation of the foregoing policy, but rather are
designed to indicate the transactions for which prior approval should be
obtained to ensure that no conflict occurs.
A. Personal Trading by All Employee Directors, Officers, and Employees
(1.) Neither any security recommended, or proposed to be recommended
to any client for purchase, nor any security purchased or
proposed to be purchased for any client may be purchased by any
corporate personnel if such purchase will interfere in any way
with the orderly purchase of such security by any client.
(2.) Neither any security recommended, or proposed to be recommended
to any client for sale, nor any security sold, or proposed to be
sold, for any client may be sold by any corporate personnel if
such sale will interfere in any way with the orderly sale of such
security by any client.
(3.) No security may be sold after being recommended to any client for
purchase or after being purchased for any client, and no security
may be purchased after being recommended to any client for sale
or after being sold for any client, if the sale or purchase is
effected with a view to making a profit on the anticipated market
action of the security resulting from such recommendation,
purchase or sale.
(4.) In order to prevent even the appearance of a violation of this
rule or a conflict of interest with a client account , you should
refrain from trading in the seven (7) calendar days before and
after Jennison trades in that security.
If an employee trades during a blackout period, disgorgement may be
required. For example, if an Employee's trade is pre-approved and
executed and subsequently, within seven days of the transaction, the
Firm trades on behalf of Jennison's clients, the Jennison Personal
Investment Committee shall review the personal trade in light of firm
trading activity and determine on a case by case basis the appropriate
action. If the Personal Investment Committee finds that a client is
disadvantaged by the personal trade, the trader may be required to
reverse the trade and disgorge to the firm any difference due to any
incremental price advantage over the client's transaction.
B. Short-Term Trading Profits
All directors (both employees and non-employees), officers, and
employees of Jennison Associates are prohibited from profiting in
their own accounts and the accounts of their immediate families
(including the spouse, minor children, and adults living in the same
household with the officer, director, or employee) for which they or
their spouse have any direct or indirect influence or control or any
trust of which they are a trustee, or for any other account in which
they have a beneficial interest or direct or indirect influence or
control from
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the purchase and sale, or the sale and purchase of the same or
equivalent securities within 60 calendar days. Any profits realized
from the purchase and sale or the sale and purchase of the same (or
equivalent) securities within the 60 day restriction period shall be
disgorged to the firm, net of taxes.
"Profits realized" shall be calculated consistent with
interpretations under section 16(b) of the Securities Exchange Act of
1934, as amended, and the regulations thereunder, which require
matching any purchase and sale that occur with in a 60 calendar day
period across all accounts over which a Jennison director, officer or
employee has a direct or indirect beneficial interest (including
accounts that hold securities held by members of a person's immediate
family sharing the same household) over which the person has direct or
indirect control or influence without regard to the order of the
purchase or the sale during the period. As such, a person who sold a
security and then repurchased the same (or equivalent) security would
need to disgorge a profit if matching the purchase and the sale would
result in a profit. Conversely, if matching the purchase and sale
would result in a loss, profits would not be disgorged.
The prohibition on short-term trading profits shall not apply to
trading of index options and index futures contracts and options on
index futures contracts on broad based indices. However, such
transactions remain subject to the pre-clearance procedures and other
applicable procedures. A list of broad-based indices is provided on
Exhibit B.
C. No purchase of a security by any of the corporate personnel shall be
made if the purchase would deprive any of Jennison's clients of an
investment opportunity, after taking into account (in determining
whether such purchase would constitute an investment opportunity) the
client's investments and investment objectives and whether the
opportunity is being offered to corporate personnel by virtue of his
or her position at Jennison.
D. None of the corporate personnel may purchase new issues of either
common stock or convertible securities except in accordance with item
E below. This prohibition does not apply to new issues of shares of
open-end investment companies. All corporate personnel shall also
obtain prior written approval of the Personal Investment Committee in
the form of a completed "Request to Buy or Sell Securities" form
before effecting any purchase of securities on a `private placement'
basis. Such approval will take into account, among other factors,
whether the investment opportunity should be reserved for Jennison's
clients and whether the opportunity is being offered to corporate
personnel by virtue of his or her position at Jennison.
E. Subject to the pre-clearance and reporting procedures, corporate
personnel may purchase securities on the date of issuance, provided
that such securities are acquired in the secondary market. Upon
requesting approval of such transactions, employees must acknowledge
that he or she is aware that such request for approval may not be
submitted until after the security has been issued to the public and
is trading at prevailing market prices in the secondary market.
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Requests for approval of such transactions must be accompanied by a
copy of the final prospectus. Additionally, trade confirmations of
executions of such transaction must be received by the Compliance
Department no later than the close of business on the day following
execution of such trade. If such trade confirmation is not received,
the employee may be requested to reverse (subject to pre-approval) the
trade, and any profits or losses avoided must be disgorged to the
firm.
F. Subject to the preclearance and reporting procedures, corporate
personnel may effect purchases upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its securities, to the
extent that such rights were acquired from such issuer, and sales of
such rights so acquired. In the event that approval to exercise such
rights is denied, subject to preclearance and reporting procedures,
corporate personnel may obtain permission to sell such rights on the
last day that such rights may be traded.
G. Any transactions in index futures contracts and index options,
including those effected on a broad-based index, are subject to the
preclearance and reporting requirements.
H. No director, officer, or employee of Jennison Associates may profit in
their personal securities accounts or the accounts of their immediate
families (including the spouse, minor children, and adults living in
the same household with the officer, director, or employee) for which
they or their spouse have any direct or indirect influence or control
or any trust of which they are a trustee, or for any other account in
which they have a beneficial interest or direct or indirect influence
or control by short selling or purchasing put options on securities
that represent a position in any portfolios managed by Jennison on
behalf of its clients. Any profits realized from such transactions
shall be disgorged to the Firm, net of taxes. Put options, short sales
and short sales against the box are subject to the preclearance rules.
I. No employee, director, or officer of Jennison Associates may
participate in investment clubs.
J. While participation in employee stock purchase plans and employee
stock option plans need not be pre-approved, copies of the terms of
the plans should be provided to the Compliance Department as soon as
possible so that the application of the various provisions of the
Personal Trading Policy may be determined (e.g., pre-approval,
reporting, short-term trading profits ban). Corporate personnel must
obtain pre-approval for any discretionary disposition of securities or
discretionary exercise of options acquired pursuant to participation
in an employee stock purchase or employee stock option plan.
Nondiscretionary dispositions of securities or exercise are not
subject to pre-approval. Additionally, corporate personnel should
report holdings of such securities and options on an annual basis.
21
<PAGE>
K. Subject to pre-clearance, long-term investing through direct stock
purchase plans is permitted. The terms of the plan, the initial
investment, and any purchases through automatic debit must be provided
to and approved by the Personal Investment Committee. Any changes to
the original terms of approval, e.g., increasing, decreasing, or
termination of participation in the plan, as well as any sales or
discretionary purchase of securities in the plan must be submitted for
pre-clearance. Provided that the automatic monthly purchases have been
approved by the Personal Investment Committee, each automatic monthly
purchase need not be submitted for pre-approval. "Profits realized"
for purposes of applying the ban on short-term trading profits will be
determined by matching the proposed discretionary purchase or sale
transaction against the most recent discretionary purchase or sale, as
applicable, not the most recent automatic purchase or sale (if
applicable). Additionally, holdings should be disclosed quarterly.
Exceptions to the Personal Trading Policy
Notwithstanding the foregoing restrictions, exceptions to certain
provisions (e.g., blackout period, pre-clearance procedures, and short-term
trading profits) of the Personal Trading Policy may be granted on a case by case
basis when no abuse is involved and the equities of the situation strongly
support an exception to the rule.
Investments in the following instruments are not bound to the rules and
restrictions as set forth above and may be made without the approval of the
Investment Compliance Committee: governments, agencies, money markets,
repurchase orders, reverse repurchase orders and open-ended registered
investment companies.
All employees, on a quarterly basis, must sign a statement that they,
during said period, have been in full compliance with all personal and insider
trading rules and regulations set forth within Jennison Associates' Code of
Ethics, Policy Statement on Insider Trading and Personal Trading Policy.
22
<PAGE>
5. PENALTIES FOR VIOLATIONS OF JENNISON ASSOCIATES' PERSONAL TRADING POLICIES
Violations of Jennison's Personal Trading Policy and Procedures, while in
most cases may be inadvertent, must not occur. It is important that every
employee abide by the policies established by the Board of Directors. Penalties
will be assessed in accordance with the schedules set forth below. These,
however, are minimum penalties. The firm reserves the right to take any other
appropriate action, including termination.
All violations and penalties imposed will be reported to Jennison's
Compliance Committee on a monthly basis. In addition, the Compliance Committee
will provide the Board of Directors with an annual report which at minimum:
(1) summarizes existing procedures concerning personal investing and any
changes in procedures made during the preceding year;
(2) identifies any violations requiring significant remedial action during
the preceding year; and
(3) identifies any recommended changes in existing restrictions or
procedures based upon Jennison's experience under its policies and
procedures, evolving industry practices, or developments in applicable
laws and regulations.
Type of Violation
A. Penalties for Failure to Secure Pre-Approval
The minimum penalties for failure to pre-clear personal securities
transactions include possible reversal of the trade, possible disgorgement of
profits, as well as the imposition of additional cash penalties. Please note
that subsections 2 and 3 have been applied retroactively from its effective
date.
1. Failure to Pre-clear Purchase
Depending on the circumstances of the violation, the individual may be
asked to reverse the trade (i.e., the securities must be sold). Any
profits realized from the subsequent sale, net of taxes must be turned
over to the firm. Please note: The sale or reversal of such trade must
be submitted for pre-approval.
2. Failure to Pre-clear Sales that result in long-term capital gains
Depending on the circumstances of the violation, the firm may require
that profits realized from the sale of securities that are defined as
"long-term capital gains" by Internal Revenue Code (the "IRC") section
1222 and the rules thereunder, as amended, to be turned over to the
firm, subject to the following maximum amounts:
23
<PAGE>
- --------------------------------------------------------------------------------
JALLC Position Disgorgement Penalty
- --------------------------------------------------------------------------------
Senior Vice Presidents and above Realized long-term capital gain, net of
taxes, up to $10,000.00
- --------------------------------------------------------------------------------
Vice Presidents and Realized long-term capital gain, net of
Assistant Vice Presidents taxes, up to $5,000.00
- --------------------------------------------------------------------------------
All other JALLC Personnel 25% of the realized long-term gain,
irrespective of taxes, up to $3,000.00
- --------------------------------------------------------------------------------
3. Failure to Pre-clear Sales that result in short-term capital gains
Depending on the nature of the violation, the firm may require that
all profits realized from sales that result in profits that are defined as
"short-term capital gains" by IRC section 1222 and the rules thereunder, as
amended. Please note, however, any profits that result from violating the
ban on short-term trading profits are addressed in section 5.C. "Penalties
for Violation of Short-Term Trading Profit Rule."
4. Additional Cash Penalties
VP's and Above Other JALLC Personnel
-------------- ---------------------
First Offense None/Warning None/Warning
Second Offense $1000 $200
Third Offense $2000 $300
Fourth Offense $3000 $400
Fifth Offense $4000 & Automatic Notification $500 & Automatic Notification
of the Board of Directors of the Board of Directors
Notwithstanding the foregoing, Jennison reserves the right to notify the Board
of Directors for any violation.
Penalties shall be assessed over a rolling three year period. For example, if
over a three year period (year 1 through year 3), a person had four violations,
two in year 1, and one in each of the following years, the last violation in
year 3 would be considered a fourth offense. However, if in the subsequent year
(year 4), the person only had one violation of the policy, this violation would
be penalized at the third offense level because over the subsequent three year
period (from year 2 through year 4), there were only three violations. Thus, if
a person had no violations over a three year period, a subsequent offense would
be considered a first offense, notwithstanding the fact that the person may have
violated the policy prior to the three year period.
B. Failure to Comply with Recordkeeping Requirements
Such violations occur if Jennison does not receive a broker confirmation within
ten (10) business days following the end of the quarter in which a transaction
occurs or if JACC does not routinely receive brokerage statements. Evidence of
written notices to brokers of Jennison's requirement and assistance in resolving
problems will be taken into consideration in determining the appropriateness of
penalties.
24
<PAGE>
VP's and Above Other JALLC Personnel
-------------- ---------------------
First Offense None/Warning None/Warning
Second Offense $200 $50
Third Offense $500 $100
Fourth Offense $600 $200
Fifth Offense $700& Automatic Notification $300 & Automatic Notification
of the Board of the Board
Notwithstanding the foregoing, Jennison reserves the right to notify the Board
of Directors for any violation.
C. Penalty for Violation of Short-Term Trading Profit Rule
Any profits realized from the purchase and sale or the sale and
purchase of the same (or equivalent) securities within 60 calendar days
shall be disgorged to the firm, net of taxes. "Profits realized" shall be
calculated consistent with interpretations under section 16(b) of the
Securities Exchange Act of 1934, as amended, which requires matching any
purchase and sale that occur with in a 60 calendar day period without
regard to the order of the purchase or the sale during the period. As such,
a person who sold a security and then repurchased the same (or equivalent)
security would need to disgorge a profit if matching the purchase and the
sale would result in a profit. Conversely, if matching the purchase and
sale would result in a loss, profits would not be disgorged.
D. Other policy infringements will be dealt with on a case by case basis.
Penalties will be commensurate with the severity of the violation.
Serious violations would include:
A. Failure to abide by the determination of the Personal Committee.
B. Failure to submit pre-approval for securities in which Jennison
actively trades.
E. Disgorged Profits
Profits disgorged to the firm shall be donated to a charitable organization
selected by the firm in the name of the firm. Such funds may be donated to
such organization at such time as the firm determines.
25
<PAGE>
EXHIBIT A
COMPLIANCE AND REPORTING OF PERSONAL TRANSACTIONS MATRIX
<TABLE>
<CAPTION>
Investment Sub-Category
Category/Method ------------ Required Reportable If
- --------------- Pre-Approval (Y/N) reportable,
(Y/N) minimum
reporting
frequency
=====================================================================================================================
<S> <C> <C> <C> <C>
BONDS Treasury Bills, Notes, Bonds N N N/A
Agency N Y Quarterly
Corporates Y Y Quarterly
MBS N Y Quarterly
ABS N Y Quarterly
CMO's Y Y Quarterly
Municipals N Y Quarterly
Convertibles Y Y Quarterly
STOCKS Common Y Y Quarterly
Preferred Y Y Quarterly
Rights Y Y Quarterly
Warrants Y Y Quarterly
Automatic Dividend Reinvestments N N N/A
Optional Dividend Reinvestments Y Y Quarterly
Direct Stock Purchase Plans with automatic Y Y Quarterly
investments
Employee Stock Purchase/Option Plan Y* Y *
OPEN-END MUTUAL FUNDS
Affiliated Investments: N N N/A
Non-Affiliated Funds N N N/A
CLOSED END FUNDS & UNIT INVESTMENT
TRUSTS
All Affiliated & Non-Affiliated Funds N Y Quarterly
US Funds (including SPDRs, NASDAQ 100 N Y Quarterly
Index Tracking Shares)
Foreign Funds N Y Quarterly
DERIVATIVES Any exchange traded, NASDAQ, or OTC
option or futures contract, including,
but not limited to:
Financial Futures ** Y Quarterly
Commodity Futures N Y Quarterly
Options on Futures ** Y Quarterly
Options on Securities ** Y Quarterly
Non-Broad Based Index Options Y Y Quarterly
Non Broad Based Index Futures Y Y Quarterly
Contracts and Options on Non-Broad
Based Index Futures Contracts
Broad Based Index Options N Y Quarterly
Broad Based Index Futures Contracts N Y Quarterly
and Options on Broad Based Index
Futures Contracts
LIMITED PARTNERSHIPS, PRIVATE
PLACEMENTS, & PRIVATE INVESTMENTS
Y Y Quarterly
VOLUNTARY TENDER OFFERS Y Y Quarterly
</TABLE>
* Pre-approval of sales of securities or exercises of options acquired through
employee stock purchase or employee stock option plans are required. Holdings
are required to be reported annually; transactions subject to pre-approval are
required to be reported quarterly. Pre-approval is not required to participate
in such plans.
** Pre-approval of a personal derivative securities transaction is required if
the underlying security requires pre-approval.
26
<PAGE>
EXHIBIT B
BROAD-BASED INDICES
--------------------------------------------------------------
Nikkei 300 Index CI/Euro
--------------------------------------------------------------
S&P 100 Close/Amer Index
--------------------------------------------------------------
S&P 100 Close/Amer Index
--------------------------------------------------------------
S&P 100 Close/Amer Index
--------------------------------------------------------------
S&P 500 Index
--------------------------------------------------------------
S&P 500 Open/Euro Index
--------------------------------------------------------------
S&P 500 Open/Euro Index
--------------------------------------------------------------
S&P 500 (Wrap)
--------------------------------------------------------------
S&P 500 Open/Euro Index
--------------------------------------------------------------
Russell 2000 Open/Euro Index
--------------------------------------------------------------
Russell 2000 Open/Euro Index
--------------------------------------------------------------
S&P Midcap 400 Open/Euro Index
--------------------------------------------------------------
NASDAQ- 100 Open/Euro Index
--------------------------------------------------------------
NASDAQ- 100 Open/Euro Index
--------------------------------------------------------------
NASDAQ- 100 Open/Euro Index
--------------------------------------------------------------
NASDAQ- 100 Open/Euro Index
--------------------------------------------------------------
NASDAQ- 100 Open/Euro Index
--------------------------------------------------------------
S&P Small Cap 600
--------------------------------------------------------------
U.S. Top 100 Sector
--------------------------------------------------------------
S&P 500 Long-Term Close
--------------------------------------------------------------
Russell 2000 L-T Open./Euro
--------------------------------------------------------------
Russell 2000 Long-Term Index
--------------------------------------------------------------
27
FUND PARTICIPATION AGREEMENT
The Prudential Series Fund, Inc.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares .......................................3
ARTICLE II. Representations and Warranties ............................7
ARTICLE III. Prospectuses and Proxy Statements; Voting ................10
ARTICLE IV. Sales Material and Information ...........................12
ARTICLE V. Fees and Expenses ........................................14
ARTICLE VI~ Diversification and Qualification ........................16
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order ................19
ARTICLE VIII. Indemnification ..........................................21
ARTICLE IX. Applicable Law ...........................................32
ARTICLE X. Termination ..............................................33
ARTICLE XI. Notices ..................................................36
ARTICLE XII. Miscellaneous ............................................37
SCHEDULE A Contracts ................................................41
SCHEDULE B Designated Portfolios ....................................42
SCHEDULE C Administrative Services ..................................43
SCHEDULE D Reports per Section 6.6 ..................................45
SCHEDULE F Expenses .................................................48
<PAGE>
PARTICIPATION AGREEMENT
Among
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
THE PRUDENTIAL SERIES FUND. INC..
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this 1st day of May, 1999 by
and among GREAT-WEST LIFE & ANNNITY INSURANCE COMPANY (hereinafter "GWL&A"), a
Colorado life insurance company, on its own behalf and on behalf of its Separate
Account Variable Annuity-1 Series Account (the "Account"); THE PRUDENTIAL SERIES
FUND, INC., an open-end management investment company organized under the laws
of Maryland (hereinafter the "Fund"); THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA (hereinafter the "Adviser"), a New Jersey mutual insurance company;
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (hereinafter the "Distributor"), a
Delaware limited liability company; and CHARLES SCHWAB & CO., INC., a California
corporation (hereinafter "Schwab").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including GWL&A, which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies"); and
<PAGE>
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated March 5, 1999 (File No. IC-23728),
granting Participating Insurance Companies and variable annuitv and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
life insurance companies that may or may not be affiliated with one another and
qualified pension and retirement plans ("Qualified Plans") (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, GWL&A has registered certain variable annuity contracts supported
wholly or partially by the Account (the "Contracts") under the 1933 Act and said
Contracts are listed in Schedule A attached hereto and incorporated herein by
reference, as such Schedule may be amended from time to time bv mutual written
agreement; and
2
<PAGE>
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of GWL&A on July
24, 1995, under the insurance laws of the State of Colorado, to set aside and
invest assets attributable to the Contracts; and
WHEREAS, GWL&A has registered the Account as a unit investment trust under
the 1940 Act and has registered the securities deemed to be issued by the
Account under the 1933 Act; and
WHEREAS, to the extent permitted b~ applicable insurance laws and
regulations, GWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in connection
with the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, GWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares.
1.1. The Fund agrees to sell to GWL&A those shares of the Designated
Portfolio(s) which the Account orders, executing such orders on each Business
Day at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated
3
<PAGE>
Portfolios. For purposes of this Section 1 1, GWL&A shall be the designee of the
Fund for receipt of such orders and receipt by such designee shall constitute
receipt by the Fund, provided that the Fund receives notice of any such order by
9:30 a.m. Eastern time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Designated Portfolio calculates its net asset value pursuant to the
rules of the SEC.
.2. The Fund agrees to make shares of the Designated Portfolio(s) available
for purchase at the applicable net asset value per share by GWL&A and the
Account on those days on which the Fund calculates its Designated Portfolio(s)
net asset value pursuant to rules of the SEC, and the Fund shall calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Trustees of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Designated
Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions the substance of which are the same as Sections 2.1
(except with respect to Colorado law), 3.5, 3.6, 3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on GWL&A's request, any full or
fractional shares of the Fund held by GWL&A, executing such requests on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. Requests for redemption identified
by GWL&A, or its agent, as being in connection with surrenders, annuitizations,
or death benefits under the Contracts, upon prior written notice, may be
executed within seven (7) calendar days after receipt by the Fund or its
designee of the requests for redemption. This Section 1.4 may be amended, in
writing, by the parties consistent with the requirements of the 1940 Act and
interpretations thereof For purposes of this Section 1.4, GWL&A
4
<PAGE>
shall be the designee of the Fund for receipt of requests for redemption and
receipt by such designee shall constitute receipt by the Fund, provided that the
Fund receives notice of any such request for redemption by 9:30 A.M. Eastern
time on the next following Business Day.
I 5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3 and Article VI hereof)
and the cash value of the Contracts may be invested in other investment
companies.
1.6. GWL&A shall pay for Fund shares by 3:00 p.m. Eastern time on the next
Business Day after an order to purchase Fund shares is made in accordance with
the provisions of Section 1.1 hereof Payment shall be in federal funds
transmitted by wire and/or by a credit for any shares redeemed the same day as
the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 3:00 P.Nt Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to GWL&A or the Account. Shares ordered
from the Fund will be recorded in an appropriate title for the Account or the
appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (1,y wire or telephone,
followed by written confirmation) to GWL&A of any income, dividends or capital
gain distributions payable on the Designated Portfolio(s) shares. GWL&A hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Designated Portfolio shares in additional shares of that
Designated Portfolio. GWL&A reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify GWL&A by the end of the next following Business Day of the
number of shares so issued as payment of such dividends and distributions.
5
<PAGE>
1 10. The Fund shall make the net asset value per share for each Designated
Portfolio available to GWL&A on each Business Day as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7:00 p.m.
Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify GWL&A as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article M of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; ~) if the pricing error results in a difference
between the erroneous NAV and the correct NAV equal to or greater than $0.01 per
share, but less than 1/2 of 1% of the Designated Portfolio's NAV at the time of
the error, then the Adviser shall reimburse the Designated Portfolio for any
loss, after taking into consideration any positive effect of such error;
however, no adjustments to Contractowner accounts need be made; and (c) if the
pricing error results in a difference between the erroneous NAV and the correct
NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's NAV at the
time of the error, then the Adviser shall reimburse the Designated Portfolio for
any loss (without taking into consideration any positive effect of such error)
and shall reimburse GW~~A for the costs of adjustments made to correct
Contractowner accounts in accordance with the provisions of Schedule E. if an
adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub~account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
GWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
GWI~A or Schwab, as the case may be, shall promptly remit to Adviser any
overpayment that has not been paid to Contractowners; however, Adviser
acknowledges that Schwab and GVVL&A do not intend to seek additional payments
from any Contractowner who, because of a pricing error, may have underpaid for
units of interest credited to his/her account. In no event shall Schwab or
GWI~~A be liable to Contractowners for any such adjustments or underpayment
amounts. A pricing error within
6
<PAGE>
categories (b) or (c) above shall be deemed to be "materially incorrectt1 or
constitute a "material error" for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the views expressed by the staff of the SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties shall amend the
foregoing provisions of this Agreement to comport with the appropriate
applicable standards, on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. GWL&A represents and warrants that the Contracts and the securities
deemed to be issued by the Account under the Contracts are or will be registered
under the 1933 Act; that the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws and that the
sale of the Contracts shall comply in all material respects with state insurance
suitability requirements. GWL&A further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale of units thereof as a segregated asset account under Section 10-7-401, et.
seq. of the Colorado Insurance Law and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts and that it will maintain such
registration for so long as any Contracts are outstanding as required by
applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
7
<PAGE>
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
requirements of the 1940 Act. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule I 2b-1, the Fund undertakes to have its
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule I 2b-1 under the 1940 Act to finance
distribution expenses.
2.4. The Fund represents and warrants that it will make every effort to
ensure that the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all times remain in compliance with the insurance
and other applicable laws of the State of Colorado and any other applicable
state to the extent required to perform this Agreement. The Fund further
represents and warrants that it will make every effort to ensure that Designated
Portfolio(s) shares will be sold in compliance with the insurance laws of the
State of Colorado and all applicable state insurance and securities laws. The
Fund shall register and qualify the shares for sale in accordance with the laws
of the various states if and to the extent required by applicable law. GWL&A and
the Fund will endeavor to mutually cooperate with respect to the implementation
of any modifications necessitated by any change in state insurance laws,
regulations or interpretations of the foregoing that affect the Designated
Portfolio(s) (a "Law Change"), and to keep each other informed of any Law Change
that becomes known to either party. In the event of a Law Change, the Fund
agrees that, except in those circumstances where the Fund has advised OWL&A that
its Board of Directors has determined that implementation of a particular Law
Change is not in the best interest of all of the Fund's shareholders with an
explanation regarding why such action is lawful, any action required by a Law
Change will be taken.
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
8
<PAGE>
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of any applicable state and federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule 1 7g-1 under the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bonds shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9. Schwab represents and warrants that it has completed, obtained and
performed, in all material respects, all registrations, filings, approvals, and
authorizations, consents and examinations required by any government or
governmental authority as may be necessary to perform this Agreement. Schwab
does and will comply, in all material respects, with all applicable laws, rules
and regulations in the performance of its obligations under this Agreement.
2.10. The Fund will provide GWL&A with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
GWL&A in order to implement any such change in an orderly manner, recognizing
the expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred by GWL&A as a
result of actions taken by the Fund, consistent with the
9
<PAGE>
allocation of expenses contained in Schedule E attached hereto and incorporated
herein by reference.
2.1 1. GWL&A represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended (t1the Code"), that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Code, and that it will make every effort to maintain such treatment and that it
will notify Schwab, the Fund, the Distributor and the Adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future. In addition, GWL&A
represents and warrants that the Account is a "segregated asset account" and
that interests in the Account are offered exclusively through the purchase of or
transfer into a "variable contract" within the meaning of such terms under
Section 817 of the Code and the regulations thereunder. GWL&A will use every
effort to continue to meet such definitional requirements, and it will notify
Schwab, the Fund, the Distributor and the Adviser immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future. GWL&A represents and warrants that it
will not purchase Fund shares with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Adviser or Distributor shall provide GWL&A and
Schwab with as many copies of the Fund's current prospectus for the Designated
Portfolio(s) as GWL&A and Schwab may reasonably request for marketing purposes
(including distribution to Contractowners with respect to new sales of a
Contract), with expenses to be borne in accordance with Schedule B hereof. If
requested by GWL&A in lieu thereof, the Adviser, Distributor or Fund shall
provide such documentation (including a camera-ready copy and computer diskette
of the current prospectus for the Designated Portfolio(s)) and other assistance
as is reasonably necessary in order for GWL&A once each year (or more frequently
if the prospectuses for the Designated Portfolio(s) are amended) to have the
prospectus for the Contracts and the Fund's prospectus for the Designated
Portfolio(s) printed together in one document. The Fund and Adviser agree that
the
10
<PAGE>
prospectus (and semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the Designated Portfolio(s) arid will not name or describe
any other portfolios or series that may be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the Fund, Distributor and/or the Adviser shall provide
GWL&A with copies of the Fund's SAI or documentation thereof for the Designated
Portfolio(s) in such quantities, with expenses to be borne in accordance with
Schedule E hereof as GWL&A may reasonably require to permit timely distribution
thereof to Contractowners. The Adviser, Distributor and/or the Fund shall also
provide SAIs to any Contractowner or prospective owner who requests such SAI
from the Fund (although it is anticipated that such requests will be made to
GWL&A or Schwab).
3.3. The Fund, Distributor and/or Adviser shall provide GWL&A and Schwab
with copies of the Fund's proxy material, reports to stockholders and other
communications to stockholders for the Designated Portfolio(s) in such quantity,
with expenses to be borne in accordance with Schedule E hereof as GWL&A may
reasonably require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding GWL&A or Schwab provided in writing by that party, neither GWL&A nor
Schwab are responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is also understood and agreed that, except with
respect to information regarding the Fund, the Distributor, the Adviser or the
Designated Portfolio(s) provided in writing by the Fund, the Distributor or the
Adviser, neither the Fund, the Distributor nor Adviser are responsible for the
content of the prospectus or SAl for the Contracts.
3.5. If and to the extent required by law (GWL&A shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares held in the Account in
accordance with instructions received from Contractowners: and
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<PAGE>
(iii) vote Designated Portfolio shares held in the Account for which
no instructions have been received in the same proportion as
Designated Portfolio(s) shares for which instructions have been
received from Contractowners, so long as and to the extent that
the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners.
GWL&A reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law.
3.6. GWL&A shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
as directed by the Fund and agreed to by GWL&A and the Fund. The Fund agrees to
promptly notify GWL&A of any changes of interpretations or amendments of the
Mixed and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the SEC may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information.
4.1. GWL&A and Schwab shall furnish, or shall cause to be furnished, to the
Fund or its designee, a copy of each piece of sales literature or other
promotional material that GWL&A or Schwab, respectively, develops or proposes to
use and in which the Fund (or a Portfolio thereof), its Adviser or one of its
sub-advisers or the Distributor is named in connection with the Contracts, at
least ten (10) Business Days prior to its use. No such material shall be used if
the Fund objects to such use within five (5) Business Days after receipt of such
material.
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<PAGE>
4.2. GWL&A and Schwab shall not give any information or make any
representations or statements on behalf of the Fund in connection with the sale
of the Contracts other than the information or representations contained in the
registration statement, including the prospectus or SM for the Fund shares, as
the same may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by the Fund, Distributor or
Adviser, except with the permission of the Fund, Distributor or Adviser.
4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished,
to GWL&A and Schwab, a copy of each piece of sales literature or other
promotional material in which GWL&A and/or its separate account(s), or Schwab is
named at least ten (10) Business Days prior to its use. No such material shall
be used if OWL&A or Schwab objects to such use within five (5) Business Days
after receipt of such material.
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of GWL&A or concerning GWL&A,
the Account, or the Contracts other than the information or representations
contained in a registration statement, including the prospectus or SM for the
Contracts, as the same may be amended or supplemented from time to time, or in
sales literature or other promotional material approved by GWL&A or its
designee, except with the permission of GWL&A.
4.5. GWL&A, the Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of or concerning Schwab, or
use Schwab's name except with the permission of Schwab.
4.6. The Fund will provide to GWL&A and Schwab at least one complete copy
of all registration statements, prospectuses, SAIs, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolio(s) within a reasonable period of time following the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
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<PAGE>
4.7. GWL&A or Schwab will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the SEC. NASD, or
other regulatory authority.
4.8. For purposes of Articles IV and VIII, the phrase "sales literature and
other promotional material11 includes. but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards. motion pictures, or other public media; ~, on-
line networks such as the Internet or other electronic media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and shareholder reports, and proxy materials
(including solicitations for voting instructions) and any other material
constituting sales literature or advertising under the NASD rules, the 1933 Act
or the 1940 Act.
4.9. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other compensation to
GWL&A under this Agreement, and GWL&A shall pay no fee or other compensation to
the Fund or Adviser under
14
<PAGE>
this Agreement, although the parties hereto will bear certain expenses in
accordance with Schedule E. Articles III. V. and other provisions of this
Agreement.
5.2. All expenses incident to performance by the Fund. the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule E. The Fund shall see to it that all shares of the
Designated Portfolio(s) are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent required, in accordance
with applicable state laws prior to their sale.
5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to o~ers of Contracts offered by GWL&A, in
accordance with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge that a principal
feature of the Contracts is the Contractowner's ability to choose from a number
of unaffiliated mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the Unaffiliated Funds, and to transfer the
Contract's cash value between funds and Designated Portfolios. The Fund, the
Distributor and the Adviser agree to cooperate with GWL&A and Schwab in
facilitating the operation of the Account and the Contracts as described in the
prospectus for the Contracts, including but not limited to cooperation in
facilitating transfers between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services, specified in
Schedule C attached hereto and incorporated herein by reference, in connection
with the arrangements contemplated by this Agreement. The parties acknowledge
and agree that the services referred to in this Section 5.5 are recordkeeping,
shareholder communication, and other transaction facilitation and processing,
and related administrative services only and are not the services of an
underwriter or a principal underwriter of the Fund, and that Schwab is not an
underwriter for the shares of the Designated Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C hereto, the
Adviser agrees to pay Schwab a monthly Administrative Service Fee based on the
percentage per annum on
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<PAGE>
Schedule C hereto applied to the average daily value of the shares of the
Designated Portfolio(s) held in the Account with respect to Contracts sold by
Schwab. This monthly Administrative Service Fee is due and payable before the
15th (fifteenth) day following the last day of the month to which it relates.
ARTICLE VI. Diversification and Qualification.
6.1. The Fund, the Distributor and the Adviser represent and warrant that
the Fund will at all times sell its shares and invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund, Distributor and Adviser represent and warrant that
the Fund and each Designated Portfolio thereof will at all times comply with
Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended from
time to time, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications or successor provisions to
such Section or Regulations. The Fund, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor and the Adviser represent and warrant that
the Fund and each Designated Portfolio is currently qualified as a Regulated
Investment Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Fund, Distributor or Adviser will notify GWL&A immediately upon
having a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M qualification requirements or might not so comply in the future.
16
<PAGE>
6.5. Without in any way limiting the effect of Sections 8.3, 8.4 and 8.5
hereof and without in any way limiting or restricting any other remedies
available to GWL&A or Schwab, the Adviser or Distributor will pay all costs
associated with or arising out of any failure, or any anticipated or reasonably
foreseeable failure, of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable
and appropriate corrections or responses to any such failure; such costs may
include, but are not limited to. the costs involved in creating, organizing, and
registering a new investment company as a funding medium for the Contracts
and/or the costs of obtaining whatever regulatory authorizations are required to
substitute shares of another investment company for those of the failed
Portfolio (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act); such costs are to include, but are not limited to, reasonable
fees and expenses of legal counsel and other advisors to GWL&A and any federal
income taxes or tax penalties and interest thereon (or "toll charges" or
exactments or amounts paid in settlement) incurred by GWL&A with respect to
itself or owners of its Contracts in connection with any such failure or
anticipated or reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide GWL&A or its designee
with reports certifying compliance with the aforesaid Section 817(h)
diversification and Subchapter M qualification requirements, at the times
provided for and substantially in the form attached hereto as Schedule D and
incorporated herein by reference; provided, however, that providing such reports
does not relieve the Fund of its responsibility for such compliance or of its
liability for any non-compliance.
6.7. GWL&A agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of GWL&A or, to
GWL&A's knowledge, or any Contractowner that any Designated Portfolio has failed
to comply with the diversification requirements of Section 817(h) of the Code or
GWL&A otherwise becomes aware of any facts that could give rise to any claim
against the Fund, Distributor or Adviser as a result of such a failure or
alleged failure:
(a) GWL&A shall promptly notify the Fund, the Distributor and the Adviser
of such assertion or potential claim;
17
<PAGE>
(b) GWL&A shall consult with the Fund, the Distributor and the Adviser as
to how to minimize any liability that may arise as a result of such failure
or alleged failure;
(c) GWL&A shall use its best efforts to minimize any liability of the Fund,
the Distributor and the Adviser resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury Regulations,
Section 1 .817-5(a)(2), to the commissioner of the IRS that such failure
was inadvertent;
(d) any written materials to be submitted by GWL&A to the IRS, any
Contractowner or any other claimant in connection with any of the foregoing
proceedings or contests (including, without limitation, any such materials
to be submitted to the IRS pursuant to Treasury Regulations, Section 1
.817-5(a)(2)) shall be provided by GWL&A to the Fund, the Distributor and
the Adviser (together with any supporting information or analysis) within
at least two (2) business days prior to submission;
(e) GWL&A shall provide the Fund, the Distributor and the Adviser with such
cooperation as the Fund, the Distributor and the Adviser shall reasonably
request (including, without limitation, by permitting the Fund, the
Distributor and the Adviser to review the relevant books and records of
GWL&A) in order to facilitate review by the Fund, the Distributor and the
Adviser of any written submissions provided to it or its assessment of the
validity or amount of any claim against it arising from such failure or
alleged failure;
(f) GWL&A shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund, the
Distributor and the Adviser (i) compromise or settle any claim, (ii) accept
any adjustment on audit, or (iii) forego any allowable administrative or
judicial appeals, without the express written consent of the Fund. the
Distributor and the Adviser, which shall not be unreasonably withheld;
provided that, GWL&A shall not be required to appeal any adverse judicial
decision unless the Fund and the Adviser shall have provided an opinion of
independent counsel to the effect that a reasonable basis exists for taking
such appeal; and further provided that the Fund, the
18
<PAGE>
Distributor and the Adviser shall bear the costs and expenses, including
reasonable attorney's fees, incurred by GWL&A in complying with this clause
(f).
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Designated Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners or by contract owners of different Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company to disregard
the voting instructions of contract owners. The Board shall promptly inform
GWL&A if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. GWL&A will report any potential or existing conflicts of which it is
aware to the Board. GWL&A will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obliga-
tion by GWL&A to inform the Board whenever contract owner voting instructions
are to be disregarded. Such responsibilities shall be carried out by GWL&A with
a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent
Directors"), that a material irreconcilable conflict exists, GWL&A and other
Participating Insurance Companies shall, at their expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Directors), take whatever
19
<PAGE>
steps are necessary to remedy or eliminate the irreconcilable material conflict,
up to and including: (I) withdrawing the assets allocable to some or all of the
separate accounts from the Fund or any Designated Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to) another
portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
GWL&A to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, GWL&A may be
required, at the Fund's election, to withdraw the Account's investment in the
Fund and terminate this Agreement; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Adviser, the
Distributor and the Fund shall continue to accept and implement orders by GWL&A
for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to (GWL&A conflicts with the
majority of other state regulators, then GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs GWL&A in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by GWL&A for the
purchase (and redemption) of shares of the Fund.
20
<PAGE>
7.6. For purposes of Sections 7~3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
GWL&A shall not be required by Section 7.3 to establish a new funding medium for
the Contracts if an offer to do so has been declined by vote of a majority of
Contractowners affected by the irreconcilable material conflict. In the event
that the Board determines that any proposed action does not adequately remedy
any irreconcilable material conflict, then GWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs GWL&A in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable: and (b) Sections 3.5, 3.6, 3.7, 7.1, 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are contained
in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By GWL&A
8.1(a). GWL&A agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person, if any, who controls the Fund, Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses,
21
<PAGE>
claims, expenses, damages and liabilities (including amounts paid in settlement
with the written consent of GWL&A) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages or liabilities (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus or SAl covering the Contracts or contained in
the Contracts or sales literature or other promotional material for
the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to OWL&A or Schwab by
or on behalf of the Adviser, Distributor or Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature or other promotional material (or any
amendment or supplement to any of the foregoing) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature or other promotional
material of the Fund not supplied by OWL&A or persons under its
control) or wrongful conduct of GWL&A or persons under its control,
with respect to the sale or distribution of the Contracts or Fund
Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
or sales literature or other promotional material of the Fund, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if
such a statement or omission was made in reliance upon information
furnished in writing to the Fund by or on behalf of GWL&A; or
(iv) arise as a result of any failure by GWL&A to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by GWL&A in this Agreement or arise out of or
result from any other material breach of this Agreement by GWL&A,
including without limitation Section 2.11 and Section 6.7 hereof,
22
<PAGE>
as limited by and in accordance with the provisions of Sections 8.1 (b) and
8.1(c) hereof.
8.1(b). GWL&A shall not be liable under this indemnification provision with
respect to any losses claims, expenses, damages, liabilities or litigation to
which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party1s willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.1(c). GWL&A shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Patty shall have notified GW&A in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify GWL&A of any such claim shall not relieve GWL&A
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision,
except to the extent that GWL&A has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
GWL&A shall be entitled to participate, at its own expense, in the defense of
such action. GWL&A also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from GWL&A
to such party of GWL&A's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and GWL&A will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify GWL&A of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
23
<PAGE>
8.2. Indernnification by Schwab.
8.2(a). Schwab agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person, if any, who controls the Fund, Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, expenses, damages and liabilities (including amounts paid in
settlement with the written consent of Schwab) or litigation (including
reasonable legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information regarding the Fund
that is both (A) materially incorrect and (B) that was neither
contained in the Fund's registration statement nor in the Fund's sales
literature and other promotional material or provided in writing to
Schwab, or approved in writing, by or on behalf of the Fund,
Distributor or Adviser; or
(ii) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in sales literature or other
promotional material prepared or approved by Schwab for the Contracts
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to GWL&A or Schwab by or on behalf of
the Adviser, Distributor or the Fund or to Schwab by (3WL&A for use in
the registration statement, prospectus or SAI for the Contracts or in
the Contracts or sales literature or other promotional material (or
any amendment or supplement any of the foregoing) or otherwise for
use in connection with the sale of the Contracts; or
(iii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI or sales literature or other promotional
material of the Fund not supplied by Schwab or persons under its
control) or wrongful conduct of Schwab or persons under its control,
with respect to the sale or distribution of the Contracts; or
(iv) arise as a result of any failure by Schwab to provide the services and
furnish the materials under the terms of this Agreement; or
24
<PAGE>
(v) arise out of or result from any material breach of any representation
and/or warranty made by Schwab in this Agreement or arise out of or
result from any other material breach of this Agreement by Schwab;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof
8.2(b). Schwab shall not be liable under this indemnification provision
with respect to any losses, claims. expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.2(c). Schwab shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Schwab in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Schwab of any such claim shall not relieve Schwab
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision,
except to the extent that Schwab has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
Schwab shall be entitled to participate, at its own expense, in the defense of
such action. Schwab also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from Schwab
to such party of Schwab's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Schwab will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
25
<PAGE>
8.2(d). The Indemnified Parties will promptly notify Schwab of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.3. Indemnification by the Adviser.
8.3(a). The Adviser agrees to indemnify and hold harmless GWL&A and Schwab
and each of their directors and officers and each person, if any, who controls
GWL&A or Schwab within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses. claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature or other promotional material
of the Fund prepared by the Fund, the Distributor or the Adviser (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished
in writing to the Adviser, the Distributor or the Fund by or on behalf
of GWL&A or Schwab for use in the registration statement, prospectus
or SM for the Fund or in sales literature or other promotional
material (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts or the
Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI or sales literature or other promotional
material for the Contracts not supplied by the Adviser OF persons
under its control) or wrongful conduct of the Fund, the Distributor or
the Adviser or persons under their control, with respect to the sale
or distribution of the Contracts or Fund shares; or
26
<PAGE>
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
or sales literature or other promotional material covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished in writing to GWL&A or Schwab by
or on behalf of the Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor or the
Adviser to provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether unintentional or
in good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund, the Distributor or the Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, the Distributor or the Fund;
or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting by the Fund, the Distributor or the Adviser of the daily net
asset value per share (subject to Section 1.10 of this Agreement) or
dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after
27
<PAGE>
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Adviser of any such claim shall not
relieve the Adviser from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Adviser has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such patty of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). GWL&A and Schwab agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.4. Indemnification By the Fund.
8.4(a). The Fund agrees to indemnify and hold harmless GWL&A and Schwab and
each of their respective directors and officers and each person, if any, who
controls GWL&A or Schwab within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.4)
against any and all losses, claims, expenses, damages and liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
(including reasonable legal and other expenses) to which the Indemnified Parties
may be required to pay or become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or settlements, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether
28
<PAGE>
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund:
or
(iii) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share (subject to Section
1.10 of this Agreement) or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof.
8.4(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.4(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate at its own
expense, in the defense thereof. The Fund shall also be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof; the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred
29
<PAGE>
by such patty independently in connection with the defense thereof other than
reasonable costs of investigation.
8.4(d). GWL&A and Schwab each agree promptly to notify the Fund of the
commencement of any litigation or proceeding against itself or any of its
respective officers or directors in connection with the Agreement the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
8.5. Indemnification by the Distributor.
8.5(a). The Distributor agrees to indemnify and hold harmless GWL&A and
Schwab and each of their respective directors and officers and each person. if
any, who controls GWL&A or Schwab within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Partiest1 for purposes of this Section 8.5)
against any and all losses, claims, expenses, damages and liabilities (including
amounts paid in settlement with the written consent of the Distributor) or
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature or other promotional material
of the Fund prepared by the Fund, Adviser or Distributor (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this Agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished in
writing to the Adviser, the Distributor or Fund by or on behalf of
GWL&A or Schwab for use in the registration statement or SAI or
prospectus for the Fund or in sales literature or other promotional
material (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts o~ Fund
shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, SAI, sales
30
<PAGE>
literature or other promotional material for the Contracts not
supplied by the Distributor or persons under its control) or wrongful
conduct of the Fund, the Distributor or Adviser or persons under their
control, with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, SAI,
sales literature or other promotional material covering the Contracts,
or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished in writing to GWL&A or Schwab by
or on behalf of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or Distributor
to provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund, Adviser or Distributor in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Fund, Adviser or Distributor; or
(vi) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share (subject to Section
1.10 of this Agreement) or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.5(b) and
8.5(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the
Distributor specified in Article VI hereof.
8.5(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
31
<PAGE>
8.5(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Distributor of
any such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision, except to the extent that the
Distributor has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor's election to assume the defense thereof the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.5(d) GWL&A and Schwab agree to promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Colorado,
without regard to the Colorado Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared
32
<PAGE>
Funding Exemptive Order) and the terms hereof shall be interpreted and construed
in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any patty, with or without cause, with respect to
some or all Designated Portfolios, upon six (6) months advance written
notice delivered to the other parties; provided, however, that such
notice shall not be given earlier than six ~6) months following the
date of this Agreement; or
(b) at the option of GWL&A or Schwab by written notice to the other
parties with respect to any Designated Portfolio based upon GWL&A's or
Schwab's determination that shares of such Designated Portfolio are
not reasonably available to meet the requirements of the Contracts; or
(c) at the option of GWL&A or Schwab by written notice to the other
parties with respect to any Designated Portfolio in the event any of
the Designated Portfolio's shares are not registered, issued or sold
in accordance with applicable state andi or federal law or such law
precludes the use of such shares as the underlying investment media of
the Contracts issued or to be issued by OWL&A; or
(d) at the option of the Fund, Distributor or Adviser in the event
that formal administrative proceedings are instituted against GWL&A or
Schwab by the NASD, the SEC, the Insurance Commissioner or like
official of any state or any other regulatory body regarding GWL&A's
or Schwab's duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the Fund
shares, if, in each case, the Fund, Distributor or Adviser, as the
case may be, reasonably determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of GWL&A or Schwab to perform
its obligations under this Agreement; or
(e) at the option of GWL&A or Schwab in the event that formal
administrative proceedings are instituted against the Fund, the
Distributor or the Adviser by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, if
Schwab or GWL&A reasonably determines in its sole judgment exercised
in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Fund, the Distributor
or the Adviser to perform their obligations under this Agreement; or
(f) at the option of GWL&A by written notice to the Fund with respect
to any Designated Portfolio if GWL&A reasonably believes that the
Designated Portfolio
33
<PAGE>
will fail to meet the Section 817(h) diversification requirements or
Subchapter M qualifications specified in Article VI hereof; or
(g) at the option of either the Fund, the Distributor or the Adviser,
if (i) the Fund, Distributor or Adviser, respectively, shall determine
in its sole judgment reasonably exercised in good faith, that either
GWL&A or Schwab has suffered a material adverse change in its business
or financial condition or is the subject of material adverse publicity
and that material adverse change or publicity will have a material
adverse impact on GWL&A's or Schwab's ability to perform its
obligations under this Agreement, (ii) the Fund, Distributor or
Adviser notifies GWL&A or Schwab, as appropriate, of that
determination and its intent to terminate this Agreement, and (iii)
after considering the actions taken by GWL&A or Schwab and any other
changes in circumstances since the giving of such a notice, the
determination of the Fund, Distributor or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(h) at the option of either QWL&A or Schwab, if (i) GWL&A or Schwab,
respectively, shall determine, in its sole judgment reasonably
exercised in good faith, that the Fund, Distributor or Adviser has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or publicity will have a material adverse
impact on the Fund's, Distributor's or Adviser's ability to perform
its obligations under this Agreement, (ii) GWL&A or Schwab notifies
the Fund, Distributor or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement, and (iii)
after considering the actions taken by the Fund, Distributor or
Adviser and any other changes in circumstances since the giving of
such a notice, the determination of OWL&A or Schwab shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(i) at the option of GWL&A in the event that formal administrative
proceedings are instituted against Schwab by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body
regarding Schwab's duties under this Agreement or related to the sale
of the Fund's shares or the Contracts, the operation of any Account,
or the purchase of the Fund shares, provided, however, that GWL&A
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of Schwab to perform its obligations related to the
Contracts; or
(j) at the option of Schwab in the event that formal administrative
proceedings are instituted against GWL&A by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body
regarding GWL&A's duties under this Agreement or related to the sale
of the Fund's shares or the Contracts, the operation of any Account,
or the purchase of the Fund shares, provided, however, that Schwab
determines in its sole judgment exercised in good faith, that any such
34
<PAGE>
administrative proceedings will have a material adverse effect upon
the ability of GWL&A to perform its obligations related to the
Contracts; or
(k) at the option of any non-defaulting patty hereto in the event of a
material breach of this Agreement by any patty hereto (the "defaulting
party") other than as described in 10.1 (a)(j); provided, that the
non-defaulting party gives written notice thereof to the defaulting
party, with copies of such notice to all other non-defaulting parties,
and if such breach shall not have been remedied within thirty (30)
days after such written notice is given, then the non-defaulting party
giving such written notice may terminate this Agreement by giving
thirty (30) days written notice of termination to the defaulting
party; or
(I) at any time upon written agreement of all parties to this
Agreement.
10.2. Notice Requirement.
No termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties of
its intent to terminate, which notice shall set forth the basis for the
termination. Furthermore,
(a) in the event any termination is based upon the provisions of Article
VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(11) of this
Agreement, the prior written notice shall be given in advance of the
effective date of termination as required by those provisions unless such
notice period is shortened by mutual written agreement of the parties;
(b) in the event any termination is based upon the provisions of Section
10.1(d), 10.1(e), 10.1(i) or 10.1k\) of this Agreement, the prior written
notice shall be given at least sixty (60) days before the effective date of
termination; and
(c) in the event any termination is based upon the provisions of Section
10.1(b), 10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective date of termination, which date shall be
determined by the party sending the notice.
10.3. Effect of Termination.
Notwithstanding any termination of this Agreement, other than as a result of a
failure by either the Fund or GWL&A to meet Section 817(h) of the Code
diversification requirements, the Fund, the Distributor and the Adviser shall,
at the option of GWL&A or Schwab, continue to make
35
<PAGE>
available additional shares of the Designated Portfolio(s) pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Designated
Portfolio(s). redeem investments in the Designated Portfolio(s) and/or invest in
the Designated Portfolio(s) upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 10.3 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.4. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by anv termination of this Agreement.
In addition. with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
10.5. Survival of Agreement.
A termination by Schwab shall terminate this Agreement only as to Schwab, and
this Agreement shall remain in effect as to the other parties; provided,
however, that in the event of a termination by Schwab the other parties shall
have the option to terminate this Agreement upon 60 (sixty) days notice, rather
than the six (6) months specified in Section 10.1(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party' at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Fund:
The Prudential Series Fund, Inc.
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, NJ 07102-4077
Attention: Secretary
36
<PAGE>
If to the Adviser:
The Prudential Insurance Company of America
751 Broad Street, 21 Floor
Newark, NJ 07102
Attention: Secretary
If to the Distributor:
Prudential Investment Management Services LLC
751 Broad Street, 21st Floor
Newark, NJ 07102
Attention: Secretary
If to GWL&A:
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, CO 80111
Attention: Assistant Vice President, Savings Products
If to Schwab:
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA 94104
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party has designated as proprietary.
37
<PAGE>
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SBC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to finish the Colorado Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of GWL&A are being conducted in a manner consistent with the Colorado
Variable Annuity Regulations and any other applicable law or regulations.
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
38
<PAGE>
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9. Schwab and GWL&A agree that the obligations assumed by the Fund,
Distributor and the Adviser pursuant to this Agreement shall be limited in any
case to the Fund, Distributor and Adviser and their respective assets and
neither Schwab nor GWL&A shall seek satisfaction of any such obligation from the
shareholders of the Fund, Distributor or the Adviser, the Trustees, officers.
employees or agents of the Fund, Distributor or Adviser, or any of them.
12.10. The Fund, the Distributor and the Adviser agree that the obligations
assumed by GWL&A and Schwab pursuant to this Agreement shall be limited in any
case to GWL&A and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall seek satisfaction of any such obligation from the
shareholders of GWL&A or Schwab, the directors, officers, employees or agents of
the GWL&A or Schwab, or any of them, except to the extent permitted under this
Agreement.
12.11. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund, and the Distributor and the Fund.
39
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer,
By:
Title: Vice President
Date: 5/l/99
THE PRUDENTIAL SERIES FUND, INC.
By its authorized officer,
By:
Title: Secretary
Date: 4/28/99
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By its authorized officer,
By: Neil A. McGuiness
Title: Senior VP
Date: 5/3/99
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
By its authorized officer,
By:
Title: President
Date: 4/29/99
CHARLES SCHWAB & CO., INC.
By its authorized officer,
By:
Title: Executive V.P.
Date: 4/16/99
40
<PAGE>
Schwab Variable Annuity
SCHEDULE A
Contracts Form Numbers
Great-West Life & Annuity Insurance Company
Group Variable/Fixed Annuity Contract J434
Individual Variable/Fixed Annuity Contract J43 4IND
41
<PAGE>
SCHEDULE B
Designated Portfolios
Prudential Series Fund Equity
42
<PAGE>
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co., Inc.
A. Schwab will provide the properly registered and licensed personnel and
systems needed for all customer servicing and support - for both Fund and
Contract information and questions - including the following:
* respond to Contractowner inquiries
* mail fund and Contract prospectuses
* entry of initial and subsequent orders
* transfer of cash to GWL&A and/or Fund
* explanations of Designated Portfolio objectives and characteristics
* entry of transfers between Unaffiliated Funds, including the Designated
Portfolios
* Contract balance and allocation inquiries
* communicate all purchase, withdrawal, and exchange orders received from
Contractowners to GWL&A which will transmit orders to Funds
* train call center representatives to explain Fund objectives, Momingstar
categories, Fund selection data and differences between publicly traded
funds and the Funds
* provide performance data and Fund prices
* shareholder services including researching trades, resolving trade
disputes, etc.
* coordinate the writing, printing and distribution of semi-annual and annual
reports to Contract owners investing in the Designated Portfolios
* create and update Designated Portfolio profiles and other shareholder
communications
* establish scheduled account rebalances
* Web trading and account servicing
* touch-tone telephone trading and account servicing
* establish dollar cost averaging
* communications to Contractowners related to product changes, including but
not limited to changes in the available Designated Portfolios
B. For the foregoing services, Schwab shall receive a monthly fee equal to
0.25% per annum of the average daily value of the shares of the Designated
Portfolios listed on Schedule B attributable to Contractowners, payable by the
Adviser directly to Schwab, such payments being due and payable within 15
(fifteen) days after the last day of the month to which such payment relates.
43
<PAGE>
C. The Fund will calculate and Schwab will verify with GWL&A the asset balance
for each day on which the fee is to be paid pursuant to this Agreement with
respect to each Designated Portfolio.
44
<PAGE>
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the requirements of Section 817(h) and Subchapter M under the Internal
Revenue Code (the "Code") and the regulations thereunder, the Fund shall provide
within twenty (20) Business Days of the close of the calendar quarter a report
to GWL&A in the Form Dl attached hereto and incorporated herein by reference,
regarding the status under such sections of the Code of the Designated
Portfolio(s), and if necessary, identification of any remedial action to be
taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the requirements of Subchapter M of the Code, referred to hereinafter as
"RlC status," the Fund will provide the reports on the following basis: (i) the
last quarter's quarterly reports can be supplied within the 20-day period, and
(ii) a year-end report will be provided 45 days after the end of the calendar
year. However, if a problem with regard to RIC status, as defined below, is
identified in the third quarter report, on a weekly basis, starting the first
week of December, additional interim reports will be provided specially
addressing the problems identified in the third quarter report. If any interim
report memorializes the cure of the problem, subsequent interim reports will not
be required.
A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety percent of gross income is derived from sources of
income specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851 (b)(3);
(c) Less than fifty percent of the value of total assets consists of assets
specified in Section 851 (b)(4)(A); and
45
<PAGE>
(d) No more than twenty-five percent of the value of total assets is invested in
the securities of one issuer as that requirement is set forth in Section 851
(b)(4)(B).
46
<PAGE>
FORM Dl
CERTIFICATE OF COMPLIANCE
For ~e quarter ended:
The Prudential Insurance Company of America (investment adviser) for The
Prudential Series Fund. Inc. hereby notifies you that, based on internal
compliance testing performed as of the end of the calendar quarter ended
_________, 19 , the Designated Portfolios were in compliance with all
requirements of Section 817(h) and Subchapter M of the Internal Revenue Code
(the "Code'1) and the regulations thereunder as required in the Fund
Participation Agreement among Great-West Life & Annuity Insurance Company,
Charles Schwab & Co., Inc. and_________ other than the exceptions discussed
below:
Exceptions Remedial Action
- ----------------------------- --------------------------------
- ----------------------------- ---------------------------------
- ----------------------------- ---------------------------------
If no exception to report, please indicate "None."
Signed this ____ day of , _____
(Signature)
By:
(Type or Print Name and Title/Position)
SCHEDULE E
EXPENSES
The Fund and/or the Distributor and/or Adviser, and GWL&A will coordinate the
functions and pay the costs of the completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated to reflect the
Fund's share of the total costs determined according to the number of pages of
the Fund's respective portions of the documents.
<TABLE>
<CAPTION>
Item Function Party Responsible Party
for Coordination Responsible for
Expense
<S> <C> <C> <C>
Mutual Fund Printing of combined GWL&A Fund Distributor
Prospectus prospectuses or Adviser, as
applicable
Fund, Distributor or GWL&A Fund, Distributor
Adviser shall supply or Adviser, as
GWL&A with such applicable
numbers of the
Designated
Portfolio(s)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Item Function Party Responsible Party
for Coordination Responsible for
Expense
<S> <C> <C> <C>
prospectus(es) as
GWL&A shall
reasonably request
Distribution GWL&A GWL&A
(including postage)
to New and Inforce
Clients
Distribution Schwab Schwab
(including postage)
to Prospective
Clients
Product Prospectus Printing for Inforce GWL&A GWL&A
Clients
Printing for GWL&A Schwab
Prospective Clients
Distribution to New GWL&A GWL&A
and Inforce Clients
Distribution to Schwab Schwab
Prospective Clients
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Item Function Party Responsible Party
for Coordination Responsible for
Expense
<S> <C> <C> <C>
Mutual Fund If Required by Fund, Fund, Distributor or Fund Distributor
Prospectus Update & Distributor or Adviser or Adviser
Distribution Adviser
If Required by GWL&A GWL&A
;\", --------------------------------------------------------- ------------------------------------------------------------
GWL&A
If Required by Schwab Schwab
Schwab
\\ Product Prospectus If Required by Fund, GWL&A Fund, Distributor
Update & Distributor or or Adviser
Distribution Adviser
If Required by GWL&A GWL&A
GWL&A
~If Required by Schwab Schwab
Schwab
[Mutual Fund SAl Printing Fund, Distributor or Fund, Distributor
Adviser or Adviser
Distribution GWL&A GWL&A
(including postage)
Product SAl Printing GWL&A GWL&A
Distribution GWL&A GWL&A
Proxy Material for Printing if proxy Fund, Distributor or Fund, Distributor
Mutual Fund: required by Law Adviser or Adviser
Distribution GWL&A Fund, Distributor
(including labor) if or Adviser
proxy required by
Law
Printing & GWL&A GWL&A
distribution if
required by GWL&A
Printing & GWL&A Schwab
distribution if
required by Schwab
</TABLE>
49
<PAGE>
Mutual Fund Annual
& Semi-Annual
Report
Printing of combined GWL&A
reports
Fund, Distributor
or Adviser
Distribution GWL&A
Other communication If Required by the Schwab
to New and Fund, Distributor or
Prospective clients Adviser
GWL&A and
Schwab
Fund, Distributor
or Adviser
<TABLE>
<CAPTION>
If Required by Schwab GWL&A
GWL&A
If Required by Schwab Schwab
Schwab
<S> <C> <C> <C>
Other communication Distribution GWL&A Fund, Distributor
to inforce (including labor and or Adviser
printing) if required
by the Fund,
Distributor or
Adviser
Distribution GWL&A GWL&A
(including labor and
printing)if required
by GWL&A
Distribution GWL&A Schwab
(including labor and
printing if required
by Schwab
Errors in Share Price Cost of error to GWL&A Fund or Adviser
calculation pursuant participants
to Section l~lO
Cost of reasonable GWL&A Fund or Adviser
expenses related to
administrative work
to correct error
Fund or Adviser
Operations of the All operations and Fund, Distributor or
</TABLE>
50
FUND PARTICIPATION AGREEMENT
The Prudential Series Fund Inc.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares...........................................4
ARTICLE II. Representations and Warranties................................7
ARTICLE III. Prospectuses and Proxy Statements; Voting....................11
ARTICLE IV. Sales Material and Information...............................13
ARTICLE V. Fees and Expenses............................................16
ARTICLE VI. Diversification and Qualification............................17
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order.....................20
ARTICLE VIII. Indemnification..............................................22
ARTICLE IX. Applicable Law...............................................35
ARTICLE X. Termination..................................................35
ARTICLE XI. Notices......................................................39
ARTICLE XII. Miscellaneous................................................40
SCHEDULE A Contracts....................................................44
SCHEDULE B Designated Portfolios........................................45
SCHEDULE C Administrative Services......................................46
SCHEDULE D Reports per Section 6.6......................................47
SCHEDULE E Expenses.....................................................50
<PAGE>
PARTICIPATION AGREEMENT
Among
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE CONIPANY
THE PRUDENTIAL SERIES FUND, INC.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
and
CHARLES SCHWAB & CO., INC.
THIS AGREEMENT, made and entered into as of this 1st day of May, 1999 by
and among FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY (hereinafter
"FGWL&A"), a New York life insurance company, on its own behalf and on behalf of
its Separate Account Variable Annuity-l Series Account (the "Account"); THE
PRUDENTIAL SERIES FUND, INC. an open-end management investment company organized
under the laws of Maryland (hereinafter the "Fund"); THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA (hereinafter the Adviser"), a New Jersey mutual insurance
company; PRUDENTIAL INVESTMENT MANGEMENT SERVICES LLC (hereinafter the
"Distributor"). a Delaware limited liability company; and CHARLES SCHWAB & CO.,
INC., a California corporation (hereinafter Schwab").
WHEREAS. the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including FGWL&A, which have entered into participation
agreements similar to this Agreement (hereinafter "Participating Insurance
Companies") and
<PAGE>
WHEREAS. the beneficial interest in the Fund is divided into several series
of shares. each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS. the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated March 5 1999 (File No. IC-23728),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder. to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
life insurance companies that may or may not be affiliated with one another and
qualified pension and retirement plans ("Qualified Plans") (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS. the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS. the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of I 940 as amended, and any applicable state securities
laws: and
WHEREAS the Distributor is duly registered as a broker-dealer under the
Securities Exchange Act of I 934 as amended, (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS. FGWL&A has registered certain variable annuity contracts supported
wholly or partially by the Account (the "Contracts") under the 1933 Act and said
Contracts are listed in Schedule A attached hereto and incorporated herein by
reference. as such Schedule may be amended from time to time by mutual written
agreement; and
2
<PAGE>
WHEREAS. the Account is a duly organized, validly existing segregated asset
account established by resolution of the Board of Directors of FGWL&A on January
15,1997 under the insurance laws of the State of New York. to set aside and
invest assets attributable to the Contracts; and
WHEREAS. FGWL&A has registered the Account as a unit investment trust under
the 1940 Act and has registered the securities deemed to be issued by the
Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, FGWL&A intends to purchase shares in the Portfolio(s) listed in
Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"). on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS. to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts; and
WHEREAS, Schwab will perform certain services for the Fund in connection
with the Contracts;
NOW, THEREFORE, in consideration of their mutual promises. FGWL&A, Schwab,
the Fund, the Distributor and the Adviser agree as follows;
ARTICLE I. Sale of Fund Shares.
1.1. The Fund agrees to sell to FGWL&A those shares of the Designated
Portfolio(s) which the Account orders, executing such orders on each Business
Day at the net asset value next
<PAGE>
computed after receipt by the Fund or its designee of the order for the shares
of the Designated Portfolios. For purposes of this Section 1.1, FGWL&A shall be
the designee of the Fund for receipt of such orders and receipt by such designee
shall constitute receipt by the Fund, provided that the Fund receives notice of
any such order by 9:30 a.m. Eastern time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Designated Portfolio calculates its net asset value
pursuant to the rules of the SEC.
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by FGWL&A and
the Account on those days on which the Fund calculates its Designated
Portfolio(s)' net asset value pursuant to rules of the SEC, and the Fund shall
calculate such net asset value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Designated
Portfolio to any person, or suspend or terminate the offering of shares of any
Designated Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Designated Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions the substance of which are the same as Sections 2.1
(except with respect to Colorado law), 3.5, 3.6, 3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on FGWL&A's request, any lull or
fractional shares of the Fund held by FGWL&A, executing such requests on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. Requests for redemption identified
by FGWL&A, or its agent, as being in connection with surrenders, annuitizations,
or death benefits under the Contracts, upon prior written notice, may be
executed within seven (7) calendar days after receipt by the Fund or its
designee of the requests for redemption. This Section 1.4 may be amended, in
writing, by the parties consistent with the
4
<PAGE>
requirements of the 1940 Act and interpretations thereof For purposes of this
Section 1.4, FGWL&A shall be the designee of the Fund for receipt of requests
for redemption and receipt by such designee shall constitute receipt by the
Fund, provided that the Fund receives notice of any such request for redemption
by 9:30 A.M. Eastern time on the next following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3 and Article VI hereof)
and the cash value of the Contracts may be invested in other investment
companies.
1.6. FGWL&A shall pay for Fund shares by 3:00 p.m. Eastern time on the next
Business Day after an order to purchase Fund shares is made in accordance with
the provisions of Section 1.1 hereof Payment shall be in federal funds
transmitted by wire and/or by a credit for any shares redeemed the same day as
the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 3:00 P.M. Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to FGWL&A or the Account. Shares ordered
from the Fund will be recorded in an appropriate title for the Account or the
appropriate subaccount of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to FGWL&A of any income, dividends or capital gain
distributions payable on the Designated Portfolio(s) shares. FGWL&A hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Designated Portfolio shares in additional shares of that
Designated Portfolio. FGWL&A reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify FGWL&A by
5
<PAGE>
the end of the next following Business Day of the number of shares so issued as
payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Designated
Portfolio available to FGWL&A on each Business Day as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 7:00 p.m.
Eastern time. In the event of an error in the computation of a Designated
Portfolio's net asset value per share ("NAV") or any dividend or capital gain
distribution (each, a "pricing error"), the Adviser or the Fund shall
immediately notify FGWL&A as soon as possible after discovery of the error. Such
notification may be verbal, but shall be confirmed promptly in writing in
accordance with Article XI of this Agreement. A pricing error shall be corrected
as follows: (a) if the pricing error results in a difference between the
erroneous NAV and the correct NAV of less than $0.01 per share, then no
corrective action need be taken; (b) if the pricing error results in a
difference between the erroneous NAV and the correct NAV equal to or greater
than $0.01 per share, but less than 1/2 of 1% of the Designated Portfolio's NAV
at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss, after taking into consideration any positive effect of
such error; however, no adjustments to Contractowner accounts need be made; and
(c) if the pricing error results in a difference between the erroneous NAV and
the correct NAV equal to or greater than 1/2 of 1% of the Designated Portfolio's
NAV at the time of the error, then the Adviser shall reimburse the Designated
Portfolio for any loss (without taking into consideration any positive effect of
such error) and shall reimburse FGWL&A for the costs of adjustments made to
correct Contractowner accounts in accordance with the provisions of Schedule E.
if an adjustment is necessary to correct a material error which has caused
Contractowners to receive less than the amount to which they are entitled, the
number of shares of the applicable sub-account of such Contractowners will be
adjusted and the amount of any underpayments shall be credited by the Adviser to
FGWL&A for crediting of such amounts to the applicable Contractowners accounts.
Upon notification by the Adviser of any overpayment due to a material error,
FGWL&A or Schwab, as the case may be, shall promptly remit to Adviser any
overpayment that has not been paid to Contractowners; however, Adviser
acknowledges that Schwab and FGWL&A do not intend to seek additional payments
from any Contractowner who, because of a pricing error, may have underpaid for
units of interest credited to his/her account. In no event shall
6
<PAGE>
Schwab or FGWL&A be liable to Contractowners for any such adjustments or
underpayment amounts. A pricing error within categories (b) or (c) above shall
be deemed to be `materially incorrect" or constitute a "material error" for
purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the view expressed by the staff of the SEC as of the date of
this Agreement In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties shall amend the
foregoing provisions of this Agreement to comport with the appropriate
applicable standards on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. FGWL&A represents and warrants that the Contracts and the securities
deemed to be issued by the Account under the Contracts are or will be registered
under the 1933 Act; that the Contracts will be issued and sold in compliance in
all material respects with all applicable federal and state laws and that the
sale of the Contracts shall comply in all material respects with state insurance
suitability requirements. FGWL&A farther represents and warrants that it is an
insurance company duly organized and in good standing under applicable law and
that it has legally and validly established the Account prior to any issuance or
sale of units thereof as a segregated asset account under Section 4240. et. seq.
of the New York Insurance Law and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts and that it will maintain such
registration for so long as any Contracts are outstanding as required by
applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act. duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act. and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
7
<PAGE>
2.3 The Fund reserves the right to adopt a plan pursuant to Rule I 2b- 1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event. the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 940 Act to assure that the investment advisory or
mana2ement fees paid to the Adviser by the Fund are in accordance with the
requirements of the 940 Act. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule I 2b- 1 the Fund undertakes to have its
Board, a majority of whom are not interested persons of the Fund. formulate and
approve any plan pursuant to Rule I 2b- 1 under the 1940 Act to finance
distribution expenses.
2.4. The Fund represents and warrants that it will make every effort to
ensure that the investment policies. fees and expenses of the Designated
Portfolio(s) are and shall at all times remain in compliance with the insurance
and other applicable laws of the State of New York and any other applicable
state to the extent required to perform this Agreement. The Fund further
represents and warrants that it will make every effort to ensure that Designated
Portfolio(s) shares will be sold in compliance with the insurance laws of the
State of New York and all applicable state insurance and securities laws. The
Fund shall register and qualify the shares for sale in accordance with the laws
of the various states if and to the extent required by applicable law. FGWL&A
and the Fund will endeavor to mutually cooperate with respect to the
implementation of any modifications necessitated by any change in state
insurance laws, regulations or interpretations of the foregoing that affect the
Designated Portfolio(s) (a "Law Change"). and to keep each other informed of any
Law Change that becomes known to either party. In the event of a Law Change, the
Fund agrees that, except in those circumstances where the Fund has advised
FQWL&A that its Board of Directors has determined that implementation of a
particular Law Change is not in the best interest of all of the Fund's
shareholders with an explanation regarding why such action is lawful. any action
required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfulIy organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
8
<PAGE>
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with any applicable state and federal securities laws.
2.7. The Distributor represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance in all material
respects with the laws of any applicable state and federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective officers, employees, investment advisers. and other individuals or
entities deadline with the money and/or securities of the Fund are and shall
continue to be at all times, covered by one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule 17g- 1 under the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bonds shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9. Schwab represents and warrants that it has completed, obtained and
performed, in all material respects, all registrations, filings, approvals, and
authorizations, consents and examinations required by any government or
governmental authority as may be necessary to perform this Agreement. Schwab
does and will comply, in all material respects, with all applicable laws, rules
and regulations in the performance of its obligations under this Agreement.
2.10. The Fund will provide FGWL&A with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to. any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
FGWL&A in order to implement any such change in an orderly manner. recognizing
the expenses of changes and attempting to minimize such expenses by implementing
them in conjunction with regular annual updates of the prospectus for the
Contracts. The Fund agrees to share equitably in expenses incurred by FGWL&A as
a result of actions taken by the Fund, consistent with the
9
<PAGE>
allocation of expenses contained in Schedule E attached hereto and incorporated
herein by reference.
2.11. FGWL&A represents and warrants for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended ("the Code"). that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify Schwab, the Fund, the Distributor and the Adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future. In addition, FGWL&A
represents and warrants that the Account is a "segregated asset account and that
interests in the Account are offered exclusively through the purchase of or
transfer into a "variable contract" within the meaning of such terms under
Section 817 of the Code and the regulations thereunder. FGWL&A will use every
effort to continue to meet such definitional requirements, and it will notify
Schwab, the Fund, the Distributor and the Adviser immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future. FGWL&A represents and warrants that it
will not purchase Fund shares with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. At least annually, the Adviser or Distributor shall provide FGWL&A and
Schwab with as many copies of the Fund's current prospectus for the Designated
Portfolio(s) as FGWL&A and Schwab may reasonably request for marketing purposes
(including distribution to Contractowners with respect to new sales of a
Contract), with expenses to be borne in accordance with Schedule E hereof. If
requested by FGWL&A in lieu thereof, the Adviser. Distributor or Fund shall
provide such documentation (including a camera-ready copy and computer diskette
of the current prospectus for the Designated Portfolio(s)) and other assistance
as is reasonably necessary in order for FGWL&A once each year (or more
frequently if the prospectuses for the Designated Portfolio(s) are amended) to
have the prospectus for the Contracts and the Fund's prospectus for the
Designated Portfolio(s) printed together in one document. The Fund and Adviser
agree that the
10
<PAGE>
prospectus (and semi-annual and annual reports) for the Designated Portfolio(s)
will describe only the Designated Portfolio(s) and will not name or describe any
other portfolios or series that may be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the Fund. Distributor and/or the Adviser shall provide
FGWL&A with copies of the Fund's SAl or documentation thereof for the Designated
Portfolio(s) in such quantities, with expenses to be borne in accordance with
Schedule F hereof, as FGWL&A may reasonably require to permit timely
distribution thereof to Contractowners. The Adviser. Distributor and/or the Fund
shall also provide SAIs to any Contractowner or prospective owner who requests
such SAl from the Fund (although it is anticipated that such requests will be
made to FGWL&A or Schwab).
3.3. The Fund, Distributor and/or Adviser shall provide FGWL&A and Schwab
with copies of the Fund's proxy material, reports to stockholders and other
cornmunications to stockholders for the Designated Portfolio(s) in such
quantity, with expenses to be borne in accordance with Schedule E hereof, as
FGWL&A may reasonably require to permit timely distribution thereof to
Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding FGWL&A or Schwab provided in writing by that party, neither FG~'L&A
nor Schwab are responsible for the content of the prospectus or SAI for the
Designated Portfolio(s). It is also understood and agreed that, except with
respect to information regarding the Fund. the Distributor, the Adviser or the
Designated Portfolio(s) provided in writing by the Fund, the Distributor or the
Adviser, neither the Fund, the Distributor nor Adviser are responsible for the
content of the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law FGWL&A shall:
(i) solicit voting instructions from Contractowners:
(ii) vote the Designated Portfolio(s) shares held in the Account in
accordance with instructions received from Contractowners: and
11
<PAGE>
iii) vote Designated Portfolio shares held in the Account for which no
instructions have been received in the same proportion as
Designated Portfolio(s) shares for which instructions have been
received from Contractowners so long as and to the extent that
the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners.
FG~'L&A reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law.
3.6. FGWL&A shall be responsible for assuring that each of its separate
accounts holding shares of a Designated Portfolio calculates voting privileges
as directed by the Fund and agreed to by FGWL&A and the Fund. The Fund agrees to
promptly notify FGWL&A of any changes of interpretations or amendments of the
Mixed and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the SEC may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information.
4.1. FGWL&A and Schwab shall furnish or shall cause to be furnished, to the
Fund or its designee, a copy of each piece of sales literature or other
promotional material that FGWL&A or Schwab. respectively, develops or proposes
to use and in which the Fund (or a Portfolio thereof), its Adviser or one of its
sub-advisers or the Distributor is named in connection with the Contracts, at
least ten (10) Business Days prior to its use. No such material shall be used if
the Fund objects to such use within five (5) Business Days after receipt of such
material.
12
<PAGE>
4.2. FGWL&A and Schwab shall not give any information or make any
representations or statements on behalf of the Fund in connection with the sale
of the Contracts other than the information or representations contained in the
registration statement. including the prospectus or SM for the Fund shares. as
the same may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by the Fund. Distributor or
Adviser, except with the permission of the Fund, Distributor or Adviser.
4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished,
to FGWL&A and Schwab. a copy of each piece of sales literature or other
promotional material in which FGWL&A and or its separate account(s), or Schwab
is named at least ten (10) Business Days prior to its use. No such material
shall be used if FGWL&A or Schwab objects to such use within five
(5) Business Days after receipt of such material.
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of FGWL&A or concerning
FGWL&A, the Account, or the Contracts other than the information or
representations contained in a registration statement, including the prospectus
or SM for the Contracts, as the same may be amended or supplemented from time to
time, or in sales literature or other promotional material approved by FGWL&A or
its designee, except with the permission of FGWL&A.
4.5. FGWL&A. the Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of or concerning Schwab, or
use Schwab's name except with the permission of Schwab.
4.6. The Fund will provide to FGWL&A and Schwab at least one complete copy
of all registration statements, prospectuses. SAIs, sales literature and other
promotional materials, applications for exemptions. requests for no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolio(s) within a reasonable period of time following the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
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<PAGE>
4.7. FGWL&A or Schwab will provide to the Fund at least one complete copy
of all registration statements, prospectuses, SAIs. reports. solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions. requests for no-action letters. and all amendments
to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the SEC. NASD. or
other regulatory authority.
4.8. For purposes of Articles IV and VIII. the phrase "sales literature and
other promotional material" includes. but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine. or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media; ~, on-
line networks such as the Internet or other electronic media), sales literature
(ie. any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and shareholder reports, and proxy materials
(including solicitations for voting instructions) and any other material
constituting sales literature or advertising under the NASD rules. the 1933 Act
or the 1940 Act.
4.9. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other compensation to
FGWL&A under this Agreement, and FGWL&A shall pay no fee or other compensation
to the Fund or
14
<PAGE>
Adviser under this Agreement although the parties hereto will bear certain
expenses in accordance with Schedule E, Articles III. V. and other provisions of
this Agreement.
5.2. All expenses incident to performance by the Fund, the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule E. The Fund shall see to it that all shares of the
Designated Portfolio(s) are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent required, in accordance
with applicable state laws prior to their sale.
5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to owners of Contracts offered bv FGWL&A. in
accordance with Schedule E.
5.4. The Fund, the Distributor and the Adviser acknowledge that a principal
feature of the Contracts is the Contractowner's ability to choose from a number
of unaffiliated mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the Unaffiliated Funds, and to transfer the
Contract's cash value between funds and Designated Portfolios. The Fund, the
Distributor and the Adviser agree to cooperate with FGWL&A and Schwab in
facilitating the operation of the Account and the Contracts as described in the
prospectus for the Contracts, including but not limited to cooperation in
facilitating transfers between Unaffiliated Funds.
5.5. Schwab agrees to provide certain administrative services, specified in
Schedule C attached hereto and incorporated herein by reference, in connection
with the arrangements contemplated by this Agreement. The parties acknowledge
and agree that the services referred to in this Section 5.5 are recordkeeping,
shareholder communication. and other transaction facilitation and processing,
and related administrative services only and are not the services of an
underwriter or a principal underwriter of the Fund, and that Schwab is not an
underwriter for the shares of the Designated Portfolio(s), within the meaning of
the 1933 Act or the 1940 Act.
5.6. As compensation for the services specified in Schedule C hereto. the
Adviser agrees to pay Schwab a monthly Administrative Service Fee based on the
percentage per annum on
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<PAGE>
Schedule C hereto applied to the average daily value of the shares of the
Designated Portfolio(s) held in the Account with respect to Contracts sold by
Schwab. This monthly Administrative Service Fee is due and payable before the
15th (fifteenth) day following the last day of the month to which it relates.
ARTICLE VI. Diversification and Qualification.
6.1. The Fund, the Distributor and the Adviser represent and warrant that
the Fund will at all times sell its shares and invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity contracts
under the Code. and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund, Distributor and Adviser represent and warrant
that the Fund and each Designated Portfolio thereof will at all times comply
with Section 817(h) of the Code and Treasury Regulation ss. 1.817-5, as amended
from time to time, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications or successor provisions to
such Section or Regulations. The Fund, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor and the Adviser represent and warrant that
the Fund and each Designated Portfolio is currently qualified as a Regulated
Investment Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Fund. Distributor or Adviser will notify FGWL&A immediately upon
having a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M qualification requirements or might not so comply in the future.
16
<PAGE>
6.5. Without in any way limiting the effect of Sections 8.3, 8.4 and 8.5
hereof and without in any way limiting or restricting any other remedies
available to FGWL&A or Schwab, the Adviser or Distributor will pay all costs
associated with or arising out of any failure. or any anticipated or reasonably
foreseeable failure, of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable
and appropriate corrections or responses to any such failure; such costs may
include, but are not limited to, the costs involved in creating, organizing, and
registering a new investment company as a funding medium for the Contracts
and/or the costs of obtaining whatever regulatory authorizations are required to
substitute shares of another investment company for those of the failed
Portfolio (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act); such costs are to include, but are not limited to, reasonable
fees and expenses of legal counsel and other advisors to FGWL&A and any federal
income taxes or tax penalties and interest thereon (or "toll charges" or
exactments or amounts paid in settlement) incurred by FGWL&A with respect to
itself or owners of its Contracts in connection with any such failure or
anticipated or reasonably foreseeable failure.
6.6. The Fund at the Fund's expense shall provide FGWL&A or its designee
with reports certifying compliance with the aforesaid Section 817(h)
diversification and Subchapter M qualification requirements, at the times
provided for and substantially in the form attached hereto as Schedule D and
incorporated herein by reference; provided, however, that providing such reports
does not relieve the Fund of its responsibility for such compliance or of its
liability for any non- compliance.
6.7. FGWL&A agrees that if the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review of FOWL&A or, to
FGWL&A's knowledge, or any Contractowner that any Designated Portfolio has
failed to comply with the diversification requirements of Section 817(h) of the
Code or FQWL&A otherwise becomes aware of any facts that could give rise to any
claim against the Fund, Distributor or Adviser as a result of such a failure or
alleged failure:
(a) FCWL&A shall promptly notify the Fund, the Distributor and the Adviser
of such assertion or potential claim;
17
<PAGE>
(b) FGWL&A shall consult with the Fund, the Distributor and the Adviser as
to how to minimize any liability that may arise as a result of such failure
or alleged failure;
(c) FGWL&A shall use its best efforts to minimize any liability of the
Fund. the Distributor and the Adviser resulting from such failure.
including, without limitation, demonstrating, pursuant to Treasury
Regulations, Section l.817-5(a)(2), to the commissioner of the IRS that
such failure was inadvertent;
(d) any written materials to be submitted by FGWL&A to the IRS. any
Contract owner or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any such
materials to be submitted to the IRS pursuant to Treasury Regulations,
Section 1.81 7-5(a)(2)) shall be provided by FGWL&A to the Fund, the
Distributor and the Adviser (together with any supporting information or
analysis) within at least two (2) business days prior to submission;
(e) FGWL&A shall provide the Fund. the Distributor and the Adviser with
such cooperation as the Fund, the Distributor and the Adviser shall
reasonably request (including, without limitation. by permitting the Fund,
the Distributor and the Adviser to review the relevant books and records of
FGWL&A) in order to facilitate review by the Fund, the Distributor and the
Adviser of any written submissions provided to it or its assessment of the
validity or amount of any claim against it arising from such failure or
alleged failure;
(f) FGWL&A shall not with respect to any claim of the IRS or any
Contractowner that would give rise to a claim against the Fund, the
Distributor and the Adviser (i) compromise or settle any claim, (ii) accept
any adjustment on audit, or (iii) forego any allowable administrative or
judicial appeals, without the express written consent of the Fund, the
Distributor and the Adviser, which shall not be unreasonably withheld;
provided that, FGWL&A shall not be required to appeal any adverse judicial
decision unless the Fund and the Adviser shall have provided an opinion of
independent counsel to the effect that a
18
<PAGE>
reasonable basis exists for taking such appeal. and further provided that
the Fund. the Distributor and the Adviser shall bear the costs and
expenses. including reasonable attorney's fees. incurred by FGWL&A in
complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding
Exemptive Order
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons. including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter. or any similar action by insurance.
tax. or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Designated Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners or by contract owners of different Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company to disregard
the voting instructions of contract owners. The Board shall promptly inform
FGWL&A if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. FGWL&A will report any potential or existing conflicts of which it is
aware to the Board. FGWL&A will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obliga-
tion by FGWL&A to inform the Board whenever contract owner voting instructions
are to be disregarded. Such responsibilities shall be carried out by FGWL&A with
a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the
9'Independent Directors"), that a material irreconcilable conflict exists,
19
<PAGE>
FGWL&A and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
Independent Directors), take whatever steps are necessary to remedv or eliminate
the irreconcilable material conflict up to and including:
1) withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any
Designated Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
FGWL&A to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, FGWL&A may be
required, at the Fund's election, to withdraw the Account's investment in the
Fund and terminate this Agreement; provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented. and until the end of that six month period the Adviser, the
Distributor and the Fund shall continue to accept and implement orders by FGWL&A
for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to FGWL&A conflicts with the
majority of other state regulators, then FGWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six months after the
Board informs FGWL&A in writing that it has determined that such decision has
created an irreconcilable material conflict: provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the
20
<PAGE>
foregoing six month period. the Fund shall continue to accept and implement
orders by FGWL&A tbr the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
FGWL&A shall not be required by Section 7.3 to establish a new tun ding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of Contractowners affected by the irreconcilable material conflict. In the event
that the Board determines that any proposed action does not adequately remedy
any irreconcilable material conflict. then FGWL&A will withdraw the Account's
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs FGWL&A in writing of the foregoing determination; provided.
however, that such withdrawal and termination shall be limited to the extent
required by any such material irreconcilable conflict as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies. as appropriate. shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T). as amended, and Rule 6e-3. as adopted, to the
extent such rules are applicable: and (b) Sections 3.5, 3.6.3.7, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
21
<PAGE>
ARTICLE VIII. Indemnification
8.1 Indemnification By FGWL&A
8.1(a). FGWL&A agrees to indemnity and hold harmless the Fund. the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person. if any, who controls the Fund Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively. the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims. expenses. damages and liabilities (including amounts paid in
settlement with the written consent of FGWL&A) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims. expenses. damages or liabilities (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus or SAI covering the
Contracts or contained in the Contracts or sales literature or
other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to FGWL&A or Schwab by or on
behalf of the Adviser, Distributor or Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature or other promotional material (or
any amendment or supplement to any of the foregoing) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement. prospectus or sales literature or other
promotional material of the Fund not supplied by FGWL&A or
persons under its control) or wrongful conduct of FGWL&A or
persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAl. or sales literature or other promotional
material of the Fund, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be
22
<PAGE>
stated therein or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance
upon information furnished in writing to the Fund by or on behalf
of FGWL&A: or
(iv) arise as a result of any failure by FGWL&A to provide the
services and furnish the materials under the terms of this
Agreement: or
(v) arise out of or result from any material breach of any
representation and/or warranty made by FGWL&A in this Agreement
or arise out of or result from any other material breach of this
Agreement by FGWL&A. including without limitation Section 2.1
land Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). FGWL&A shall not be liable under this indemnification provision
with respect to any losses, claims expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.1(c). FGWL&A shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified FG~VL&A in writing `within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify FGWL&A of any such claim shall not
relieve FGWL&A from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that FGWL&A has been prejudiced
by such failure to give notice. In case any such action is brought against the
Indemnified Parties, FGWL&A shall be entitled to participate, at its own
expense, in the defense of such action. FGWL&A also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from FGWL&A to such party of FGWL&A's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and FGWL&A will not be liable to such party
under this Agreement for any
23
<PAGE>
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify FGWL&A of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by Schwab.
8.2(a). Schwab agrees to indemnify and hold harmless the Fund. the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person. if any, who controls the Fund, Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively. the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses. claims, expenses, damages and liabilities (including amounts paid in
settlement with the written consent of Schwab) or litigation (including
reasonable legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses. claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of Schwab's dissemination of information regarding the Fund
that is both (A) materially incorrect and (B) that was neither
contained in the Fund's registration statement nor in the Fund's sales
literature and other promotional material or provided in writing to
Schwab. or approved in writing, by or on behalf of the Fund,
Distributor or Adviser. or
(ii) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in sales literature or other
promotional material prepared or approved by Schwab for the Contracts
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to FGWL&A or Schwab by or on behalf
of the Adviser. Distributor or the Fund or to Schwab by FGWL&A for use
in the registration statement, prospectus or SAI for the Contracts or
in the Contracts or sales literature or other promotional material (or
any amend-
24
<PAGE>
ment or supplement any of the foregoing) or otherwise for use in
connection with the sale of the Contracts; or
(iii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement. prospectus. SAI or sales literature or other promotional
material of the Fund not supplied bv Schwab or persons under its
control) or wrongful conduct of Schwab or persons under its control.
with respect to the sale or distribution of the Contracts; or
(iv) arise as a result of any failure by Schwab to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by Schwab in this Agreement or arise out of or
result from any other material breach of this Agreement by Schwab;
as limited bv and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). Schwab shall not be liable under this indemnification provision
with respect to any losses. claims, expenses. damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.2(c). Schwab shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Schwab in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Schwab of any such claim shall not relieve Schwab
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
except to the extent that Schwab has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties,
Schwab shall be entitled to participate. at its own expense. in the defense of
such action. Schwab also shall be entitled to assume the defense thereof with
counsel satisfactory to the party named in the action. After
25
<PAGE>
notice from Schwab to such party' of Schwab's election to assume the defense
thereof, the indemnified Party shall bear the fees and expenses of any
additional counsel retained by it and Schwab will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.2(d). The Indemnified Parties will promptly notify Schwab of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or he Contracts or the operation of the
Fund.
8.3. Indemnification by the Adviser.
8.3(a). The Adviser agrees to indemnify and hold harmless FGWL&A and Schwab
and each of their directors and officers and each person, if any, who controls
FGWL&A or Schwab within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Partie" for purposes of this Section 8.3) against any and all
losses claims, expenses, damages, liabilities including amounts paid in
settlement with the written consent of the Adviser) or litigation including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation at common law or otherwise, insofar as
such losses claims, damages. liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SM or sales literature or other promotional material
of the Fund prepared by the Fund, the Distributor or the Adviser ~or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished
in writing to the Adviser, the Distributor or the Fund by or on behalf
of FGWL&A or Schwab for use in the registration statement prospectus
or SAI for the Fund or in sales literature or other promotional
material (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts or the
Fund shares; or
26
<PAGE>
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement. Prospectus, SAI or sales literature or
other promotional material for the Contracts not supplied by the
Adviser or persons under its control) or wrongful conduct of the
Fund. the Distributor or the Adviser or persons under their
control. with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise Out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI or sales literature or other promotional material
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished in writing to FGWL&A or Schwab by or on behalf of the
Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor or
the Adviser to provide the services and furnish the materials
under the terms of this Agreement (including a failure. whether
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund, the Distributor
or the Adviser in this Agreement or arise out of or result from
any other material breach of this Agreement by the Adviser, the
Distributor or the Fund; or
(vi) arise out of or result from the incorrect or untimely calculation
or reporting by the Fund. the Distributor or the Adviser of the
daily net asset value per share (subject to Section 1.10 of this
Agreement) or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
8.3(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, expenses. damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
27
<PAGE>
8.3(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties. the Adviser will be entitled to
participate. at its own expense in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof. with counsel satisfactory to the
parry named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it. and the
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.3(d). FGWL&A and Schwab agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.4. Indemnification By the Fund.
8.4(a). The Fund agrees to indemnify and hold harmless FGWL&A and Schwab
and each of their respective directors and officers and each person, if any, who
controls FGWL&A or Schwab within the meaning of Section 5 of the 1933 Act
(collectively. the "Indemnified Parties" for purposes of this Section 8.4)
against any and all losses, claims, expenses, damages and liabilities
(including amounts paid in settlement with the written consent of the Fund) or
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may be required to pay or become subject under any statute
or regulation, at common law or otherwise. insofar as
28
<PAGE>
such losses claims. expenses, damages. liabilities or expenses (or actions in
respect thereof) or settlements. are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure. whether unintentional or in good
faith or otherwise. to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely calculation
or reporting of the daily net asset value per share (subject to
Section 1.10 of this Agreement) or dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof.
8.4(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.4(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve it from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision, except to the extent that the Fund has been prejudiced by such
failure to give notice. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate. at its own
expense, in the defense thereof. The Fund shall also be entitled to
29
<PAGE>
assume the defense thereof. with counsel satisfactory to the party named in the
action. Alter notice from the Fund to such party of the Fund's election to
assume the defense thereof the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it. and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such patty independently in connection with the defense
thereof other than reasonable costs of investigation.
8.4(d). FGWL&A and Schwab each agree promptly to notify the Fund of the
commencement of any litigation or proceeding against itself or any of its
respective officers or directors in connection with the Agreement. the issuance
or sale of the Contracts, the operation of the Account. or the sale or
acquisition of shares of the Fund.
8.5. Indemnification by the Distributor.
8.5(a). The Distributor agrees to indemnify and hold harmless FGWL&A and
Schwab and each of their respective directors and officers and each person, if
any, who controls FGWL&A or Schwab within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 8.5)
against any and all losses, claims, expenses, damages and liabilities (including
amounts paid in settlement with the written consent of the Distributor) or
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise. insofar as such losses, claims. damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or SAl or sales literature
or other promotional material of the Fund prepared by the Fund,
Adviser or Distributor (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, provided that this Agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in
writing to the Adviser. the Distributor or Fund by or on behalf
of FGWL&A or Schwab for use in the registration statement or SAI
or prospectus for the Fund or in
30
<PAGE>
sales literature or other promotional material (or any amendment
or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Fund shares: or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement. prospectus, SAT. sales literature or
other promotional material for the Contracts not supplied by the
Distributor or persons under its control) or wrongful conduct of
the Fund. the Distributor or Adviser or persons under their
control. with respect to the sale or distribution of the
Contracts or Fund shares. or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI sales literature or other promotional material
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished in writing to FGWL&A or Schwab by or on behalf of the
Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide the services and furnish the materials
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund. Adviser or
Distributor in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund, Adviser or
Distributor: or
(vi) arise out of or result from the incorrect or untimely calculation
or reporting of the daily net asset value per share (subject to
Section 1.10 of this Agreement) or dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections 8.5(b) and
8.5(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Distributor specified in Article VI
hereof.
8.5(b)~ The Distributor shall not be liable under this indemnification
provision with respect to any losses. claims. expenses. damages. liabilities or
litigation to which an Indemnified Party \would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
31
<PAGE>
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.5(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Pait~ shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent). but failure to notify the Distributor of
any such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision, except to the extent that the
Distributor has been prejudiced by such failure to give notice. In case any such
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense. in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof. with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributors election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it. and the Distributor will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.5(d) FGWL&A and Schwab agree to promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
without regard to the New York Conflict of Laws provisions.
32
<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes. rules and regulations as the SEC may grant
(including, but not limited to. the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance herewith.
ARTICLE X. Termination
10.1 This Agreement shall terminate:
(a) at the option of any party, with or without cause. with respect to
some or all Designated Portfolios, upon six (6) months advance written
notice delivered to the other parties; provided, however. that such
notice shall not be given earlier than six (6) months following the
date of this Agreement; or
(b) at the option of FGWL&A or Schwab by written notice to the other
parties with respect to any Designated Portfolio based upon FG\VL&A1s
or Schwab's determination that shares of such Designated Portfolio are
not reasonably available to meet the requirements of the Contracts; or
(c) at the option of FGWL&A or Schwab by written notice to the other
parties with respect to any Designated Portfolio in the event any of
the Designated Portfolio's shares are not registered, issued or sold
in accordance with applicable state and' or federal law or such law
precludes the use of such shares as the underlying investment media of
the Contracts issued or to be issued by FGWL&A; or
(d) at the option of the Fund, Distributor or Adviser in the event
that formal administrative proceedings are instituted against FGWL&A
or Schwab by the NASD, the SEC, the Insurance Commissioner or like
official of any state or any other regulatory' body regarding FGWL&A's
or Schwab's duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the Fund
shares, if, in each case, the Fund, Distributor or Adviser, as the
case may be. reasonably determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of FGWL&A or Schwab to
perform its obligations under this Agreement; or
(e) at the option of FGWL&A or Schwab in the event that formal
administrative proceedings are instituted against the Fund, the
Distributor or the Adviser by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, if
Schwab or FGWL&A reasonably determines in its sole judgment exercised
in good faith, that any such administrative proceedings will have a
<PAGE>
material adverse effect upon the ability of the Fund, the Distributor
or the Adviser to perform their obligations under this Agreement: or
(t) at the option of FGWL&A by written notice to the Fund with respect
to any Designated Portfolio if FGWL&A reasonably believes that the
Designated Portfolio will fail to meet the Section 8 7(h)
diversification requirements or Subchapter M qualifications specified
in Article VI hereof; or
(g) at the option of either the Fund, the Distributor or the Adviser.
if (i) the Fund, Distributor or Adviser, respectively, shall
determine, in its sole judgment reasonably exercised in good faith.
that either FGWL&A or Schwab has suffered a material adverse change in
its business or financial condition or is the subject of material
adverse publicity and that material adverse change or publicity will
have a material adverse impact on FGWL&A's or Schwab's ability to
perform its obligations under this Agreement, (ii) the Fund.
Distributor or Adviser notifies FGWL&A or Schwab, as appropriate. of
that determination and its intent to terminate this Agreement, and
(iii) afier considering the actions taken by FGWL&A or Schwab and any
other changes in circumstances since the giving of such a notice, the
determination of the Fund. Distributor or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(h) at the option of either FGWL&A or Schwab, if (i) FGWL&A or Schwab,
respectively, shall determine. in its sole judgment reasonably
exercised in good faith, that the Fund, Distributor or Adviser has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or publicity will have a material adverse
impact on the Fund's, Distributor's or Adviser's ability to perform
its obligations under this Agreement, (ii) FGWL&A or Schwab notifies
the Fund, Distributor or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement. and (iii)
after considering the actions taken by the Fund. Distributor or
Adviser and any other changes in circumstances since the giving of
such a notice. the determination of FGWL&A or Schwab shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(i) at the option of FGWL&A in the event that formal administrative
proceedings are instituted against Schwab by the NASD, the SEC. or any
state securities or insurance department or any other regulatory body
regarding Schwab's duties under this Agreement or related to the sale
of the Fund's shares or the Contracts, the operation of any Account,
or the purchase of the Fund shares. provided. however, that FGWL&A
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of Schwab to perform its obligations related to the
Contracts; or
34
<PAGE>
(j) at the option of Schwab in the event that formal administrative
proceedings are instituted against FGWL&A by the NASD. the SEC. or any
state securities or insurance department or any other regulatory body
regarding FGWL&A's duties under this Agreement or related to the sale
of the Fund's shares or the Contracts, the operation of any Account,
or the purchase of the Fund shares, provided, however, that Schwab
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of FGWL&A to perform its obligations related to the
Contracts: or
(k) at the option of any non-defaulting party hereto in the event of a
material breach of this Agreement by any party hereto (the "defaulting
party") other than as described in 10.1(a)-(j); provided, that the
non-defaulting patty gives written notice thereof to the defaulting
party, with copies of such notice to all other non-defaulting parties.
and if such breach shall not have been remedied within thirty (30)
days after such written notice is given. then the non-defaulting party
giving such written notice may terminate this Agreement by giving
thirty (30) days written notice of termination to the defaulting
party; or
(1) at any time upon written agreement of all parties to this
Agreement.
10.2. Notice Requirement.
No termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties of
its intent to terminate, which notice shall set forth the basis for the
termination. Furthermore,
(a) in the event any termination is based upon the provisions of Article
VII, or the provisions of Section 10.l(a). 10.l(g) or 10.(h) of this
Agreement. the prior written notice shall be given in advance of the
effective date of termination as required by those provisions unless such
notice period is shortened by mutual written agreement of the parties;
(b) in the event any termination is based upon the provisions of Section
10.1(d), 10.1(e), 10.1(i) or 10.1()) of this Agreement the prior written
notice shall be given at least sixty (60) days before the effective date of
termination: and
(c) in the event any termination is based upon the provisions of Section
10.1(b), 10.1(c) or 10.1(f), the prior written notice shall be given in
advance of the effective date of termination. which date shall be
determined by the party sending the notice.
35
<PAGE>
10.3. Effect of Termination.
Notwithstanding any termination of this Agreement. other than as a result of a
failure by either the Fund or FGWL&A ~ meet Section ~l7(h) of the Code
diversification requirements. the Fund. the Distributor and the Adviser shall.
at the option of FQWL&A or Schwab. continue to make available additional shares
of the Designated Portfolio(s) pursuant to the terms and conditions of this
Agreement. for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Designated Portfolio(s), redeem investments in the
Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.3 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.4. Surviving Provisions. Notwithstanding any termination of this
Agreement. each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition. with respect to Existing Contracts. all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
10.5. Survival of Agreement. A termination by Schwab shall terminate this
Agreement only as to Schwab, and this Agreement shall remain in effect as to the
other parties. provided, however. that in the event of a termination bv Schwab
the other parties shall have the option to terminate this Agreement upon 60
sixty) days notice. rather than the six (6) months specified in Section 10.1(a).
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such pan\' may from time to time specify writing to the other
parties.
If to the Fund:
The Prudential Series Fund, Inc.
36
<PAGE>
Gateway Center Three
100 Mulberry Street, 9~ Floor
Newark. NJ 07102-4077
Attention: Secretary
If to the Adviser:
The Prudential Insurance Company of America
751 Broad Street. 21st Floor
Newark. NJ 07102
Attention: Secretary
If to the Distributor:
Prudential Investment Management Services LLC
751 Broad Street. 21st Floor
Newark. NJ 07102
Attention: Secretary
If to FGWL&A:
First Great-West Life & Annuity Insurance Company
8515 Fast Orchard Road
Englewood. CO 80111
Attention: Assistant Vice President, Savings Products
If to Schwab:
Charles Schwab & Co.. Inc.
101 Montgomery Street
San Francisco. CA 94104
Attention: General Counsel
ARTICLE XII. Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses
37
<PAGE>
and other confidential information , without the express written consent of the
affected party until such time as such information may come into the public
domain. Without limiting the foregoing, rio patty hereto shall disclose any
information that another party has designated as proprietary.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision. statute. rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto farther
agrees to furnish the New York Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of FGWL&A are being conducted in a manner consistent with the New
York Variable Annuity Regulations and any other applicable law or regulations.
12.6. Any controversy or claim arising out of or relating to this
Agreement. or breach thereof. shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum. then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
38
<PAGE>
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights. remedies and obligations.
at law or in equity. which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9. Schwab and FGWL&A agree that the obligations assumed by the Fund.
Distributor and the Adviser pursuant to this Agreement shall be limited in any
case to the Fund. Distributor and Adviser and their respective assets and
neither Schwab nor FGWL&A shall seek satisfaction of any such obligation from
the shareholders of the Fund. Distributor or the Adviser. the Trustees.
officers, employees or agents of the Fund. Distributor or Adviser. or any of
them.
12.10. The Fund, the Distributor and the Adviser agree that the obligations
assumed by FGWL&A and Schwab pursuant to this Agreement shall be limited in any
case to FGWL&A and Schwab and their respective assets and neither the Fund,
Distributor nor Adviser shall seek satisfaction of any such obligation from the
shareholders of FGWL&A or Schwab, the directors, officers, employees or agents
of the FGWL&A or Schwab, or any of them, except to the extent permitted under
this Agreement.
12.11. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights. duties, or indemnifications as between the
Adviser and the Fund, and the Distributor and the Fund.
39
<PAGE>
IN WTNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
FIRST GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By its authorized officer
By:
Title: Vice President
Date: 5/1/99
THE PRUDENTIAL SERIES FUND, INC.
By its authorized officer
By:
Title: Secretary
Date: 4/28/99
THE PRUDENTIAL INSURANCE COMPANY OF AMFIUCA
By its authorized officer
By: Neil A. McGuinness
Title: Senior V.P.
Date: 5/3/99
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
By its authorized officer.
By:
Title: President
Date: 4/29/99
CHARLES SCHWAB & CO. INC.
By its authorized officer
By:
Title: Executive V.P.
Date: 4/16/99
40
<PAGE>
Schwab Variable Annuity
SCHBDULE A
Contracts
First Great-West Life & Annuity Insurance Company Form Numbers
J434
J4341ND
Group Variable/Fixed Annuity Contract
Individual Variable/Fixed Annuity Contract
41
<PAGE>
SCHEDULE B
Designated Portfolios
Prudential Series Fund Equity
42
<PAGE>
SCHEDULE C
Administrative Services
To be performed by Charles Schwab & Co.. Inc.
A. Schwab will provide the properly registered and licensed personnel and
systems needed for all customer servicing and support - For both Fund and
Contract information and questions - including the following:
* respond to Contractowner inquiries
* mail fund and Contract prospectuses
* entry of initial and subsequent orders
* transfer of cash to FGWL&A and/or Fund
* explanations of Designated Portfolio objectives and characteristics
* entry of transfers between Unaffiliated Funds. including the Designated
Portfolios
* Contract balance and allocation inquiries
* communicate all purchase. withdrawal. and exchange orders received from
Contractowners to FGWL&A which will transmit orders to Funds
* train call center representatives to explain Fund objectives, Morningstar
categories. Fund selection data and differences between publicly traded
funds and the Funds
* provide performance data and Fund prices
* shareholder services including researching trades. resolving trade
disputes, etc.
* coordinate the writing, printing and distribution of semi-annual and annual
reports to Contract owners investing in the Designated Portfolios
* create and update Designated Portfolio profiles and other shareholder
communications
* establish scheduled account rebalances
* Web trading and account servicing
* touch-tone telephone trading and account servicing * establish dollar cost
averaging
* communications to Contractowners related to product changes. including but
not limited to changes in the available Designated Portfolios
B. For the foregoing services, Schwab shall receive a monthly fee equal to 0.25%
per annum of the average daily value of the shares of the Designated Portfolios
listed on Schedule B attributable to Contractowners. payable by the Adviser
directly to Schwab, such payments being due and payable within 15 (fifteen) days
after the last day of the month to which such payment relates.
43
<PAGE>
C. The Fund will calculate and Schwab will verify with FGWL&A the asset balance
for each day on which the fee is to be paid pursuant to this Agreement with
respect to each Designated Portfolio.
44
<PAGE>
SCHEDULE D
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the requirements of Section 817(h) and Subchapter M under the Internal
Revenue Code (the "Code") and the regulations thereunder, the Fund shall provide
within twenty (20) Business Days of the close of the calendar quarter a report
to FG\VL&A in the Form Dl attached hereto and incorporated herein by reference,
regarding the status under such sections of the Code of the Designated
Portfolio(s). and if necessary, identification of any remedial action to be
taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the requirements of Subchapter M of the Code. referred to hereinafter as
"RIC status." the Fund will provide the reports on the following basis: (i) the
last quarter's quarterly reports can be supplied within the 20-day period, and
(ii) a year-end report will be provided 45 days after the end of the calendar
year. However, if a problem with regard to RIC status, as defined below, is
identified in the third quarter report, on a weekly basis, starting the first
week of December, additional interim reports will be provided specially
addressing the problems identified in the third quarter report. If any interim
report memorializes the cure of the problem, subsequent interim reports will not
be required.
A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety percent of gross income is derived from sources of
income specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets consists of assets
specified in Section 851 (b)(4)(A); and
45
<PAGE>
(d) No more than twenty-five percent of the value of total assets is
invested in the securities of one issuer. as that requirement is set forth
in Section 851 (b)(4)(B)
46
<PAGE>
FORM Dl
CERTIFICATE OF COMPLIANCE
For the quarter ended:
The Prudential Insurance Company of America (investment adviser) for The
Prudential Series Fund, Inc. hereby notifies you that, based on internal
compliance testing performed as of the end of the calendar quarter ended
________, 19 , the Designated Portfolios were in compliance with all
requirements of Section 817(h) and Subchapter M of the Internal Revenue Code
(the "Code") and the regulations thereunder as required in the Fund
Participation Agreement among First Great-West Life & Annuity Insurance Company,
Charles Schwab & Co., Inc. and ___________ other than the exceptions discussed
below:
Exceptions Remedial Action
- ------------------- ---------------------
- ------------------- ---------------------
If no exception to report, please indicate "None."
Signed this day of________ _____
(Signature)
By:
(Type or Print Name and Title/Position)
<PAGE>
SCHEDULE F
EXPENSES
The Fund and/or the Distributor and/or Adviser. and FQWL&A will coordinate the
functions and pay the costs of the completing these functions based upon an
allocation of costs in the tables below. Costs shall be allocated to reflect the
Fund's share of the total costs determined according to the number of pages of
the Fund's respective portions of the documents.
Item Function Party Responsible Party
for Coordination Responsible for
Expense
~~
Mutual Fund Printing of combined FGWL&A Fund. Distributor
Prospectus prospectuses or Adviser, as
applicable
Fund, Distributor or FGWL&A Fund. Distributor
Adviser shall supply or Adviser. as
FGWL&A with such applicable
numbers of the
Designated
Portfolio(s)
prospectus(es) as
FGWL&A shall
reasonably request
Distribution FGWL&A FGWL&A
(including postage)
to New and Inforce
Clients
Distribution Schwab Schwab
including postage)
to Prospective
{ Clients
Product Prospectus Printing for Inforce FGWL&A FGWL&A
I Clients
Printing for FGWL&A Schwab
Prospective Clients
t
Distribution to New FGWL&A FGWL&A
and Inforce Clients
Distribution to Schwab Schwab
Prospective Clients
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Item Function Party Responsible Party
for Coordination Responsible for
___________________ Expense
Mutual Fund If Required by Fund, Fund, Distributor or Fund Distributor
Prospectus Update & Distributor or Adviser or Adviser
Distribution Adviser
If Required bv FGWL&A FGWL&A
FGWL&A
If Required by Schwab Schwab
Schwab
Product Prospectus If Required by Fund, FGWL&A Fund, Distributor
Update & Distributor or or Adviser
Distribution Adviser
If Required by FGWL&A FGWL&A
____________ FGWL&A
If Required by Schwab Schwab
Schwab
Mutual Fund SAl Printing Fund, Distributor or Fund, Distributor
Adviser or Adviser
Distribution FGWL&A FGWL&A
(including postage)
Product SAl Printing FGWL&A FGWL&A
Distribution FGWL&A FGWL&A
Proxy Material for Printing if proxy Fund, Distributor or Fund, Distributor
Mutual Fund: required by Law Adviser or Adviser
Distribution FGWL&A Fund, Distributor
(including labor) if or Adviser
proxy required by
Law
Printing & FGWL&A FGWL&A
distribution if
required by
FGWL&A
Printing & FGWL&A Schwab
distribution if
required by Schwab
I
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Mutual Fund Annual Printing of combined FGWL&A Fund Distributor
& Semi-Annual reports or Adviser
Report
Distribution FGWL&A FGWL&A and
Schwab
Other communication If Required by the Schwab Fund Distributor
to New and Fund Distributor or or Adviser
Prospective clients Adviser
If Required by Schwab \\ FGWL&A
FGWL&A
If Required by Schwab Schwab
Schwab
Other communication Distribution FGWL&A \\ Fund Distributor
to inforce (including labor and or Adviser
printing) if required
by the Fund,
Distributor or
I,Adviser
Distribution FGWL&A T FGWL&A
(including labor and
printing)if required
L____________ by FGWL&A
Distribution FGWL&A Schwab
(including labor and
printing if required
by Schwab
Errors in Share Price Cost of error to FGWL&A Fund or Adviser
calculation pursuant participants
to Section 1.10
Cost of reasonable FGWL&A Fund or Adviser
expenses related to
administrative work
L to correct error \; __________
Operations of the All operations and Fund, Distributor or Fund or Adviser
</TABLE>
50
<PAGE>
Fund
related expenses. including the cost of registration and
qualification of shares, taxes on the issuance or transfer of
shares, cost of management of the business affairs of the
Fund, and expenses paid or assumed by the find pursuant to
any Rule 12b-l plan
Adviser
Operations of the Federal registration FGWL&A FGWL&A
Account of units of separate
account (24f-2 fees)
51
FUND PARTICIPATION AGREEMENT
THE PRUDENTIAL SERIES FUND, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Sale of Fund Shares..........................................4
ARTICLE II. Representations and Warranties...............................8
ARTICLE III. Prospectuses and Proxy Statements; Voting...................11
ARTICLE IV. Sales Material and Information..............................13
ARTICLE V. Fees and Expenses...........................................16
ARTICLE VI. Diversification and Qualification...........................16
ARTICLE VII. Potential Conflicts and Compliance With
Mixed and Shared Funding Exemptive Order ...................19
ARTICLE VIII. Indemnification ............................................22
ARTICLE IX. Applicable Law..............................................31
ARTICLE X. Termination.................................................32
ARTICLE XI. Notices.....................................................35
ARTICLE XII. Miscellaneous...............................................36
SCHEDULE A Contracts...................................................39
SCHEDULE B Designated Portfolios.......................................40
SCHEDULE C Reports per Section 6.6.....................................41
SCHEDULE D Expenses....................................................43
<PAGE>
PARTICIPATION AGREEMENT
Among
THE OHIO NATIONAL LIFE INSURANCE COMPANY,
THE PRUDENTIAL SERIES FUND, INC.,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
and
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
THIS AGREEMENT, made and entered into as of this 3rd day of January, 2000,
by and among THE OHIO NATIONAL LIFE INSURANCE COMPANY (hereinafter "Ohio
National"), an Ohio life insurance company, on its own behalf and on behalf of
its Ohio National Variable Account A (the "Account"); THE PRUDENTIAL SERIES
FUND, INC., an open-end management investment company organized under the laws
of Maryland (hereinafter the "Fund"); THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA (hereinafter the "Adviser"), a New Jersey mutual insurance company; and
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (hereinafter the "Distributor"), a
Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including Ohio National, which have entered into
participation agreements similar to this Agreement (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
2
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (hereinafter the "SEC"), dated March 5, 1999 (File No.
IC-23728), granting Participating Insurance Companies and variable annuity and
variable life insurance separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
life insurance companies that may or may not be affiliated with one another and
qualified pension and retirement plans ("Qualified Plans") (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, Ohio National has registered certain variable annuity contracts
supported wholly or partially by the Account (the "Contracts") under the 1933
Act and said Contracts are listed in Schedule A attached hereto and incorporated
herein by reference, as such Schedule may be amended from time to time by mutual
written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of Ohio National on
August 1, 1969, under the insurance laws of the State of Ohio, to set aside and
invest assets attributable to the Contracts; and
3
<PAGE>
WHEREAS, Ohio National has registered the Account as a unit investment
trust under the 1940 Act and has registered the securities deemed to be issued
by the Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Ohio National intends to purchase shares in the Portfolio(s) listed
in Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, Ohio
National, the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares.
1.1. The Fund agrees to sell to Ohio National those shares of the
Designated Portfolio(s) which the Account orders, executing such orders on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Designated Portfolios. For
purposes of this Section 1.1, Ohio National shall be the designee of the Fund
for receipt of such orders and receipt by such designee shall constitute receipt
by the Fund, provided that the Fund receives notice of any such order by 9:00
a.m. Eastern time on the next following Business Day. "Business Day" shall mean
any day on which the New York Stock Exchange is open for trading and on which
the Designated Portfolio calculates its net asset value pursuant to the rules of
the SEC.
4
<PAGE>
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by Ohio
National and the Account on those days on which the Fund calculates its
Designated Portfolio(s)' net asset value pursuant to rules of the SEC, and the
Fund shall calculate such net asset value on each day which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Directors of the Fund (hereinafter the "Board") may refuse to sell shares of any
Designated Portfolio to any person, or suspend or terminate the offering of
shares of any Designated Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of its fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Designated Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions the substance of which are the same as Sections 2.1
(except with respect to New Jersey law), 3.5, 3.6, 3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on Ohio National's request, any
full or fractional shares of the Fund held by Ohio National, executing such
requests on each Business Day at the net asset value next computed after receipt
by the Fund or its designee of the request for redemption. Requests for
redemption identified by Ohio National, or its agent, as being in connection
with surrenders, annuitizations, or death benefits under the Contracts, upon
prior written notice, may be executed within seven (7) calendar days after
receipt by the Fund or its designee of the requests for redemption. This Section
1.4 may be amended, in writing, by the parties consistent with the requirements
of the 1940 Act and interpretations thereof. For purposes of this Section 1.4,
Ohio National shall be the designee of the Fund for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such request for redemption by
9:00 a.m. Eastern time on the next following Business Day.
5
<PAGE>
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3) and the cash value of
the Contracts may be invested in other investment companies.
1.6. Ohio National shall pay for Fund shares by 3:00 p.m. Eastern time on
the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to Ohio National or the Account. Shares
purchased from the Fund will be recorded in an appropriate title for the Account
or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to Ohio National of any income, dividends or capital
gain distributions payable on the Designated Portfolio(s)' shares. Ohio National
hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Designated Portfolio shares in additional
shares of that Designated Portfolio. Ohio National reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify Ohio National by the end of the
next following Business Day of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Designated
Portfolio available to Ohio National on each Business Day as soon as reasonably
practical after the net
6
<PAGE>
asset value per share is calculated and shall use its best efforts to make such
net asset value per share available by 6:00 p.m. Eastern time. In the event of
an error in the computation of a Designated Portfolio's net asset value per
share ("NAV") or any dividend or capital gain distribution (each, a "pricing
error"), the Adviser or the Fund shall immediately notify Ohio National as soon
as possible after discovery of the error. Such notification may be verbal, but
shall be confirmed promptly in writing in accordance with Article XI of this
Agreement. A pricing error shall be corrected as follows: (a) if the pricing
error results in a difference between the erroneous NAV and the correct NAV of
less than $0.01 per share, then no corrective action need be taken; (b) if the
pricing error results in a difference between the erroneous NAV and the correct
NAV equal to or greater than $0.01 per share, but less than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the Adviser shall
reimburse the Designated Portfolio for any loss, after taking into consideration
any positive effect of such error; however, no adjustments to Contractowner
accounts need be made; and (c) if the pricing error results in a difference
between the erroneous NAV and the correct NAV equal to or greater than 1/2 of 1%
of the Designated Portfolio's NAV at the time of the error, then the Adviser
shall reimburse the Designated Portfolio for any loss (without taking into
consideration any positive effect of such error) and shall reimburse Ohio
National for the costs of adjustments made to correct Contractowner accounts in
accordance with the provisions of Schedule D. If an adjustment is necessary to
correct a material error which has caused Contractowners to receive less than
the amount to which they are entitled, the number of shares of the applicable
sub-account of such Contractowners will be adjusted and the amount of any
underpayments shall be credited by the Adviser to Ohio National for crediting of
such amounts to the applicable Contractowners accounts. Upon notification by the
Adviser of any overpayment due to a material error, Ohio National shall promptly
remit to Adviser any overpayment that has not been paid to Contractowners. In no
event shall Ohio National be liable to Contractowners for any such adjustments
or underpayment amounts. A pricing error within categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a "material error"
for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the views expressed by the staff of the SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties
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shall amend the foregoing provisions of this Agreement to comport with the
appropriate applicable standards, on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. Ohio National represents and warrants that the Contracts and the
securities deemed to be issued by the Account under the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. Ohio National further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale of units thereof as a segregated asset account
under Section 3907.15, Ohio Revised Code, and has registered the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts and that it will maintain
such registration for so long as any Contracts are outstanding as required by
applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-1
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
requirements of the 1940 Act. To the extent that the Fund decides to finance
distribution
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expenses pursuant to Rule 12b-1, the Fund undertakes to have its Board, a
majority of whom are not interested persons of the Fund, formulate and approve
any plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
expenses.
2.4. The Fund represents and warrants that it will make every effort to
ensure that the investment policies, fees and expenses of the Designated
Portfolio(s) are and shall at all times remain in compliance with the insurance
and other applicable laws of the State of Ohio and any other applicable state to
the extent required to perform this Agreement. The Fund further represents and
warrants that it will make every effort to ensure that Designated Portfolio(s)
shares will be sold in compliance with the insurance laws of the State of Ohio
and all applicable state insurance and securities laws. The Fund shall register
and qualify the shares for sale in accordance with the laws of the various
states if and to the extent required by applicable law. Ohio National and the
Fund will endeavor to mutually cooperate with respect to the implementation of
any modifications necessitated by any change in state insurance laws,
regulations or interpretations of the foregoing that affect the Designated
Portfolio(s) (a "Law Change"), and to keep each other informed of any Law Change
that becomes known to either party. In the event of a Law Change, the Fund
agrees that, except in those circumstances where the Fund has advised Ohio
National that its Board of Directors has determined that implementation of a
particular Law Change is not in the best interest of all of the Fund's
shareholders with an explanation regarding why such action is lawful, any action
required by a Law Change will be taken.
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act.
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with any applicable state and federal securities laws.
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2.7. The Distributor represents and warrants that it is and shall remain
duly registered under all applicable federal and state securities laws and that
it shall perform its obligations for the Fund in compliance in all material
respects with the laws of any applicable state and federal securities laws.
2.8. The Fund and the Adviser represent and warrant that all of their
respective officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are, and shall
continue to be at all times, covered by one or more blanket fidelity bonds or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bonds shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
2.9. The Fund will provide Ohio National with as much advance notice as is
reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in the
registration statement or prospectus affecting the Designated Portfolio(s)) and
any proxy solicitation affecting the Designated Portfolio(s) and consult with
Ohio National in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectus
for the Contracts. The Fund agrees to share equitably in expenses incurred by
Ohio National as a result of actions taken by the Fund, consistent with the
allocation of expenses contained in Schedule D attached hereto and incorporated
herein by reference.
2.10. Ohio National represents and warrants, for purposes other than
diversification under Section 817 of the Internal Revenue Code of 1986 as
amended ("the Code"), that the Contracts are currently and at the time of
issuance will be treated as annuity contracts under applicable provisions of the
Code, and that it will make every effort to maintain such treatment and that it
will notify the Fund, the Distributor and the Adviser immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future. In addition, Ohio National
represents and warrants that the
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Account is a "segregated asset account" and that interests in the Account are
offered exclusively through the purchase of or transfer into a "variable
contract" within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Ohio National will use every effort to continue to meet
such definitional requirements, and it will notify the Fund, the Distributor and
the Adviser immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
Ohio National represents and warrants that it will not purchase Fund shares with
assets derived from tax-qualified retirement plans except, indirectly, through
Contracts purchased in connection with such plans.
ARTICLE III. Prospectuses and Proxy Statements; Voting.
3.1. At least annually, the Adviser or Distributor shall provide Ohio
National with as many copies of the Fund's current prospectus for the Designated
Portfolio(s) as Ohio National may reasonably request for marketing purposes
(including distribution to Contractowners with respect to new sales of a
Contract), with expenses to be borne in accordance with Schedule D hereof. If
requested by Ohio National in lieu thereof, the Adviser, Distributor or Fund
shall provide such documentation (including a camera-ready copy and computer
diskette of the current prospectus for the Designated Portfolio(s)) and other
assistance as is reasonably necessary in order for Ohio National once each year
(or more frequently if the prospectuses for the Designated Portfolio(s) are
amended) to have the prospectus for the Contracts and the Fund's prospectus for
the Designated Portfolio(s) printed together in one document. The Fund and
Adviser agree that the prospectus (and semi-annual and annual reports) for the
Designated Portfolio(s) will describe only the Designated Portfolio(s) and will
not name or describe any other portfolios or series that may be in the Fund
unless required by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contractowners, then the Fund, Distributor and/or the Adviser shall provide Ohio
National with copies of the Fund's SAI or documentation thereof for the
Designated Portfolio(s) in such quantities, with expenses to be borne in
accordance with Schedule D hereof, as Ohio National may reasonably require to
permit
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timely distribution thereof to Contractowners. The Adviser, Distributor and/or
the Fund shall also provide SAIs to any Contractowner or prospective owner who
requests such SAI from the Fund (although it is anticipated that such requests
will be made to Ohio National).
3.3. The Fund, Distributor and/or Adviser shall provide Ohio National with
copies of the Fund's proxy material, reports to stockholders and other
communications to stockholders for the Designated Portfolio(s) in such quantity,
with expenses to be borne in accordance with Schedule D hereof, as Ohio National
may reasonably require to permit timely distribution thereof to Contractowners.
3.4. It is understood and agreed that, except with respect to information
regarding Ohio National provided in writing by that party, Ohio National shall
not be responsible for the content of the prospectus or SAI for the Designated
Portfolio(s). It is also understood and agreed that, except with respect to
information regarding the Fund, the Distributor, the Adviser or the Designated
Portfolio(s) provided in writing by the Fund, the Distributor or the Adviser,
neither the Fund, the Distributor nor Adviser are responsible for the content of
the prospectus or SAI for the Contracts.
3.5. If and to the extent required by law Ohio National shall:
(i) solicit voting instructions from Contractowners;
(ii) vote the Designated Portfolio(s) shares held in the Account in
accordance with instructions received from Contractowners: and
(iii) vote Designated Portfolio shares held in the Account for which
no instructions have been received in the same proportion as
Designated Portfolio(s) shares for which instructions have been
received from Contractowners, so long as and to the extent that
the SEC continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. Ohio
National reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law.
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3.6. Ohio National shall be responsible for assuring that each of its
separate accounts holding shares of a Designated Portfolio calculates voting
privileges as directed by the Fund and agreed to by Ohio National and the Fund.
The Fund agrees to promptly notify Ohio National of any changes of
interpretations or amendments of the Mixed and Shared Funding Exemptive Order.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the SEC may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information.
4.1. Ohio National shall furnish, or shall cause to be furnished, to the
Fund or its designee, a copy of each piece of sales literature or other
promotional material that Ohio National develops or proposes to use and in which
the Fund (or a Portfolio thereof), its Adviser or one of its sub-advisers or the
Distributor is named in connection with the Contracts, at least ten (10)
Business Days prior to its use. No such material shall be used if the Fund
objects to such use within five (5) Business Days after receipt of such
material.
4.2. Ohio National shall not give any information or make any
representations or statements on behalf of the Fund in connection with the sale
of the Contracts other than the information or representations contained in the
registration statement, including the prospectus or SAI for the Fund shares, as
the same may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by the Fund, Distributor or
Adviser, except with the permission of the Fund, Distributor or Adviser.
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4.3. The Fund or the Adviser shall furnish, or shall cause to be furnished,
to Ohio National, a copy of each piece of sales literature or other promotional
material in which Ohio National and/or its separate account(s) is named at least
ten (10) Business Days prior to its use. No such material shall be used if Ohio
National objects to such use within five (5) Business Days after receipt of such
material.
4.4. The Fund, the Distributor and the Adviser shall not give any
information or make any representations on behalf of Ohio National or concerning
Ohio National, the Account, or the Contracts other than the information or
representations contained in a registration statement, including the prospectus
or SAI for the Contracts, as the same may be amended or supplemented from time
to time, or in sales literature or other promotional material approved by Ohio
National or its designee, except with the permission of Ohio National.
4.5. The Fund will provide to Ohio National at least one complete copy of
all registration statements, prospectuses, SAIs, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Designated
Portfolio(s) within a reasonable period of time following the filing of such
document(s) with the SEC or NASD or other regulatory authorities.
4.6. Ohio National will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the SEC, NASD, or
other regulatory authority.
4.7. For purposes of Articles IV and VIII, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media; e.g.,
on-line networks such as the Internet or other electronic media), sales
literature (i.e., any
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written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and shareholder reports, and proxy materials (including
solicitations for voting instructions) and any other material constituting sales
literature or advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
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ARTICLE V. Fees and Expenses
5.1. The Fund and the Adviser shall pay no fee or other compensation to
Ohio National under this Agreement, and Ohio National shall pay no fee or other
compensation to the Fund or Adviser under this Agreement, although the parties
hereto will bear certain expenses in accordance with Schedule D, Articles III,
V, and other provisions of this Agreement.
5.2. All expenses incident to performance by the Fund, the Distributor and
the Adviser under this Agreement shall be paid by the appropriate party, as
further provided in Schedule D. The Fund shall see to it that all shares of the
Designated Portfolio(s) are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent required, in accordance
with applicable state laws prior to their sale.
5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to owners of Contracts offered by Ohio
National, in accordance with Schedule D.
ARTICLE VI. Diversification and Qualification.
6.1. The Fund, the Distributor and the Adviser represent and warrant that
the Fund will at all times sell its shares and invest its assets in such a
manner as to ensure that the Contracts will be treated as annuity contracts
under the Code, and the regulations issued thereunder. Without limiting the
scope of the foregoing, the Fund, Distributor and Adviser represent and warrant
that the Fund and each Designated Portfolio thereof will at all times comply
with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended
from time to time, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications or successor provisions to
such Section or Regulations. The Fund, the Distributor and the Adviser agree
that shares of the Designated Portfolio(s) will be sold only to Participating
Insurance Companies and their separate accounts and to Qualified Plans.
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<PAGE>
6.2. No shares of any Designated Portfolio of the Fund will be sold to the
general public.
6.3. The Fund, the Distributor and the Adviser represent and warrant that
the Fund and each Designated Portfolio is currently qualified as a Regulated
Investment Company under Subchapter M of the Code, and that each Designated
Portfolio will maintain such qualification (under Subchapter M or any successor
or similar provisions) as long as this Agreement is in effect.
6.4. The Fund, Distributor or Adviser will notify Ohio National immediately
upon having a reasonable basis for believing that the Fund or any Designated
Portfolio has ceased to comply with the aforesaid Section 817(h) diversification
or Subchapter M qualification requirements or might not so comply in the future.
6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4
hereof and without in any way limiting or restricting any other remedies
available to Ohio National, the Adviser or Distributor will pay all costs
associated with or arising out of any failure, or any anticipated or reasonably
foreseeable failure, of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable
and appropriate corrections or responses to any such failure; such costs may
include, but are not limited to, the costs involved in creating, organizing, and
registering a new investment company as a funding medium for the Contracts
and/or the costs of obtaining whatever regulatory authorizations are required to
substitute shares of another investment company for those of the failed
Portfolio (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act).
6.6. The Fund at the Fund's expense shall provide Ohio National or its
designee with reports certifying compliance with the aforesaid Section 817(h)
diversification and Subchapter M qualification requirements, at the times
provided for and substantially in the form attached hereto as Schedule C and
incorporated herein by reference; provided, however, that providing such reports
does not relieve the Fund of its responsibility for such compliance or of its
liability for any non-compliance.
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6.7. Ohio National agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of Ohio
National or, to Ohio National's knowledge, of any Contractowner that any
Designated Portfolio has failed to comply with the diversification requirements
of Section 817(h) of the Code or Ohio National otherwise becomes aware of any
facts that could give rise to any claim against the Fund, Distributor or Adviser
as a result of such a failure or alleged failure:
(a) Ohio National shall promptly notify the Fund, the Distributor and
the Adviser of such assertion or potential claim;
(b) Ohio National shall consult with the Fund, the Distributor and the
Adviser as to how to minimize any liability that may arise as a result
of such failure or alleged failure;
(c) Ohio National shall use its best efforts to minimize any liability
of the Fund, the Distributor and the Adviser resulting from such
failure, including, without limitation, demonstrating, pursuant to
Treasury Regulations, Section 1.817-5(a)(2), to the commissioner of
the IRS that such failure was inadvertent;
(d) any written materials to be submitted by Ohio National to the IRS,
any Contractowner or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any
such materials to be submitted to the IRS pursuant to Treasury
Regulations, Section 1.817-5(a)(2)) shall be provided by Ohio National
to the Fund, the Distributor and the Adviser (together with any
supporting information or analysis) within at least two (2) business
days prior to submission;
(e) Ohio National shall provide the Fund, the Distributor and the
Adviser with such cooperation as the Fund, the Distributor and the
Adviser shall reasonably request (including, without limitation, by
permitting the Fund, the Distributor and the Adviser to review the
relevant books and records of Ohio National) in order to facilitate
review by the Fund, the Distributor and the Adviser of any written
submissions provided to it or its
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assessment of the validity or amount of any claim against it arising
from such failure or alleged failure;
(f) Ohio National shall not with respect to any claim of the IRS or
any Contractowner that would give rise to a claim against the Fund,
the Distributor and the Adviser (i) compromise or settle any claim,
(ii) accept any adjustment on audit, or (iii) forego any allowable
administrative or judicial appeals, without the express written
consent of the Fund, the Distributor and the Adviser, which shall not
be unreasonably withheld; provided that, Ohio National shall not be
required to appeal any adverse judicial decision unless the Fund and
the Adviser shall have provided an opinion of independent counsel to
the effect that a reasonable basis exists for taking such appeal; and
further provided that the Fund, the Distributor and the Adviser shall
bear the costs and expenses, including reasonable attorney's fees,
incurred by Ohio National in complying with this clause (f).
ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding
Exemptive Order
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Designated Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners or by contract owners of different Participating Insurance
Companies; or (f) a decision by a Participating Insurance Company to disregard
the voting instructions of contract owners. The Board shall promptly inform Ohio
National if it determines that an irreconcilable material conflict exists and
the implications thereof.
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7.2. Ohio National will report any potential or existing conflicts of which
it is aware to the Board. Ohio National will assist the Board in carrying out
its responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by Ohio National to inform the Board whenever contract owner voting instructions
are to be disregarded. Such responsibilities shall be carried out by Ohio
National with a view only to the interests of its Contractowners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Distributor, the
Adviser or any sub-adviser to any of the Designated Portfolios (the "Independent
Directors"), that a material irreconcilable conflict exists, Ohio National and
other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the Independent
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Designated Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
Ohio National to disregard Contractowner voting instructions and that decision
represents a minority position or would preclude a majority vote, Ohio National
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement; provided, however that such withdrawal
and termination shall be limited to the extent required by the foregoing
material irreconcilable conflict as determined by a majority of the Independent
Directors. Any such withdrawal and termination must take place within six (6)
months after the
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Fund gives written notice that this provision is being implemented, and until
the end of that six month period the Adviser, the Distributor and the Fund shall
continue to accept and implement orders by Ohio National for the purchase (and
redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Ohio National conflicts with
the majority of other state regulators, then Ohio National will withdraw the
Account's investment in the Fund and terminate this Agreement within six months
after the Board informs Ohio National in writing that it has determined that
such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Until the end of the
foregoing six month period, the Fund shall continue to accept and implement
orders by Ohio National for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
Ohio National shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contractowners affected by the irreconcilable material conflict. In
the event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then Ohio National will withdraw
the Account's investment in the Fund and terminate this Agreement within six (6)
months after the Board informs Ohio National in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the
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Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable: and (b) Sections 3.5, 3.6,
3.7, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By Ohio National
8.1(a). Ohio National agrees to indemnify and hold harmless the Fund, the
Distributor and the Adviser and each of their respective officers and directors
or trustees and each person, if any, who controls the Fund, Distributor or
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages and liabilities (including amounts paid in
settlement with the written consent of Ohio National) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages or liabilities (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus or SAI covering the
Contracts or contained in the Contracts or sales literature or
other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to Ohio National by or on behalf
of the Adviser, Distributor or Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or
sales literature or other promotional material (or any amendment
or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
22
<PAGE>
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature or other
promotional material of the Fund not supplied by Ohio National or
persons under its control) or wrongful conduct of Ohio National
or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI, or sales literature or other promotional
material of the Fund, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, if such a statement or
omission was made in reliance upon information furnished in
writing to the Fund by or on behalf of Ohio National; or
(iv) arise as a result of any failure by Ohio National to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Ohio National in this
Agreement or arise out of or result from any other material
breach of this Agreement by Ohio National, including without
limitation Section 2.10 and Section 6.7 hereof,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). Ohio National shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.1(c). Ohio National shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Ohio National in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Ohio National of
any such claim shall not relieve Ohio National from any liability which it may
have to the Indemnified Party against whom such action
23
<PAGE>
is brought otherwise than on account of this indemnification provision, except
to the extent that Ohio National has been prejudiced by such failure to give
notice. In case any such action is brought against the Indemnified Parties, Ohio
National shall be entitled to participate, at its own expense, in the defense of
such action. Ohio National also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
Ohio National to such party of Ohio National's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Ohio National will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify Ohio National of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Adviser.
8.2(a). The Adviser agrees to indemnify and hold harmless Ohio National and
its directors and officers and each person, if any, who controls Ohio National
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of the Adviser) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature
or other promotional material of the Fund prepared by the Fund,
the Distributor or the Adviser (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make
24
<PAGE>
the statements therein not misleading, provided that this
Agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished in writing to the Adviser, the Distributor
or the Fund by or on behalf of Ohio National for use in the
registration statement, prospectus or SAI for the Fund or in
sales literature or other promotional material (or any amendment
or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or the Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature or
other promotional material for the Contracts not supplied by the
Adviser or persons under its control) or wrongful conduct of the
Fund, the Distributor or the Adviser or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI, or sales literature or other promotional
material covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished in writing to Ohio National by or on
behalf of the Adviser, the Distributor or the Fund; or
(iv) arise as a result of any failure by the Fund, the Distributor or
the Adviser to provide the services and furnish the materials
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund, the Distributor
or the Adviser in this Agreement or arise out of or result from
any other material breach of this Agreement by the Adviser, the
Distributor or the Fund; or
(vi) arise out of or result from the incorrect or untimely calculation
or reporting by the Fund, the Distributor or the Adviser of the
daily net asset value per share (subject to Section 1.10 of this
Agreement) or dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
25
<PAGE>
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.2(d). Ohio National agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Fund.
26
<PAGE>
8.3(a). The Fund agrees to indemnify and hold harmless Ohio National and
its directors and officers and each person, if any, who controls Ohio National
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.3) against any and all losses, claims,
expenses, damages and liabilities (including amounts paid in settlement with the
written consent of the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may be required to pay or become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely
calculation or reporting of the daily net asset value per share
(subject to Section 1.10 of this Agreement) or dividend or
capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving
27
<PAGE>
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve it from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision, except to the extent that the Fund has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund shall also be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). Ohio National agrees promptly to notify the Fund of the
commencement of any litigation or proceeding against itself or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
28
<PAGE>
8.4. Indemnification by the Distributor.
8.4(a). The Distributor agrees to indemnify and hold harmless Ohio National
and its directors and officers and each person, if any, who controls Ohio
National within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.4) against any and all
losses, claims, expenses, damages and liabilities (including amounts paid in
settlement with the written consent of the Distributor) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales literature
or other promotional material of the Fund prepared by the Fund,
Adviser or Distributor (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to the
Adviser, the Distributor or Fund by or on behalf of Ohio National
for use in the registration statement or SAI or prospectus for
the Fund or in sales literature or other promotional material (or
any amendment or supplement to any of the foregoing) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI, sales literature or
other promotional material for the Contracts not supplied by the
Distributor or persons under its control) or wrongful conduct of
the Fund, the Distributor or Adviser or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, SAI, sales literature or other promotional material
covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon
29
<PAGE>
information furnished in writing to Ohio National by or on behalf
of the Adviser, the Distributor or Fund; or
(iv) arise as a result of any failure by the Fund, Adviser or
Distributor to provide the services and furnish the materials
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification and other qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund, Adviser or
Distributor in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund, Adviser or
Distributor; or
(vi) arise out of or result from the incorrect or untimely calculation
or reporting of the daily net asset value per share (subject to
Section 1.10 of this Agreement) or dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections 8.4(b) and
8.4(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Distributor specified in Article VI
hereof.
8.4(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
any of the Indemnified Parties.
8.4(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Distributor of
any such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision, except to the
30
<PAGE>
extent that the Distributor has been prejudiced by such failure to give notice.
In case any such action is brought against the Indemnified Parties, the
Distributor will be entitled to participate, at its own expense, in the defense
thereof. The Distributor also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
the Distributor to such party of the Distributor's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Distributor will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.4(d) Ohio National agrees to promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE IX. Applicable Law.
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New Jersey,
without regard to the New Jersey Conflict of Laws provisions.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
31
<PAGE>
ARTICLE X. Termination .
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with respect to
some or all Designated Portfolios, upon six (6) months advance written
notice delivered to the other parties; provided, however, that such
notice shall not be given earlier than six (6) months following the
date of this Agreement; or
(b) at the option of Ohio National by written notice to the other
parties with respect to any Designated Portfolio based upon Ohio
National's determination that shares of such Designated Portfolio are
not reasonably available to meet the requirements of the Contracts; or
(c) at the option of Ohio National by written notice to the other
parties with respect to any Designated Portfolio in the event any of
the Designated Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment media of
the Contracts issued or to be issued by Ohio National; or
(d) at the option of the Fund, Distributor or Adviser in the event
that formal administrative proceedings are instituted against Ohio
National by the NASD, the SEC, the Insurance Commissioner or like
official of any state or any other regulatory body regarding Ohio
National's duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the Fund
shares, if, in each case, the Fund, Distributor or Adviser, as the
case may be, reasonably determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of Ohio National to perform
its obligations under this Agreement; or
(e) at the option of Ohio National in the event that formal
administrative proceedings are instituted against the Fund, the
Distributor or the Adviser by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body, if
Ohio National reasonably determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Fund, the Distributor
or the Adviser to perform their obligations under this Agreement; or
(f) at the option of Ohio National by written notice to the Fund with
respect to any Designated Portfolio if Ohio National reasonably
believes that the Designated Portfolio will fail to meet the Section
817(h) diversification requirements or Subchapter M qualifications
specified in Article VI hereof; or
(g) at the option of either the Fund, the Distributor or the Adviser,
if (i) the Fund, Distributor or Adviser, respectively, shall
determine, in its sole judgment
32
<PAGE>
reasonably exercised in good faith, that Ohio National has suffered a
material adverse change in its business or financial condition or is
the subject of material adverse publicity and that material adverse
change or publicity will have a material adverse impact on Ohio
National's ability to perform its obligations under this Agreement,
(ii) the Fund, Distributor or Adviser notifies Ohio National of that
determination and its intent to terminate this Agreement, and (iii)
after considering the actions taken by Ohio National and any other
changes in circumstances since the giving of such a notice, the
determination of the Fund, Distributor or Adviser shall continue to
apply on the sixtieth (60th) day following the giving of that notice,
which sixtieth day shall be the effective date of termination; or
(h) at the option of Ohio National, if (i) Ohio National shall
determine, in its sole judgment reasonably exercised in good faith,
that the Fund, Distributor or Adviser has suffered a material adverse
change in its business or financial condition or is the subject of
material adverse publicity and that material adverse change or
publicity will have a material adverse impact on the Fund's,
Distributor's or Adviser's ability to perform its obligations under
this Agreement, (ii) Ohio National notifies the Fund, Distributor or
Adviser, as appropriate, of that determination and its intent to
terminate this Agreement, and (iii) after considering the actions
taken by the Fund, Distributor or Adviser and any other changes in
circumstances since the giving of such a notice, the determination of
Ohio National shall continue to apply on the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall be the
effective date of termination; or
(i) at the option of any non-defaulting party hereto in the event of a
material breach of this Agreement by any party hereto (the "defaulting
party") other than as described in Section 10.1(a)-(j); provided, that
the non-defaulting party gives written notice thereof to the
defaulting party, with copies of such notice to all other
non-defaulting parties, and if such breach shall not have been
remedied within thirty (30) days after such written notice is given,
then the non-defaulting party giving such written notice may terminate
this Agreement by giving thirty (30) days written notice of
termination to the defaulting party; or
(j) at any time upon written agreement of all parties to this
Agreement.
10.2. Notice Requirement.
No termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties of
its intent to terminate, which notice shall set forth the basis for the
termination. Furthermore,
33
<PAGE>
(a) in the event any termination is based upon the provisions of
Article VII, or the provisions of Section 10.1(a), 10.1(g) or 10.1(h)
of this Agreement, the prior written notice shall be given in advance
of the effective date of termination as required by those provisions
unless such notice period is shortened by mutual written agreement of
the parties; (b) in the event any termination is based upon the
provisions of Section 10.1(d), 10.1(e) or 10.1(i) of this Agreement,
the prior written notice shall be given at least sixty (60) days
before the effective date of termination; and (c) in the event any
termination is based upon the provisions of Section 10.1(b), 10.1(c)
or 10.1(f), the prior written notice shall be given in advance of the
effective date of termination, which date shall be determined by the
party sending the notice.
10.3. Effect of Termination.
Notwithstanding any termination of this Agreement, other than as a result of a
failure by either the Fund or Ohio National to meet Section 817(h) of the Code
diversification requirements, the Fund, the Distributor and the Adviser shall,
at the option of Ohio National, continue to make available additional shares of
the Designated Portfolio(s) pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
reallocate investments in the Designated Portfolio(s), redeem investments in the
Designated Portfolio(s) and/or invest in the Designated Portfolio(s) upon the
making of additional purchase payments under the Existing Contracts. The parties
agree that this Section 10.3 shall not apply to any terminations under Article
VII and the effect of such Article VII terminations shall be governed by Article
VII of this Agreement.
10.4. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all
34
<PAGE>
provisions of this Agreement shall also survive and not be affected by any
termination of this Agreement.
ARTICLE XI. Notices.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Fund:
The Prudential Series Fund, Inc.
Gateway Center Three
100 Mulberry Street, 4th Floor
Newark, NJ 07102-4077 Attention: Secretary
If to the Adviser:
The Prudential Insurance Company of America
751 Broad Street, 21st Floor
Newark, NJ 07102
Attention: Secretary
If to the Distributor:
Prudential Investment Management Services LLC
Gateway Center Three
100 Mulberry Street, 14th Floor
Newark, NJ 07102-4077
Attention: Secretary
If to Ohio National:
The Ohio National Life Insurance Company
One Financial Way
Cincinnati, Ohio 45242
Attention: Secretary
35
<PAGE>
ARTICLE XII. Miscellaneous.
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information that another party has designated as proprietary.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Ohio Superintendent of Insurance with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of Ohio National are being conducted in a manner consistent with the
Ohio Variable Annuity Regulations and any other applicable law or regulations.
36
<PAGE>
12.6. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in a forum jointly
selected by the relevant parties (but if applicable law requires some other
forum, then such other forum) in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9. Ohio National agrees that the obligations assumed by the Fund,
Distributor and the Adviser pursuant to this Agreement shall be limited in any
case to the Fund, Distributor and Adviser and their respective assets and Ohio
National shall not seek satisfaction of any such obligation from the
shareholders of the Fund, Distributor or the Adviser, the Directors, officers,
employees or agents of the Fund, Distributor or Adviser, or any of them.
12.10. The Fund, the Distributor and the Adviser agree that the obligations
assumed by Ohio National pursuant to this Agreement shall be limited in any case
to Ohio National and its assets and neither the Fund, Distributor nor Adviser
shall seek satisfaction of any such obligation from the shareholders of Ohio
National, the directors, officers, employees or agents of the Ohio National, or
any of them.
12.11. No provision of this Agreement may be deemed or construed to modify
or supersede any contractual rights, duties, or indemnifications, as between the
Adviser and the Fund, and the Distributor and the Fund.
37
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
THE OHIO NATIONAL LIFE INSURANCE COMPANY
By its authorized officer,
By:______________________________
Title:
Date:
THE PRUDENTIAL SERIES FUND, INC.
By its authorized officer,
By:______________________________
Title:
Date:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By its authorized officer,
By:____________________________
Title:
Date:
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
By its authorized officer,
By:____________________________
Title:
Date:
38
<PAGE>
SCHEDULE A
Contracts
ONcore Flex variable annuity
ONcore Premier variable annuity
ONcore Value variable annuity
ONcore Xtra variable annuity
39
<PAGE>
SCHEDULE B
Designated Portfolios
Prudential Series Fund, Inc.--Prudential Jennison Portfolio
Prudential Series Fund, Inc.--20/20 Focus Portfolio
40
<PAGE>
SCHEDULE C
Reports per Section 6.6
With regard to the reports relating to the quarterly testing of compliance
with the requirements of Section 817(h) and Subchapter M under the Internal
Revenue Code (the "Code") and the regulations thereunder, the Fund shall provide
within twenty (20) Business Days of the close of the calendar quarter a report
to Ohio National in the Form attached hereto and incorporated herein by
reference, regarding the status under such sections of the Code of the
Designated Portfolio(s), and if necessary, identification of any remedial action
to be taken to remedy non-compliance.
With regard to the reports relating to the year-end testing of compliance
with the requirements of Subchapter M of the Code, referred to hereinafter as
"RIC status," the Fund will provide the reports on the following basis: (i) the
last quarter's quarterly reports can be supplied within the 20-day period, and
(ii) a year-end report will be provided 45 days after the end of the calendar
year.
A problem with regard to RIC status is defined as any violation of the
following standards, as referenced to the applicable sections of the Code:
(a) Less than ninety percent of gross income is derived from sources
of income specified in Section 851(b)(2);
(b) Thirty percent or greater gross income is derived from the sale or
disposition of assets specified in Section 851(b)(3);
(c) Less than fifty percent of the value of total assets consists of
assets specified in Section 851(b)(4)(A); and
(d) No more than twenty-five percent of the value of total assets is
invested in the securities of one issuer, as that requirement is set
forth in Section 851(b)(4)(B).
41
<PAGE>
CERTIFICATE OF COMPLIANCE
For the quarter ended: ____________________
The Prudential Insurance Company of America (investment adviser) for The
Prudential Series Fund, Inc. hereby notifies you that, based on internal
compliance testing performed as of the end of the calendar quarter ended
________, ____, the Designated Portfolios were in compliance with all
requirements of Section 817(h) and Subchapter M of the Internal Revenue Code
(the "Code") and the regulations thereunder as required in the Fund
Participation Agreement among The Ohio National Life Insurance Company, The
Prudential Series Fund, Inc., The Prudential Insurance Company of America and
Prudential Investment Management Services LLC, other than the exceptions
discussed below:
Exceptions Remedial Action
- ---------- ---------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
- ---------------------------------- ---------------------------------------
If no exception to report, please indicate "None."
Signed this ________________ day of ________, ________.
_________________________________________
(Signature)
By:______________________________________
(Type or Print Name and Title/Position)
<PAGE>
SCHEDULE D
EXPENSES
The Fund and/or the Distributor and/or Adviser, and Ohio National will
coordinate the functions and pay the costs of the completing these functions
based upon an allocation of costs in the tables below. Costs shall be allocated
to reflect the Fund's share of the total costs determined according to the
number of pages of the Fund's respective portions of the documents.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PARTY RESPONSIBLE FOR PARTY RESPONSIBLE
ITEM FUNCTION COORDINATION FOR EXPENSE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Fund Prospectus Printing of combined Ohio National Ohio National
prospectuses
- -----------------------------------------------------------------------------------------------------------
Fund, Distributor or Ohio National Fund, Distributor or
Adviser shall supply Ohio Adviser, as
National with such applicable
numbers of the Designated
Portfolio(s)
prospectus(es) as Ohio
National shall reasonably
request
- -----------------------------------------------------------------------------------------------------------
Distribution (including Ohio National Ohio National
postage) to New and
Inforce Clients
- -----------------------------------------------------------------------------------------------------------
Distribution (including Ohio National Ohio National
postage) to Prospective
Clients
- --------------------------------------------------------- -------------------------------------------------
Product Prospectus Printing and Distribution Ohio National Ohio National
for Inforce and
Prospective Clients
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PARTY RESPONSIBLE FOR PARTY RESPONSIBLE
ITEM FUNCTION COORDINATION FOR EXPENSE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mutual Fund Prospectus If Required by Fund, Fund, Distributor or Fund, Distributor or
Update & Distribution Distributor or Adviser Adviser Adviser
- ------------------------------------------------------------------------------------------------------------
If Required by Ohio Ohio National Ohio National
National
- ------------------------------------------------------------------------------------------------------------
Product Prospectus Update & If Required by Fund, Ohio National Fund, Distributor or
Distribution Distributor or Adviser Adviser
- ------------------------------------------------------------------------------------------------------------
If Required by Ohio Ohio National Ohio National
National
- ------------------------------------------------------------------------------------------------------------
Mutual Fund SAI Printing Fund, Distributor or Fund, Distributor or
Adviser Adviser
- ------------------------------------------------------------------------------------------------------------
Distribution (including Ohio National Ohio National
postage)
- ------------------------------------------------------------------------------------------------------------
Product SAI Printing Ohio National Ohio National
- ------------------------------------------------------------------------------------------------------------
Distribution Ohio National Ohio National
- ------------------------------------------------------------------------------------------------------------
Proxy Material for Mutual Printing if proxy Fund, Distributor or Fund, Distributor or
Fund: required by Law Adviser Adviser
- ------------------------------------------------------------------------------------------------------------
Distribution (including Ohio National Fund, Distributor or
labor) if proxy required Adviser
by Law
- ------------------------------------------------------------------------------------------------------------
Printing & distribution Ohio National Ohio National
if required by Ohio
National
- -----------------------------------------------------------------------------------------------------------
Mutual Fund Annual & Printing of combined Ohio National Fund, Distributor or
Semi-Annual Report reports Adviser
- -----------------------------------------------------------------------------------------------------------
Distribution Ohio National Ohio National
- -----------------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PARTY RESPONSIBLE FOR PARTY RESPONSIBLE
ITEM FUNCTION COORDINATION FOR EXPENSE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other communication to New If Required by the Fund, Ohio National Fund, Distributor or
and Prospective clients Distributor or Adviser Adviser
- ------------------------------------------------------------------------------------------------------------
If Required by Ohio Ohio National Ohio National
National
- ------------------------------------------------------------------------------------------------------------
Other communication to Distribution (including Ohio National Fund, Distributor or
inforce labor and printing) if Adviser
required by the Fund,
Distributor or Adviser
- ------------------------------------------------------------------------------------------------------------
Distribution (including Ohio National Ohio National
labor and printing)if
required by Ohio National
- ------------------------------------------------------------------------------------------------------------
Errors in Share Price Cost of error to Ohio National Fund or Adviser
calculation pursuant to participants
Section 1.10
- ------------------------------------------------------------------------------------------------------------
Cost of reasonable Ohio National Fund or Adviser
expenses related to
administrative work to
correct error
- ------------------------------------------------------------------------------------------------------------
Operations of the Fund All operations and Fund, Distributor or Fund or Adviser
related expenses, Adviser
including the cost of
registration and
qualification of shares,
taxes on the issuance or
transfer of shares, cost
of management of the
business affairs of the
Fund, and expenses paid
or assumed by the fund
pursuant to any Rule
12b-1 plan
- ------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PARTY RESPONSIBLE FOR PARTY RESPONSIBLE
ITEM FUNCTION COORDINATION FOR EXPENSE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations of the Account Federal registration of Ohio National Ohio National
units of separate account
(24f-2 fees)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
46
PARTICIPATION AGREEMENT
Among
THE OHIO NATIONAL LIFE INSURANCE COMPANY,
THE PRUDENTIAL SERIES FUND, INC.,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
and
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC
THIS AGREEMENT, made and entered into as of this 3rd day of January, 2000,
by and among THE OHIO NATIONAL LIFE INSURANCE COMPANY (hereinafter "Ohio
National"), an Ohio life insurance company, on its own behalf and on behalf of
its Ohio National Variable Account A (the "Account"); THE PRUDENTIAL SERIES
FUND, INC., an open-end management investment company organized under the laws
of Maryland (hereinafter the "Fund"); THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA (hereinafter the "Adviser"), a New Jersey mutual insurance company; and
PRUDENTIAL INVESTMENT MANAGEMENT SERVICES LLC (hereinafter the "Distributor"), a
Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies, including Ohio National, which have entered into
participation agreements similar to this Agreement (hereinafter "Participating
Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest in
a particular managed portfolio of securities and other assets; and
2
<PAGE>
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated March 5, 1999 (File No. IC-23728),
granting Participating insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
life insurance companies that may or may not be affiliated with one another and
qualified pension and retirement plans ("Qualified Plans") (hereinafter the
`Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Distributor is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"); and
WHEREAS, Ohio National has registered certain variable annuity contracts
supported wholly or partially by the Account (the "Contracts") under the 1933
Act and said Contracts are listed in Schedule A attached hereto and incorporated
herein by reference, as such Schedule may be amended from time to time by mutual
written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of Ohio
National on August 1, 1969, under the insurance laws of the State of Ohio, to
set aside and invest assets attributable to the Contracts; and
3
<PAGE>
WHEREAS, Ohio National has registered the Account as a unit investment
trust under the 1940 Act and has registered the securities deemed to be issued
by the Account under the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Ohio National intends to purchase shares in the Portfolio(s) listed
in Schedule B attached hereto and incorporated herein by reference, as such
Schedule may be amended from time to time by mutual written agreement (the
"Designated Portfolio(s)"), on behalf of the Account to fund the Contracts, and
the Fund is authorized to sell such shares to unit investment trusts such as the
Account at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, Ohio National,
the Fund, the Distributor and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares.
1.1. The Fund agrees to sell to Ohio National those shares of the
Designated Portfolio(s) which the Account orders, executing such orders on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Designated Portfolios. For
purposes of this Section 1.1, Ohio National shall be the designee of the Fund
for receipt of such orders and receipt by such designee shall constitute receipt
by the Fund, provided that the Fund receives notice of any such order by 9:00
a.m. Eastern time on the next following Business Day. "Business Day" shall mean
any day on which the New York Stock Exchange is open for trading and on which
the Designated Portfolio calculates its net asset value pursuant to the rules of
the SEC.
4
<PAGE>
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by Ohio
National and the Account on those days on which the Fund calculates its
Designated Portfolio(s), net asset value pursuant to rules of the SEC, and the
Fund shall calculate such net asset value on each day which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Directors of the Fund (hereinafter the "Board") may refuse to sell shares of
any Designated Portfolio to any person, or suspend or terminate the offering of
shares of any Designated Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board acting in good faith and in light of its fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Designated Portfolio.
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other Participating Insurance Company separate account unless an agreement
containing provisions the substance of which are the same as Sections 2.1
(except with respect to New Jersey law), 3.5, 3.6, 3.7, and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on Ohio National's request, any
full or fractional shares of the Fund held by Ohio National, executing such
requests on each Business Day at the net asset value next computed after receipt
by the Fund or its designee of the request for redemption. Requests for
redemption identified by Ohio National, or its agent, as being in connection
with surrenders, annuitizations, or death benefits under the Contracts, upon
prior written notice, may be executed within seven (7) calendar days after
receipt by the Fund or its designee of the requests for redemption. This Section
1.4 may be amended, in writing, by the parties consistent with the requirements
of the 1940 Act and interpretations thereof For purposes of this Section 1.4,
Ohio National shall be the designee of the Fund for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of any such request for redemption by
9:00 a.m. Eastern time on the next following Business Day.
5
<PAGE>
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
Participating Insurance Companies (subject to Section 1.3) and the cash value of
the Contracts may be invested in other investment companies.
1.6. Ohio National shall pay for Fund shares by 3:00 p.m. Eastern time on
the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase.
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern Time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Ohio National or the Account.
Shares purchased from the Fund will be recorded in an appropriate title for the
Account or the appropriate sub-account of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to Ohio National of any income, dividends or
capital gain distributions payable on the Designated Portfolio(s)' shares. Ohio
National hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Designated Portfolio shares in additional
shares of that Designated Portfolio. Ohio National reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify Ohio National by the end of the
next following Business Day of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to Ohio National on each Business Day as soon as
reasonably practical after the net
6
<PAGE>
asset value per share is calculated and shall use its best efforts to make such
net asset value per share available by 6:00 p.m. Eastern time. In the event of
an error in the computation of a Designated Portfolio's net asset value per
share ("NAV") or any dividend or capital gain distribution (each, a "pricing
error), the Adviser or the Fund shall immediately notify Ohio National as soon
as possible after discovery of the error. Such notification may be verbal, but
shall be confirmed promptly in writing in accordance with Article XI of this
Agreement. A pricing error shall be corrected as follows: (a) if the pricing
error results in a difference between the erroneous NAV and the correct NAV of
less than $0.01 per share, then no corrective action need be taken; (b) if the
pricing error results in a difference between the erroneous NAV and the correct
NAV equal to or greater than $0.01 per share, but less than 1/2 of 1% of the
Designated Portfolio's NAV at the time of the error, then the Adviser shall
reimburse the Designated Portfolio for any loss, after taking into consideration
any positive effect of such error, however, no adjustments to Contract owner
accounts need be made; and (c) if the pricing error results in a difference
between the erroneous NAV and the correct NAV equal to or greater than 1/2 of 1%
of the Designated Portfolio's NAV at the time of the error, then the Adviser
shall reimburse the Designated Portfolio for any loss (without taking into
consideration any positive effect of such error) and shall reimburse Ohio
National for the costs of adjustments made to correct Contractowner accounts in
accordance with the provisions of Schedule D. If an adjustment is necessary to
correct a material error which has caused Contractowners to receive less than
the amount to which they are entitled, the number of shares of the applicable
sub-account of such Contractowners will be adjusted and the amount of any
underpayments shall be credited by the Adviser to Ohio National for crediting of
such amounts to the applicable Contractowners accounts. Upon notification by the
Adviser of any overpayment due to a material error, Ohio National shall promptly
remit to Adviser any overpayment that has not been paid to Contractowners. In no
event shall Ohio National be liable to Contractowners for any such adjustments
or underpayment amounts. A pricing error within categories (b) or (c) above
shall be deemed to be "materially incorrect" or constitute a "material error"
for purposes of this Agreement.
The standards set forth in this Section 1.10 are based on the Parties'
understanding of the views expressed by the staff of the SEC as of the date of
this Agreement. In the event the views of the SEC staff are later modified or
superseded by SEC or judicial interpretation, the parties
7
<PAGE>
shall amend the foregoing provisions of this Agreement to comport with the
appropriate applicable standards, on terms mutually satisfactory to all Parties.
ARTICLE II. Representations and Warranties
2.1. Ohio National represents and warrants that the Contracts and the
securities deemed to be issued by the Account under the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. Ohio National further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale of units thereof as a segregated asset account
under Section 3907.15, Ohio Revised Code, and has registered the Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts and that it will maintain
such registration for so long as any Contracts are outstanding as required by
applicable law.
2.2. The Fund represents and warrants that Designated Portfolio(s) shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-13
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are in accordance with the
requirements of the 1940 Act. To the extent that the Fund decides to finance
distribution
PROCEDURAL AGREEMENT
AMONG MERRILL LYNCH FUTURES INC.
THE PRUDENTIAL SERIES FUND, INC.
AND INVESTORS FIDUCIARY TRUST COMPANY AND TRUST CO.
WHEREAS the undersigned The Prudential Series Fund, Inc. on behalf of each
of the individual portfolios set forth on Schedule A annexed hereto ("Customer")
has opened a trading account with the undersigned Merrill Lynch Futures Inc.
("Merrill"), a registered futures commission merchant, for the purpose of
trading futures contracts traded on duly registered boards of trade, including
options on such futures contracts ("Contracts") through said firm; and
WHEREAS, in connection with the opening of the trading account, Customer
and Merrill have entered into a Customer Agreement which requires Customer to
deposit as collateral the initial margin (including any additional original
margin requirements for Customer's short option positions) ("Initial Margin")
with respect to each Contract as required by the rules and regulations of the
Chicago Mercantile Exchange, the Chicago Board of Trade, the Commodity
Exchange, and such other exchanges on which Merrill may effect or cause to be
effected transactions as broker for Customer; and
WHEREAS Customer, Merrill, and the undersigned investors Fiduciary Trust
Company ("Custodian") have entered into a Safekeeping Agreement establishing an
account entitled "Merrill Lynch Futures Inc. Customer Funds for the benefit of
The Prudential Series Fund, Inc. on behalf of each of the individual portfolios
set forth on Schedule A annexed hereto (Customer Segregated Account)" pursuant
to which Custodian agrees to maintain a Safekeeping Account for the custody of
the Initial Margin which Customer is required to deposit and maintain; and
WHEREAS the Customer Agreement and the Safekeeping Agreement both provide
that the rights and duties of the parties thereto are subject to the provisions
of this Agreement.
NOW, THEREFORE, IT IS AGREED THAT:
1. Customer shall deposit and maintain as collateral in the Safekeeping
Account such Initial Margin as shall be required from time to time by the
exchange on which transactions are effected or caused to be effected by Merrill
as broker for Customer. Customer may deposit amounts in excess of such
requirements. The designation "Customer Funds" in the account title is intended
to indicate the status of the account under the Commodity Exchange Act and
Commodity Futures Trading Commission regulations; however, the provisions of
this agreement shall be controlling as to the rights of the parties in the
collateral deposited in the account.
<PAGE>
2. The Initial Margin deposited and maintained in the Safekeeping Account,
created pursuant to the Safekeeping Agreement, shall be in form, as Customer
elects, of cash or (valued at the current market value less 50% of the principal
value thereof) or of eligible securities of the U.S. Government (valued at the
current market value less 10% of the principal value thereof) or of a
combination thereof (hereinafter "Eligible Securities"). Customer may substitute
Eligible Securities of equal or greater value upon prior approval by Merrill,
which approval shall not be unreasonably withheld. Upon receipt of such
substitute securities, Merrill agrees to give instructions to Custodian to
release from the Safekeeping Account cash or Eligible Securities of an equal
value, or such lesser amount as may be directed by Customer. Any separate
interest payments thereon shall be automatically credited by Custodian in
Federal funds to such demand deposit accounts designated in instructions from
Customer on the date that such interest becomes due and payable unless notice
has been provided to Custodian pursuant to Paragraph 5(a) below, and such
interest is required to meet additional Variation Margin requirements in
accordance with the procedure provided in Paragraphs 5(a), (b), and (c). Amounts
due on securities which mature or are redeemed will be credited to the
Safekeeping Account in Federal funds on the date such amounts are received.
Amounts due to Customer as a result of the variation in value of Customer's
short option positions shall be credited to Customer by reducing the amount of
the collateral required to be maintained in the Safekeeping Account.
3. With respect to the deposit of Initial Margin, Custodian shall be
directed by Customer's custodian order to segregate specified assets in the
Safekeeping Account, and Custodian shall promptly provide Merrill and Customer
with a written confirmation of each transfer into or out of the Safekeeping
Account.
4. Withdrawals of Initial Margin from the Safekeeping Account shall be
effected upon receipt by the Custodian of Customer's custodian order and
Merrill's verification of such withdrawal. Merrill shall, upon request of the
Customer, inform Customer of the amount of any excess Initial Margin in the
Safekeeping Account.
5. Merrill shall have access to the collateral only in accordance with the
following, and only at such times as conditions set forth hereafter are complied
with:
(a) If notice by Merrill is given to Customer that additional margin is
required by Merrill as broker for the Customer due to variation in the value of
one or more futures contracts held in the trading account or otherwise pursuant
to the Customer Agreement ("Variation Margin"), and such notice is given prior
to 11:30 A.M. New York time on a day on which the Customer is open for business,
which Variation Margin shall first have been satisfied from any amounts
currently credited to the Customer's trading account with Merrill in connection
with which the Variation Margin is required, the Customer
<PAGE>
shall transfer to Merrill such Variation Margin not later than 4:00 P.M. on the
same. If notice by Merrill to the Customer is given of the need for Variation
Margin subsequent to 11:30 A.M. but prior to 4:00 P.M. New York time on a day on
which the Customer is open for business, the Customer shall provide such
Variation Margin to Merrill not later than 11:30 A.M. New York time on the next
succeeding day on which the Customer is open for business. Notice by Merrill to
the Customer of the receipt of Variation Margin shall be given promptly.
(b) If Merrill has not received the requested Variation Margin within
the time period as provided in Paragraph 5(a), notice by Merrill to Customer of
the failure to receive the Variation Margin shall be given immediately.
(c) If Merrill does not receive the Variation Margin in accordance with
Paragraph 5(a), Merrill may give (i) notice to Custodian of the Customer's
failure to provide Variation Margin and the amount of Variation Margin required;
and (ii) notice to the Customer and such notice has been given to Custodian.
Immediately upon receipt by Custodian of such notice but without prejudice to
any rights of Merrill hereunder, Custodian shall give notice to the Customer of
its receipt of such notice.
(d) In the event Customer has failed to transfer the required Variation
Margin to Merrill during the time period as provided in Paragraph 5(a), Merrill
may give notice to Custodian of the Customer's failure to provide Variation
Margin and that all conditions precedent to Merrill's right to direct
disposition hereunder have been satisfied, and may give instructions to
Custodian (i) to transfer Eligible Securities to Merrill, (ii) to sell at the
prevailing market price such of the collateral in the Safekeeping Account
relating to the trading account in which the Variation Margin is required, in
each case as necessary to provide for payment to Merrill of the amount of
Variation Margin that Merrill shall have specified in the notice, or (iii) with
respect to collateral in the form of cash, Merrill may give instructions to
Custodian to immediately transfer cash in the amount of the Variation Margin
that Merrill shall have specified in the notice from such Safekeeping Account to
the account of Merrill. Custodian shall immediately give notice to Customer of
its receipt of such instructions from Merrill and, upon taking any action
pursuant to such instructions, shall immediately give notice to Customer of such
action. Subject to the notice provisions of Paragraph 5 set forth above,
Custodian shall take instructions solely from Merrill with respect to the sale
of securities and/or the transfer of cash to Merrill. In the event that Merrill
receives Eligible Securities pursuant to this Paragraph 5(d), it shall have the
right to sell or otherwise dispose of such securities and shall remit to
Customer any proceeds of such sale or disposition in excess of the amount of
Variation Margin specified in instructions from Merrill to Custodian. Merrill
shall give consideration to any timely request by Customer with respect to
particular securities or other properties to be transferred or sold.
<PAGE>
(e) Custodian shall retain in the Safekeeping Account any collateral in
excess of the amount of Variation Margin specified in instructions from Merrill
to Custodian including any proceeds from the sale of securities in excess of
such amount. Custodian shall give consideration to any timely request by
Customer with respect to particular securities in the principal market for such
securities or, in the event such principal market is closed, sell them in a
manner commercially reasonable for such securities.
6. Merrill shall promptly credit to the trading account of Customer any
Variation Margin resulting from the variation in value of one or more Contracts
purchased or sold by Customer in accordance with the rules of any contract
market, exchange or board of trade on which Contract transactions are effected
by Merrill for Customer. At Customer's direction, Merrill shall transfer trading
account balances to Customer in Federal funds to the Custodian or such bank
account in Customer's name as Customer shall otherwise direct, Customer may give
such directions to Merrill by telephone, confirmed thereafter in writing.
7. Custodian shall act only upon receipt of instructions from Merrill
regarding release of collateral.
8. Custodian's duties and responsibilities are as set forth in this
Agreement.
(a) Custodian shall not be liable or responsible for anything done or
omitted to be done by it in good faith and in the absence of negligence.
Custodian may rely and shall be protected in acting upon any notice,
instruction, or other communication which it reasonably believes to be genuine
and authorized by Merrill in accordance with this Agreement. As between Customer
and Custodian the terms of a Custodian Contract entered into between Customer
and Custodian ("Custodian Contract") shall apply with respect to any losses or
liabilities of such parties arising out of matters covered by this Agreement. As
between Custodian and Merrill, Merrill shall indemnify and hold Custodian
harmless with regard to any losses or liabilities of Custodian (including
counsel fees) imposed on or incurred by Custodian as a result of a legal claim
of Customer arising out of any action or omission of Custodian in good faith and
without negligence in accordance with any notice of instruction of Merrill
pursuant to Paragraph 5 of this Agreement; provided, however, that Custodian
notify Merrill of a Customer's claim at the time such claim is made. If any
property held in the Safekeeping Account shall be or becomes subject to any
lien, restraint, garnishment, injunction or other legal process of any nature,
Custodian shall be entitled to refrain from taking further action hereunder
until a court of competent jurisdiction permits Custodian to act. It is
understood that Custodian in purchasing, selling, delivering, or otherwise
dealing with the securities in the Safekeeping Account will be acting solely as
the agent of Customer and Merrill, and that Custodian will not be deemed to be
acting as, or to be making any warranties of, a broker. Custodian shall have no
duty to take any action other than herein specified, unless Custodian agrees to
do so in
<PAGE>
writing, nor to commence or defend any legal action with respect to any property
held for the Safekeeping Account.
(b) Custodian shall have no duty to require any cash or securities to
be delivered to it or to determine that the amount and form of assets deposited
in the Safekeeping Account comply with any applicable requirements. Custodian
may hold the securities in the Safekeeping Account in bearer, nominee, book
entry or other form and in any depository or clearing corporation, with or
without indicating that the securities are held hereunder; provided, however,
that all securities held in the Safekeeping Account shall be identified on
Custodian's records as subject to this Agreement and shall be a form that
permits transfer without additional authoritarian or consent of Customer. This
Agreement supplements the Custodian Contract between Customer and Custodian and
to the extent any of the terms of this Agreement are inconsistent with the
Custodian Contract with respect to transactions on financial futures and options
on futures, this Agreement shall control.
9. Unless otherwise provided, all notices or other communications called
for by this Agreement shall be given by the most expeditious means possible and
may be given by telephone. If a notice is not given in writing, a written copy
shall be provided to appropriate parties within a reasonable time after the
notice is given.
10. Any and all expenses of establishing, maintaining, or terminating the
Safekeeping Account, including without limitation any and all expenses incurred
by Custodian in connection with the Safekeeping Account, shall be borne by
Customer.
11. Any of the parties hereto may terminate this Agreement by thirty days
prior written notice to the other parties. Upon termination of the Agreement by
the Bank, all Customer assets held in the Customer Segregated Account shall be
transferred to a successor designated in writing by the Customer and the Broker.
12. This Agreement shall be construed ~ccording to, and the rights and
liabilities of the parties hereto shall be governed by, the laws of the State of
New York.
13. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto and any
actions taken or omitted by any party hereunder shall not affect any rights of
any other party hereunder.
14. No amendment of this Agreement shall be effective unless in writing and
signed by persons thereunto duly authorized.
<PAGE>
15. Written communications hereunder shall be, except as otherwise required
hereunder, hand delivered or mailed first class postage prepaid, except that
written notice of termination shall be sent by certified mail addressed:
(a) If to Custodian, to:
Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
(b) If to Customer, to:
The Prudential Series Fund, Inc.
do Quantitative Investment Mgmt.
51 JFK Parkway, 1St Floor
Short Hills, New Jersey 07078
Attention: Associate Manager of Operations
The Prudential Series Fund, Inc.
c/o PMFIM
751 Broad St., 5th Floor
Newark, N.J. 07102
Attention: Associate Manager of Operations
(c) To Merrill, to:
World Financial Center, North
Seventh Floor
New York, New York
Attention: Joe Decicco
(cc:) Merrill Lynch Futures
101 Hudson Street
9th Floor
Jersey City, New Jersey 07302
Attention: Louis Giglio
<PAGE>
THE PRUDENTIAL SERIES FUND, INC. ON BEHALF
OF EACH OF THE INDIVIDUAL PORTFOLIOS SET
FORTH ON SCHEDULE A ANNEXED HERETO
By: GRACE TORRES
------------------------------------
Authorized Signature
Date: 9/9/97
----------------- Title: Comptroller
------------------------------------
on behalf of Merrill Lynch Futures Inc.
By: ILLEGIBLE
------------------------------------
Authorized Signature
Date: Title:
------------------------------------
Investors Fiduciary Trust Company
By: JEAN MEYER
------------------------------------
Authorized Signature
Date: 9/22/97 Title: Vice President
----------------------------------
<PAGE>
SAFEKEEPING AGREEMENT
The Prudential Series Fund, Inc. on behalf of each of the individual portfolios
set forth on Schedule A annexed hereto ("Depositor") and Merrill Lynch Futures
Inc. ("Merrill") have interest in the subject Safekeeping Account pursuant to a
certain Procedural Agreement among Merrill, Depositor, and investors Fiduciary
Trust Company ("Custodian") which Procedural Agreement governs over any
inconsistent provisions in this Safekeeping Agreement.
- --------------------------------------------------------------------------------
Investors Fiduciary Trust Company
127 West 10th Street, 1 1th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
Ladies and Gentlemen:
The Depositor hereby requests the Custodian to open and maintain a
Safekeeping Account, which shall be a subaccount under the Custodian Agreement
between Depositor and Custodian, and in the name of "Merrill Lynch Futures Inc.
Customer Funds for the benefit of each undersigned Depositor (Customer
Segregated Account)" for all monies and securities now or hereafter deposited
with and accepted by you for the initial margin in futures and option contracts
transactions, including any additional original margin requirements for
Customer's short option positions.
In such custodial capacity you are limited to holding the securities in
safekeeping for the Depositor and dealing with them as herein expressed unless
otherwise mutually agreed in writing.
You shall make purchases, sales, and deliveries of securities only as the
Depositor may direct, and you are authorized and directed to:
1. Collect income and principal on bearer securities in the account;
2. Dispose of the monies received from income collections, maturity,
redemption, sale, or other disposition of the securities pursuant to said
Procedural Agreement;
3. Send a daily confirmation of receipts and disbursements to the
Depositor and to Merrill;
4. Provide a monthly list of securities to the Depositor and to
Merrill;
5. On request, confirm to Merrill and Depositor all account charges
and positions.
<PAGE>
The general conditions of the Safekeeping Agreement shall be those of the
Custodian Agreement between Depositor and Custodian.
The compensation of the Custodian for its services hereunder shall be
payable quarterly and shall be as the parties shall agree. No change in
compensation shall be applicable to this account except upon written notice to
Depositor.
The Custodian will acknowledge for Merrill by letter, Attachment A hereto,
that Custodian was informed that the monies and securities on deposit belong to
Depositor and are being held by Custodian, in the name of Merrill Lynch Futures
Inc., in accordance with the Commodity Exchange Act and the regulations
thereunder.
All communications from the Custodian shall be sent to the Depositor
pursuant to the Custodian Agreement, and to Merrill at the address shown below,
or at such other address as the Depositor or Merrill shall from time to time
direct.
The Depositor is not a foreign citizen; if this citizenship status change,
the Depositor will promptly notify the Custodian in writing.
Either the Depositor or the Custodian, subject to the Procedural Agreement,
may close this account at any time.
Accepted: Very truly yours,
The Prudential Series Fund, Inc. on behalf
of each of the individual portfolios set
forth on Schedule A annexed hereto
By: /s/ JEAN MEYER By: /s/ GRACE TORRES
---------------------------- --------------------------------------
Jean Meyer Grace Torres
Acknowledged and Approved:
on behalf of
Merrill Lynch Futures Inc.
By: PLEASE SUPPLY
------------------------
Merrill Lynch Futures Inc.
World Financial Center, North, 7th floor
New York, New York 10281
Attention: Joe Decicco
Dated:
---------------------------
<PAGE>
ATTACHMENT A
------------
Investors Fiduciary Trust Company
127 West 10th Street, I 1th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
Gentlemen:
We refer to the account with your bank designated as "Merrill Lynch Futures Inc.
Customer Funds for the benefit of The Prudential Series Fund, Inc. on behalf of
each of the individual portfolios set forth on Schedule A annexed hereto
(Customer Segregated Account)" account number _____________ (the "Account"),
opened pursuant to a Safekeeping Agreement among The Prudential Series Fund,
Inc. on behalf of each of the individual portfolios set forth on Schedule A
annexed hereto ("Depositor"), Merrill Lynch Futures Inc. ("Merrill") and your
bank (Investors Fiduciary Trust Company), as custodian, dated __________.
The Account is being maintained by Merrill in compliance with the provisions of
the Commodity Exchange Act and as a subaccount under the custodian agreement
between Depositor and you. Depositor will from time to time deposit with you in
such Account monies, or obligations of the United States, general obligations of
any state or of any political subdivision thereof, or obligations fully
guaranteed as to principal and interest by the United States or other domestic
securities (collectively referred to as "securities"). All such securities,
monies, or other properties will be treated either as investments of our
commodity and commodity option customers' funds or as obligation belonging to
such customer. Under the provisions of the Commodity Exchange Act and
regulations promulgated thereunder, these deposits are required to be segregated
and treated as belonging to the customer.
You hereby agree that the obligations and records accounting for the monies and
securities held in the Account may be examined by an authorized employee of the
Commodity Futures Trading Commission.
Sincerely yours,
Merrill Lynch Futures Inc.
Louis Giglio
AGREED AND ACKNOWLEDGED:
Investors Fiduciary Trust Company
BY:
----------------------------------
Title:
--------------------------------
Dated:
--------------------------------
<PAGE>
SCHEDULE A
o Conservative Balanced Portfolio
o Diversified Bond Portfolio
o Equity Income Portfolio
o Equity Portfolio
o Flexible Managed Portfolio
o Government Income Portfolio
o Natural Resources Portfolio
<PAGE>
MERRILL LYNCH
INSTITUTIONAL FUTURES CUSTOMER AGREEMENT
- ---------------------------------------- -------------------------
CUSTOMER NEW
The Prudential Series Fund, Inc. on behalf of each ?????? portfolios set forth
on Schedule A annexed hereto
- --------------------------------------------------------------------------------
Customer Full Legal Name
TIFFANY BRYANT (973) 802-6898
- ----------------------------- ----------------
Operations Contact Telephone Number
- ----------------------------------------------------
Assets under management with Advisor (if applicable)
Original confirmation: The Prudential Series Fund, Inc.
do Quantitative Investment Mgmt.
51 JFK Pkwy, 1st Floor
Short Hills, N.J. 07078
Attention: Associate Manager of Operations
Duplicate Confirmation: The Prudential Series Fund, Inc.
c/o PMFIM
51 JFK Pkwy, 1st Floor
Short Hills, N.J. 07078
Attention: Associate Manager of Operations
Additional Confirmation: Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
Additional Confirmation:
Merrill Lynch Futures Inc.
250 Vesey Street, WFC North Tower
New York, N.Y. 10281
Attention: Steven R. Winter
PLEDGE AGREEMENT
Agreement dated as of August l5, 1997 between Goldman, Sachs & Co.
("Broker"), The Prudential Series Fund, Inc., ("Customer" or the "Fund") "), an
investment company registered under the Investment Company Act of 1940, on
behalf of each of the individual portfolios set forth on Schedule A annexed
hereto, and Investors Fiduciary Trust Company (9FTC') ("Bank') (Customer, Broker
and Bank are hereinafter collectively known as the "Parties").
WHEREAS, by a Customer Agreement (the "Customer Agreement") dated August
I5, 1997, Customer has opened one or more trading accounts (each a "Trading
Account") with Broker, a registered Futures Commission Merchant, for the purpose
of trading financial futures contracts ("Futures Contracts") and options on
Futures Contracts ("Options") (Options and Futures Contracts are referred to
individually as a "Contract" and collectively as "Contracts"; and
WHEREAS, the rules and regulations of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Commodity Futures Trading Commission and such other
exchanges or boards of trade on which Broker may effect, or cause to be
effected, Contract transactions for Customer (each an "Exchange"; together the
"Exchanges"), may require Customer to deposit with Broker certain collateral;
and
WHEREAS, Prudential Mutual Fund Management, Inc. ("PMF"), an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"), the investment manager of the Fund pursuant to the Management
Agreement between the Fund and PMF, has entered into a Sub-Advisory Agreement
with The Prudential Investment Corporation ("PlC"), a wholly-owned subsidiary of
Prudential, pursuant to which PlC furnishes investment advisory services to the
Fund; and
WHEREAS, Bank is a portfolio securities custodian for Customer pursuant to
the Custodian Agreement between Customer and Bank ("Custodian Agreement"); and
WHEREAS, Customer, Broker and Bank have agreed that Bank will open and
maintain such third party custody accounts as Customer may direct (each a
"Pledge Account"), such accounts to be subject to the terms of this Agreement
and the Custody Agreement between Customer and Bank (the "Custody Agreement");
AND
NOW, THEREFORE, it is agreed as follows:
1. As used herein the following terms shall have the following meanings
(such meaning to be equally applicable to both the singular and plural
forms of the terms defined):
<PAGE>
"Initial Margin" means the minimum margin required by an Exchange on
which a transaction is effected in order to purchase or sell a Futures
Contract or to sell an Option on such Exchange.
"Instructions from Broker" means a request, direction or certification
in writing signed in the name of Broker by a person authorized to sign
for Broker as certified in writing to Bank by an officer of Broker.
"Instructions from Customer" means a request, direction or
certification in writing signed in the name of Customer by a person
authorized to sign for Customer and hand-delivered to Bank or
transmitted to it by a facsimile sending device except that
instructions to transfer to or from each Pledge account cash or
Government securities, or cash or securities denominated in a currency
other than US dollars will be given by telephone and thereafter
confirmed in writing.
"Notice by Broker to Customer" or "Notice by Bank to Customer" means
notice by Broker or by Bank, respectively, to any person designated by
Customer in writing as eligible to receive such notice. When notice is
given pursuant to paragraphs 10 (B), (C) and (D), telephone notice
must be followed by a hand-delivered notice or facsimile notice.
"Notice by Broker to Bank" means notice by Broker to any person
designated by Bank in writing as eligible to receive such notice, or,
in the event no such person is available, to any officer in the
Custody Administration Department of Bank.
"Business Day" means a day on which and at a time at which Customer,
Bank and Broker are all open for business.
"Variation Margin" means any additional margin required by any
Exchange on which any Contract transaction is effected by Broker for
Customer due to the variation in value of one or more outstanding
Futures Contracts purchased or sold or Options sold for Customer.
2. With respect to Contracts traded on any contract market designated by
the CFTC pursuant to Section 5 of the Commodity Exchange Act, as
amended ("CEA"), Customer hereby requests Bank to open and maintain,
and Bank hereby agrees to open and maintain a Pledge Account for
Broker as pledgee of Customer with respect to each Trading Account
Each such Pledge Account shall be entitled "Goldman, Sachs & Co.,
Commodity Customer Funds for the benefit of The Prudential Series
Fund, Inc. (Customer Segregated Account)". With respect to Contracts
traded on any foreign board of trade or exchange, Customer hereby
requests Bank to open and maintain, and Bank hereby agrees to open and
maintain, a Pledge Account for Broker
2
<PAGE>
as pledgee of Customer with respect to each Trading Account Each such
Pledge Account shall be entitled "Goldman, Sachs & Co., Commodity
Customer Funds for the benefit of The Prudential Series Fund, Inc.
(Customer Secured Account)".
Each Pledge Account is a segregated or secured (as applicable) account
within the meaning of the CEA, and regulations promulgated by the CFTC
pursuant thereto and all cash, securities and other property deposited
therein will be held by Bank in accordance therewith. Bank hereby
acknowledges that (1) in the case of any property deposited in the
Customer Segregated Account, such property is that of a commodity or
options customer of Broker and is being held in accordance with the
CEA and the regulations of the CFTC thereunder, and (2) in the case of
any property deposited in the Customer Secured Account, such property
is being held for or on behalf of a foreign futures and foreign
options customer of Broker and is being held in accordance with the
regulations of the CFTC under the CEA.
3. Customer shall give instructions from Customer to bank to hold in the
Pledge Account cash, U.S. Government securities, cash or securities
denominated in a foreign currency or any combination thereof
(collectively, "Collateral"), in the amount of Initial Margin required
with respect to any Contract for the Trading Account. In the case of
Initial Margin in connection with Options written by Customer, such
margin shall be increased or reduced daily in accordance with the
requirements of the Exchange on which the Options were sold. Such
Collateral shall be maintained in the Pledge Account until termination
or satisfaction of the related Futures Contract or Option. Customer
may give Instructions from Customer to Bank to hold Collateral in the
Pledge Account in excess of such requirements (Excess Collateral). In
determining whether Collateral is sufficient to satisfy Initial Margin
requirements of any Exchange, U.S. Government securities will be
valued at 90% of current market value ("Value").
Customer may enter into a transaction in a contract that is
denominated in a currency (the "Contract Currency") other than the
currency of Customer's jurisdiction. At Customers discretion, Customer
may deposit in a Pledge Account Collateral in the form of cash or
securities denominated in a currency other than the Contract Currency
(the "Base "Currency"). In that event, Broker shall determine
Customer's margin requirements in the Base Currency on any day in a
commercially reasonable manner based on current exchange rates between
the Base Currency and the Contract Currency. Furthermore, Customer
shall pay Broker's fee as in effect from the time from Brokers deposit
of margin in the Contract Currency with applicable Exchange.
3
<PAGE>
In determining whether Collateral is sufficient to satisfy Initial.
Margin requirements of any Exchange, the Value of securities
denominated in a currency other than the currency of Customer's
jurisdiction shall be determined by Broker. In the event that Customer
disagrees with the Value determined by Broker, Customer shall have one
Business Day to submit a different Value. If Broker disagrees with the
Value submitted by Customer, Broker and Customer shall promptly agree
on a third-party pricing source to provide the Value. The Value
determined by the third-party pricing source shall be conclusive.
Notwithstanding the foregoing, if the Value assigned by Broker is the
same as the price assigned thereto by the relevant Exchange, then that
Value shall be conclusive and Customer shall not have the opportunity
to object.
4. Bank at no time shall have any responsibility for determining
eligibility, value or adequacy of Collateral held in the Pledge
Account Collateral held in any Pledge Account:
(i) will be held by Bank as agent of Broker subject to the terms and
conditions of the Custody Agreement, as modified by this
Agreement This Agreement shall be controlling with respect to
each Pledge Account in the event of conflicting provisions;
(ii) may be released, transferred or sold only in accordance with the
terms of this Agreement; and
(iii) except as provided herein, shall not be made available to Broker
or to any person claiming through Broker, including creditors of
Broker.
Customer hereby grants to Broker a continuing security interest in the
Collateral and the proceeds thereof (but not such portion of the
Collateral which constitutes Excess Collateral) subject to the terms
and conditions of this Agreement Such security interest will terminate
at the earlier of (1) release of such Collateral by Broker as provided
herein, or (2) such time as such Collateral becomes Excess Collateral.
The Collateral shall at all times remain the property of Customer
subject only to the interest and rights therein of Broker as secured
party thereof as provided in this Agreement
5. Other than pursuant to paragraph 10, Collateral shall only be
transferred or released from any Pledge Account upon both (x)
Instructions from Broker and (y) Instructions from Customer. Customer
and Bank represent to Broker that Bank is not an affiliate of
Customer.
6. Customer may substitute as Collateral, cash, U.S. Government
securities (or any combination thereof) of equal or greater Value, or,
if applicable, cash or securities (or any combination thereof)
denominated in a foreign currency
4
<PAGE>
(collectively "Assets"), of equal or greater Value. Upon request from
Customer identifying the Collateral to be substituted, Broker agrees
to promptly give Instructions to Bank to release from the Pledge
Account Assets of an equal Value, or such lesser amount as may be
directed by Customer, upon receipt of substitute Collateral.
7. Broker shall promptly notify Customer of the amount of any Excess
Funds in a Pledge Account. Upon request of Customer, Broker shall
promptly give Instructions to Bank to release Assets, the Value of
which in the aggregate does not exceed the amount of such Excess
Collateral.
8. Interest on U.S. Government securities held in any Pledge Account will
be automatically credited by Bank in immediately available funds to an
account designated in writing by Customer the date that such funds
become due and payable. Amounts due on U.S. Government securities
which mature or are redeemed will be credited to the Pledge Account or
an account designated by Customer in immediately available funds on
the date funds are received by Bank.
9. Bank shall promptly give Notice by Bank to Customer, and Broker of,
and transmit to both, written confirmation of each transfer into or
out of any Pledge Account.
10. Broker shall have access to the Collateral only in accordance with the
following:
(A) If Variation Margin is required, then Broker shall give
Instructions from Broker to Customer and such Variation
Margin shall first be satisfied by reducing the balance, if
any, of the Trading Account with Broker. If the balance of
such Trading Account is insufficient, then Broker shall
include in such Instructions the amount of the Variation
Margin.
Unless a shorter notice period is required by the Exchange
on which the futures positions are carried, or, a longer
notice period is agreed upon by Broker and Customer, (i) if
Notice by Broker to Customer is given that additional margin
is required due to variation in the value of one or more
outstanding Futures Contracts purchased or sold for Customer
or assigned to Customer as a result of exercise of Options
written by Customer ("Variation Margin") prior to 11:30 a.m.
New York time on a day on which Customer is open for
business, which Variation Margin shall first have been
satisfied from any amounts currently credited to Customer's
Trading Account with Broker in connection with which the
Variation
5
<PAGE>
Margin is required, Customer shall transfer to Broker such
Variation Margin not later than the end of the Business Day
on which such notice was given. Unless a shorter period of
time is required or specified as referenced above. (ii) if
Notice by Broker to Customers is given of the need for
Variation Margin subsequent to 11:30 a.m. but prior to 4:00
p.m. New York time on a Business Day, then, Customer shall
cause such Variation Margin to be transferred to Broker not
later than 11:30 a.m. New York time on the next succeeding
Business Day or if not in US Dollars, then the transfer is
to be completed in accordance with market standards. (Any
Notice by Broker to Customer after 4:00 p.m. New York time
but before the end of a Business Day shall be deemed to have
been given prior to 11:30 a.m. New York time on the next
succeeding Business Day.)
In either case, Broker shall immediately notify Customer in
writing of the receipt of Variation Margin.
(B) If Broker has not received the requested Variation Margin
within the applicable time period as provided in paragraph
(A) above, then Notice by Broker to Customer of such failure
shall be given immediately.
(C) If Broker does not receive the Variation Margin within the
time periods required in paragraph (A) above, then Broker
may give
(i) Notice by Broker to Bank of Customer's failure to
provide Variation Margin and the amount of Variation Margin
required, and
(ii) Notice by Broker to Customer that such Notice has been
given to Bank. Immediately upon receipt of Notice by Broker
to Bank, Bank shall give Notice by Bank to Customer of its
receipt of such Notice by Broker.
(D) If Customer has failed to transfer the required Variation
Margin to Broker during the period specified in paragraph
(A) above, then
(i) Broker may give Instructions from Broker to Bank to (a)
transfer eligible securities from such Pledge Account to
Broker, (b) to sell at the prevailing market price such of
the Collateral in the Pledge Account as necessary to provide
for payment to Broker of the amount of Variation Margin that
Broker shall have
6
<PAGE>
specified in the Notice and transfer the proceeds of such
sale to Broker, or
(ii) with respect to Collateral in the form of cash, Broker
may give Instructions from Broker to Bank immediately to
transfer cash in the amount of the Variation Margin that
Broker shall have specified in such Notice from such Pledge
Account to the account of Broker.
Bank shall contemporaneously therewith give Notice by Bank
to Customer of its receipt of such Instructions from Broker
to Bank and, upon taking any action pursuant to such
Instructions, shall contemporaneously therewith give Notice
by Bank to Customer of such actions.
(E) Bank shall retain in such Pledge Account any Collateral in
excess of the amount specified in Instructions by Broker to
Bank, including any proceeds from the sale of securities in
excess of such amount. Bank shall give consideration to any
timely requests by Customer with respect to particular
securities to be transferred or sold, and shall sell any
securities in the principal market for such securities, or
in the event such principal market is closed, to sell them
in a commercially reasonable manner.
11. Neither Broker nor any person claiming through Broker shall have
access to Collateral in any Pledge Account established and maintained
by Customer other than the applicable Pledge Account established and
maintained pursuant to this Agreement and only in accordance with the
provisions of this Agreement
12. Any and all expenses of establishing, maintaining, or terminating the
Pledge Account, including without limitation any and all expenses
incurred by Bank in connection with the Pledge Account, shall be borne
by Broker.
13. No amendment of this Agreement shall be effective unless in writing
and signed by a duly authorized officer of each of Broker, Customer
and Bank.
14. All notices, instructions, notification and other communications
hereunder (each a "Notice") shall be, unless otherwise stated herein,
hand-delivered or transmitted by a facsimile sending device (except
that notice of termination shall be sent by certified mail) addressed
as set forth below (or as set forth in a subsequent Notice). Each of
Broker, Customer and Bank may act upon any such Notice reasonably
believed by such party to be authorized to be given in accordance with
this Agreement and to be genuine.
7
<PAGE>
(a) if to Bank, to:
Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
(b) if to Customer, to:
The Prudential Series Fund, Inc.
751 Broad Street, 5th Floor
Newark, New Jersey 07102
Attention: Lisa Phelan
AND
The Prudential Series Fund, Inc.
Two Gateway Center, 7th Floor Newark,
New Jersey 07102
Attention: Debra Mullin
AND
The Prudential Series Fund, Inc.
c/o Quantitative Investment Management
51 JFK Parkway, 1St Floor
Short Hills, New Jersey 07078
Attention: Compliance Department
(C) if to Broker, to:
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Futures Services Administrator
15. Except as specifically provided herein, this Agreement does not affect
any other agreement entered into among the parties.
16. Any of the parties may terminate this Agreement upon 30 days' written
Notice to the other parties hereto; provided, however, that Collateral
which has not been released by Broker at or prior to the time of
termination shall be transferred to a substitute custodian designated
by Customer and reasonably acceptable to Broker.
8
<PAGE>
17. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by the laws of the
State of New York. This Agreement shall be binding on Broker, Bank and
Customer and their respective successors and assigns.
18. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement If any provision
or condition of this Agreement shall be held to be invalid or
unenforceable by any court, regulatory or self-regulatory agency or
body, such invalidity or unenforceability shall attach only to that
provision or condition, to the extent permitted by applicable law.
19. Bank's duties and responsibilities are as set forth in this Agreement
and no implied duties, covenants or obligations shall be read into
this Agreement against Bank. Bank shall not be liable or responsible
for anything done, or omitted to be done by it in good faith and in
the absence of negligence or willful misconduct
As between Customer and Bank, the terms of the Custody Agreement shall
apply with respect to any Bank losses or liabilities arising out of
matters covered by this Agreement.
As between Bank and Broker, Broker agrees to reimburse and hold Bank
harmless against any claims, costs, damages, taxes, actions, expenses,
(including reasonable counsel fees) or other liabilities whatsoever
which may be imposed upon Bank or incurred by Bank (other than as a
result of Bank's or Customer's negligence or willful misconduct) in
connection with actions taken or not taken by Bank solely at the
request or order of Broker in accordance with the terms hereof.
Under no circumstances shall Bank be liable to Customer or Broker for
consequential damages. However, while this is not a complete list of
recoverable damages, Bank acknowledges liability for the following:
(a) interest losses for the period until misdelivered securities or
funds are correctly delivered (and receipt acknowledged); (b) direct
expenses from any necessary alternative means of delivery of
securities or funds; (c) fines; (d) penalties; and (e) reasonably
attorney's fees are not consequential damages.
20. Notwithstanding anything to the contrary in this or any other
Agreement, it is hereby agreed that:
9
<PAGE>
(a) Liabilities or other obligations relating to a particular
Pledge Account shall be liabilities or obligations of that Pledge
Account only and not of any other Pledge Account and shall be
paid or performed only from the assets in that Pledge Account or
the proceeds thereof without access to any other assets of
Customer.
(b) Property held in a particular Pledge Account shall not be
commingled with the property of any other Pledge Account.
(c) Broker shall not have access to Collateral in any Pledge
Account established and maintained by Customer other than the
applicable Pledge Account established and maintained pursuant to
this Agreement Such access shall be governed by, and shall only
be in accordance with, this Agreement.
20. Paragraphs 19 and 20 shall survive the termination of this Agreement.
DATE: PRUDENTIAL INVESTMENT CORPORATION, on
behalf of THE PRUDENTIAL SERIES FUND, INC.
By:
--------------------------
TITLE: VICE PRESIDENT
-----------------------
DATE: GOLDMAN, SACHS & CO.
By: /s/ ANDREW B. HERRMANN
-------------------------
TITLE: VICE PRESIDENT
----------------------
DATE: INVESTORS FIDUCIARY TRUST COMPANY
By: /s/ JEAN MEYER
-------------------------
TITLE: VICE PRESIDENT
----------------------
10
<PAGE>
SCHEDULE A
- - Conservative Balanced Portfolio
- - Flexible Managed Portfolio
- - Equity Income Portfolio
- - Equity Portfolio
- - Natural Resources Portfolio
- - Government Income Portfolio
11
<PAGE>
AMENDED SCHEDULE A
AS OF FEBRUARY 27,1998
PRUDENTIAL SERIES FUND, INC.
- - Conservative Balanced Portfolio
- - Flexible Managed Portfolio
- - Equity Income Portfolio
- - Equity Portfolio
- - Natural Resources Portfolio
- - Government Income Portfolio
- - Small Capitalization Stock Portfolio
- - Stock Index Portfolio
- - Jennison Portfolio
PLEDGE AGREEMENT
Agreement dated as of August 29 1997 between Lehman Brothers Inc.
("Broker"), The Prudential Series Fund, Inc., ("Customer" or the "Fund"), a
registered investment company pursuant to the Investment Company Act of 1940, on
behalf of each of the individuals portfolios set forth on Schedule A annexed
hereto, and Investors Fiduciary Trust Company ("IFTC") ("Bank") (Customer,
Broker and Bank are hereinafter collectively known as the "parties").
WHEREAS, by a Customer Agreement (the "Customer Agreement") dated August
29, 1997, Customer has opened a trading account ("Trading Account") with Broker,
a registered Futures Commission Merchant, for the purpose ot trading futures
contracts ("Futures Contracts") and options on Futures Contracts ("Options")
traded on domestic and foreign exchanges (such Options and Futures Contracts
being referred to individually as a "Contract" and collectively as "Contracts"),
to take positions for the Fund; and
WHEREAS, the rules and regulations of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Commodity Futures Trading Commission and such other
domestic and foreign exchanges on which Broker may effect, or cause to be
effected, Contract transactions for Customer (each an "Exchange"; together the
"Exchanges"), may require Customer to deposit with Broker certain collateral;
and
WHEREAS, Prudential Mutual Fund Management, Inc. ("PMF"). an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"), the investment manager of the Fund pursuant to the Management
Agreement between the Fund and PMF, has entered into a Sub-Advisory Agreement
with The Prudential Investment Corporation ("PIC"), a wholly-owned subsidiary of
Prudential, pursuant to which PlC furnishes investment advisory services to the
Fund; and
WHEREAS, Bank is a portfolio securities custodian for Customer pursuant to
the Custodian Agreement between Customer and Bank ("Custodian Agreement"); and
WHEREAS, Broker understands that Customer and Bank hereby agree that Bank
will open and maintain such custody account on behalf of the portfolios of
Customer set forth on Schedule A or accounts as Customer in writing may direct,
such accounts to be subject to the terms of this Pledge Agreement among the
Parties ("Pledge Account").
NOW, THEREFORE, it is agreed as follows:
1. As used herein the following terms shall have the following meanings:
"Initial Margin" means the minimum margin required by Broker, in its
sole discretion to enter into a Futures Contract or to sell Options as
required by any Exchange on which transactions are effected by Broker
as broker for Customer or by Broker, in its sole discretion.
<PAGE>
"Instructions from Broker" means a request, direction or certification
in writing signed in the name of Broker by a person authorized to sign
for Broker as certified in writing to Bank by an officer of Broker.
Such instructions shall be given by telephone and thereafter confirmed
in writing by being delivered by hand or transmitted via facsimile
machine.
"Instructions from Customer" means a request, direction or
certification in writing signed in the name of Customer by a person
authorized to sign for Customer and hand-delivered to Bank or
transmitted to it by a facsimile sending device except that
instructions to transfer cash or U.S. Government securities to or from
each Pledge Account may be given by telephone and thereafter confirmed
in writing.
"Notice by Bank to Broker" means notice by Bank via telephone or by a
facsimile sending device, to any person designated by Broker in
writing as eligible to receive such notice.
"Notice by Broker to Customer" or "Notice by Bank to Customer" means
notice via telephone or in writing delivered to Customer or
transmitted to it by a facsimile sending device by Broker or by Bank,
respectively, to any person designated by Customer in writing as
eligible to receive such notice. When notice is given pursuant to
paragraphs 10 (B), (C) and (D) hereof, telephone notice must be
followed by a hand-delivered notice or facsimile notice on the same
day that telephone notice is given.
"Notice by Broker to Bank" means notice by Broker via telephone or in
writing delivered to Bank or transmitted to it by a facsimile sending
device, to the individual designated by Bank in Section 15 hereof or
such other officer of Bank as shall be communicated to the other
parties in writing.
"One Business Day" means a period commencing at the time the required
notice has been given on a day on which Customer, Bank and Broker are
open for business and concluding at the same time on the next
following day that Customer, Broker and Bank are open for business.
2. Customer will give Instructions from Customer to open and maintain a
Pledge Account, as the same may be amended from time to time, for
Broker as pledgee of Customer with respect to the Trading Account.
Each Pledge Account shall be entitled "Lehman Brothers Inc., Customer
Segregated Account for the benefit of The Prudential Series Fund, Inc.
(Customer Segregated Account ___" with respect to U.S. Contracts and a
separate account entitled "Lehman Brothers Inc., Customer Secured
Account for the benefit of The Prudential Series Fund, Inc. (Customer
Secured Account ___)" relating to non-U.S. Contracts. In connection
with such Contracts traded on
-2-
<PAGE>
any foreign board of trade, Customer acknowledges that it has
received, understands and agrees to the terms of the CFTC
Subordination Agreement separately furnished by Broker to Customer.
Each Pledge Account is a segregated account within the meaning of the
Commodity Exchange Act, as amended, and regulations promulgated by the
Commodity Futures Trading Commission pursuant thereto ("Regulations"),
and securities and other property deposited therein will be held by
Bank in accordance therewith. For purposes of Section 1.20 of the
Regulations, Bank acknowledges that the funds and securities deposited
in each Pledge Account are those of "a commodity or options" Customer
of Broker. In connection with trading Contracts on any foreign board
or trade, Customer acknowledges that it has received, understands and
agrees to the terms of the Subordination Agreement pursuant to the
Regulations separately furnished by Broker to Customer.
3. Customer shall deposit in each Pledge Account cash, U.S. Government
securities, any combination thereof, or with the consent of Broker
(not to be unreasonably withheld), other securities which are
acceptable under the rules of the relevant Exchange (collectively,
"Collateral") in the amount of Initial Margin required with respect to
any Contract for the Trading Account for which the Pledge Account is
maintained. In the case of Initial Margin in connection with Options
written by Customer, such margin shall be increased or reduced daily
in accordance with the requirements of the Exchange on which the
Options were sold. Such Collateral shall be maintained in the Pledge
Account until termination or satisfaction of the related Futures
Contract or Option. Customer may deposit, or maintain on deposit,
Collateral in the Pledge Account in excess of Initial Margin or
Variation Margin requirements ("Excess Funds"). Customer shall bear
all risk and cost in respect of the conversion of currencies incident
to transactions effected in a foreign currency on behalf of Customer,
including any loss arising as result of a fluctuation in the relevant
exchange rate. In determining whether Collateral is sufficient to
satisfy Initial Margin requirements, U.S. Government securities will
be valued at market value ("Value").
4. Collateral held in the Pledge Account:
(i) will be held by Bank subject to the terms and conditions of the
Custodian Agreement and this Agreement. This Agreement shall be
controlling with respect to the Pledge Account in the event of
conflicting provisions;
(ii) may be released, transferred or sold only in accordance with the
terms of this Agreement; and
-3-
<PAGE>
(iii) except as otherwise provided herein, shall not be made available
to Broker or to any person claiming through Broker, including
creditors of Broker.
Customer hereby grants to Broker a continuing security interest in the
Collateral and the proceeds thereof subject to the terms and
conditions of this Agreement, which security interest will terminate
at the release of the Collateral by Broker as provided herein. The
Collateral shall at all times remain the property of Customer subject
only to the interest and rights therein of Broker as pledgee and
secured party thereof as provided in this Agreement.
5. Other than pursuant to paragraph 10 hereof, Collateral shall only be
transferred or released from any Pledge Account upon both (x)
Instructions from Broker and (y) Instructions from Customer.
6. Customer may substitute as Collateral U.S. Government securities or
cash of equal or greater Value. Upon request from Customer identifying
Collateral to be substituted and consent thereto by Broker, Broker
agrees to give Instructions from Broker to Bank to release from a
Pledge Account cash or U.S. Government securities of an equal Value,
or such lesser amount as may be directed by Customer, only upon and
after receipt of substitute Collateral.
7. Broker shall promptly notify Customer of the amount of any Excess
Funds in a Pledge Account. Upon request of Customer and with the
consent of Broker, Broker shall give Instructions from Broker to Bank
to release cash or U.S. Government securities selected by Customer,
the Value of which in the aggregate does not exceed the amount of any
such Excess Funds.
8. Interest on U.S. Government securities held in any Pledge Account will
be credited by Bank in Federal funds to the Fund's custody account
(but not to the Pledge Account) on the date that such funds are
received. Amounts due on U.S. Government securities which mature or
are redeemed will be credited to the Pledge Account in Federal funds
on the date funds are received.
9. Bank shall promptly give Notice by Bank to Customer, and Notice by
Bank to Broker, via facsimile sending device, of each transfer into or
out of a Pledge Account and shall mail to both written confirmation
thereof.
10. Broker shall have access to the Collateral only in accordance with the
following:
(A) Unless a shorter notice period is required by the Exchange
on which the futures positions are carried, or Broker
specifies a
-4-
<PAGE>
shorter period in the event Broker considers it necessary,
in its sole and absolute discretion, for its protection, if
Notice by Broker to Customer is given that additional margin
is required due to variation in the value of one or more
outstanding Futures Contracts purchased or sold for Customer
or assigned to Customer as a result of exercise of Options
written by Customer ("Variation Margin") prior to 11:30 a.m.
New York time on a day on which Customer is open for
business, which Variation Margin shall first have been
satisfied from any amounts currently credited to Customer's
Trading Account with Broker in connection with which the
Variation Margin is required. Customer shall transfer to
broker such Variation Margin not later than the end of the
Business Day on which such notice was given. Unless a
shorter period of time is required or specified as
referenced above, if Notice by Broker to Customers is given
of the requirement for Variation Margin subsequent to 11:30
am. but prior to 4:00 p.m. New York time, Customer shall
cause such Variation Margin to be transferred to Broker not
later than 11:30 a.m. New York time the next succeeding
Business Day. Notice by Broker to Customer of the receipt of
Variation Margin shall be given promptly in writing.
(B) If Broker receives an intra-day Variation Margin call from
any Exchange on which transactions were effected by Broker
as Broker for Customer, Broker will immediately make the
determination set forth in paragraph (A) above, and will
promptly notify Customer of the need for additional
Variation Margin. In such event, Customer shall immediately
provide such additional Variation Margin to Broker.
(C) If Broker has not received the requested Variation Margin
within the time period specified in paragraph (A) above,
then Notice by Broker to Customer of the failure to receive
the Variation Margin shall be given immediately.
(D) If Broker does not receive the Variation Margin within the
time period specified in paragraph (A) above, then Broker
may give (i) Notice by Broker to Bank of Customer's failure
to provide Variation Margin and the amount of Variation
Margin required, and (ii) Notice by Broker to Customer that
such Notice has been given to Bank Immediately upon receipt
of Notice by Broker to Bank, Bank shall give Notice by Bank
to Customer of its receipt of such Notice by Broker.
-5-
<PAGE>
(E) If Customer has failed to transfer the required Variation
Margin to Broker within the time period specified in
paragraph (A) above, Broker may give Instructions from
Broker to Bank to transfer the Collateral to Broker and
Broker may sell such Collateral from the Pledge Account
relating to the Trading Account in which the Variation
Margin is required as necessary to provide for payment to
Broker of the amount of Variation Margin that Broker shall
have specified in the Notice in accordance with the
provisions of the Customer Agreement. With respect to
Collateral in the form of cash, Broker may give Instructions
from Broker to Bank to transfer cash immediately in the
amount of the Variation Margin that Broker shall have
specified in such Notice from such Pledge Account to the
account of Broker. Bank shall immediately give Notice by
Bank to Customer of its receipt of such Instruction from
Broker to Bank and, upon taking any action pursuant to such
Instructions, shall immediately give Notice by Bank to
Customer of such actions.
(F) Broker shall transmit any proceeds from the sale of
securities in excess of the amount specified in the Notice
by Broker to Bank for deposit to the Customer's Custody
Account with Bank. Broker shall give consideration to any
timely request by Customer with respect to particular
securities to be transferred or sold.
11. Neither Broker nor any person claiming through Broker shall have
access to Collateral in any Pledge Accounts established and maintained
by Customer other than the Pledge Accounts established and maintained
pursuant to this Agreement and only in accordance with the provisions
of this Agreement.
12. Bank's duties and responsibilities are as set forth in this Agreement.
Bank shall act only upon receipt of Instructions from Broker regarding
release of Collateral. Bank shall not be liable or responsible for
anything done, or omitted to be done by it in good faith and in the
absence of negligence or willful misconduct and may rely and shall be
protected in acting upon any notice, instruction or other
communication received in accordance with the terms of this Agreement
which it reasonably believes to be genuine and authorized. As between
Customer and Bank, the terms of the Custodian Agreement shall apply
with respect to any reasonable losses or liabilities of such parties
arising out of matters covered by this Agreement. As between Bank and
Broker, Broker shall indemnify and hold Bank harmless with regard to
any reasonable losses or liabilities of Bank (including counsel fees)
imposed on or incurred by Bank (other than as a result of Bank's or
Customer's negligence or willful misconduct) arising out of any action
or
-6-
<PAGE>
omission of Bank solely in accordance with any notice or instruction
of Broker under this Agreement. Bank may hold the securities in the
Pledge Accounts in bearer, nominee, book entry, or other form and in
any depository or clearing corporation, with or without indicating
that the securities are held hereunder; provided, however, that all
securities held in the Pledge Accounts shall be identified on Bank
records as subject to this Agreement and shall be in a form that
permits transfer without additional authorization or consent of the
Customer.
13. Any and all reasonable expenses of establishing, maintaining, or
terminating the Pledge Account, including without limitation any and
all reasonable expenses incurred by Bank in connection with the Pledge
Account, shall be borne by Broker; provided, however, that such
expenses do not exceed the sum of one thousand dollars per annum. Any
amounts in excess of one thousand dollars per annum shall be borne by
Customer.
14. No amendment of this Agreement shall be effective unless in writing
and signed by an officer of Broker, either the Treasurer or an
Assistant Treasurer of Customer and a Vice President of Bank.
15. Written communications hereunder shall be transmitted by a facsimile
sending device, except as otherwise required hereunder, or
hand-delivered or mailed first class, postage prepaid, except that
written notice of termination shall be sent by certified mail,
addressed:
(a) if to Bank, to:
Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
(b) if to Customer, to:
The Prudential Series Fund, Inc.
c/o Quantitative Investment Management
51 JFK Parkway, 1st Floor
Short Hills, NJ 07078
Attention: Compliance Department
(C) if to Broker, to:
Lehman Brothers Inc.
Three World Financial Center, 9th Floor
New York, New York 10285
Attention: Ronald Filler
-7-
<PAGE>
16. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto.
17. Any of the parties hereto may terminate this Agreement upon 30 days'
written Notice to the other parties hereto; provided, however, that
all obligations to Broker arising from this Agreement have been
satisfied and that Collateral which has not been released by Broker at
or prior to the time of termination shall be transferred to a
substitute custodian designated by Customer and acceptable to Broker,
subject to any obligation owed by Customer to Broker.
18. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by the laws of the
State of New York and shall be binding on Broker, Bank and Customer
and their respective successors and assigns.
19. It is understood that Bank has no responsibility (i) requiring any
cash or securities to be delivered to it or (ii) for determining
whether the value of Collateral is sufficient to satisfy any margin
requirements of any Exchange.
20. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
DATE: 8/29/97 PRUDENTIAL IN VESTMENT CORPORATION, on
behalf of THE PRUDENTIAL SERIES FUND, INC.
By: MARK STUMPP
-------------------------------
TITLE: Senior Managing Director
DATE: 9/3/97 LEHMAN BROTHER INC.
By: /s/ RONALD H. FILLER
-------------------------------
TITLE: Ronald H. Filler
Senior Vice President
DATE: 9/9/97 INVESTORS FIDUCIARY TRUST COMPANY
By: JEAN MEYER
-------------------------------
TITLE: Vice President
-8-
<PAGE>
SCHEDULE A
- - Conservative Balanced Portfolio
- - Flexible Managed Portfolio
-9-
PLEDGE AGREEMENT
Agreement dated as of September ___ 1997 between J.P. Morgan Futures Inc.,
("Broker") The Prudential Series Fund, Inc., an investment company registered
under the Investment Company Act of 1940, on behalf of each of the individual
portfolios set forth on Schedule A annexed hereto (each individually a
"Customer" or the "Fund"), and Investors Fiduciary Trust Company ("IFTC")
("Bank") (Customer, Broker and Bank are hereinafter collectively known as the
"Parties").
WHEREAS, by a Customer Agreement (the "Customer Agreement") dated September
___, 1997, Customer has opened one or more trading accounts (each a "Trading
Account") with Broker, a registered Futures Commission Merchant, for the purpose
of trading financial futures contracts ("Futures Contracts") and options on
Futures Contracts ("Options") (Options and Futures Contracts are referred to
individually as a "Contract" and collectively as "Contracts); and
WHEREAS, the rules and regulations of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Commodity Futures Trading Commission and such other
exchanges or boards of trade on which Broker may effect, or cause to be
effected, Contract transactions for Customer (each an "Exchange"; together the
"Exchanges"), may require Customer to deposit with Broker certain collateral;
and
WHEREAS, Prudential Mutual Fund Management, LLC ("PMF"), an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"), the investment manager of the Fund pursuant to the Management
Agreement between the Fund and PMF, has entered into a Sub-Advisory Agreement
with The Prudential Investment Corporation ("PlC"), a wholly-owned subsidiary of
Prudential, pursuant to which PlC furnishes investment advisory services to the
Fund; and
WHEREAS, Bank is a portfolio securities custodian for Customer pursuant to
the Custodian Agreement between Customer and Bank ("Custodian Agreement"); and
WHEREAS, Customer, Broker and Bank have agreed that Bank will open and
maintain such third party custody accounts as Customer may direct (each a
"Pledge Account"), such accounts to be subject to the terms of this Agreement
and the Custody Agreement between Customer and Bank (the "Custody Agreement");
AND
NOW, THEREFORE, it is agreed as follows:
1. As used herein the following terms shall have the following meanings
(such meaning to be equally applicable to both the singular and plural
forms of the terms defined):
<PAGE>
"Initial Margin" means the minimum margin required by an Exchange on
which a transaction is effected in order to purchase or sell a Futures
Contract or to sell an Option on such Exchange.
"Instructions from Broker" means a request, direction or certification
delivered or transmitted to Bank either orally or in writing by way of
telex, telegraph or similar facsimile sending device signed in the
name of Broker by a person authorized to sign for Broker as certified
in writing to Bank by an officer of Broker.
"Instructions from Customer" means a request, direction or
certification in writing signed in the name of Customer by a person
authorized to sign for Customer and hand-delivered to Bank or
transmitted to it by a facsimile sending device except that
instructions to transfer to or from each Pledge account cash or
Government securities, or cash or securities denominated in a currency
other than US dollars will be given by telephone and thereafter
confirmed in writing.
"Notice by Broker to Customer" or "Notice by Bank to Customer" means
notice by Broker or by Bank, respectively, to any person designated by
Customer in writing as eligible to receive such notice. When notice is
given pursuant to paragraphs 10 (B), (C) and (D), telephone notice
must be followed by a hand-delivered notice or facsimile notice.
"Notice by Broker to Bank" means notice by Broker to any person
designated by Bank in writing as eligible to receive such notice, or,
in the event no such person is available, to any officer in the
Custody Administration Department of Bank.
"Business Day" means a day on which and at a time at which Customer,
Bank and Broker are all open for business.
"Variation Margin" means any additional margin required by any
Exchange on which any Contract transaction is effected by Broker for
Customer due to the variation in value of one or more outstanding
Futures Contracts purchased or sold or Options sold for Customer.
2. With respect to Contracts traded on any contract market designated by
the CFTC pursuant to Section 5 of the Commodity Exchange Act, as
amended ("CEA"), Customer hereby requests Bank to open and maintain,
and Bank hereby agrees to open and maintain a Pledge Account for
Broker as pledgee of Customer with respect to each Trading Account.
Each such Pledge Account shall be entitled "J.P. Morgan Futures Inc.,
Customer Segregated 1.20 Account for the Benefit of The Prudential
Series Fund, Inc., on behalf of each of the portfolios identified in
the Pledge Agreement among J.P. Morgan
2
<PAGE>
Futures, Inc., IFTC, and The Prudential Series Fund, Inc., on behalf
of each of the identified portfolios, dated as of September __, 1997.
With respect to Contracts traded on any foreign board of trade or
exchange, Customer hereby requests Bank to open and maintain, and Bank
hereby agrees to open and maintain, a Pledge Account for Broker as
pledgee of Customer with respect to each Trading Account. Each such
Pledge Account shall be entitled "J.P. Morgan Futures Inc., Customer
Secured 30.7 Account for the Benefit of The Prudential Series Fund,
Inc., on behalf of each of the portfolios identified in the Pledge
Agreement among J.P. Morgan Futures, Inc., IFTC, and The Prudential
Series Fund, Inc., on behalf of each of the identified portfolios,
dated as of September ____,1997.
Each Pledge Account is a segregated or secured (as applicable) account
within the meaning of the CEA, and regulations promulgated by the CFTC
pursuant thereto and all cash, securities and other property deposited
therein will be held by Bank in accordance therewith. Bank hereby
acknowledges that: (1) in the case of any property deposited in the
Customer Segregated Account, such property is that of a commodity or
options customer of Broker and is being held in accordance with the
CEA and the regulations of the CFTC thereunder-~ and (2) in the case
of any property deposited in the Customer Secured Account, such
property is being held for or on behalf of a foreign futures and
foreign options customer of Broker and is being held in accordance
with the regulations of the CFTC under the CEA.
3. Customer shall give instructions from Customer to Bank to hold in
the Pledge Account cash, U.S. Government securities, cash or
securities denominated in a foreign currency or any combination
thereof (collectively, "Collateral"), in the amount of Initial Margin
required with respect to any Contract for the Trading Account In the
case of Initial Margin in connection with Options written by Customer,
such margin shall be increased or reduced daily in accordance with the
requirements of the Exchange on which the Options were sold. Such
Collateral shall be maintained in the Pledge Account until termination
or satisfaction of the related Futures Contract or Option. Customer
may give Instructions from Customer to Bank to hold Collateral in the
Pledge Account in excess of such requirements ("Excess Collateral").
In determining whether Collateral is sufficient to satisfy Initial
Margin requirements of any Exchange, U.S. Government securities will
be valued at 90% of current market value ("Value").
Customer may enter into a transaction in a contract that is
denominated in a currency (the "Contract Currency") other than the
currency of Customers jurisdiction. At Brokers discretion, Customer
may deposit in a Pledge Account Collateral in the form of cash or
securities denominated in a currency other than the Contract Currency
(the "Base Currency"). In that
3
<PAGE>
event, Broker shall determine Customer's margin requirements in the
Base Currency on any day in a commercially reasonable manner based on
current exchange rates between the Base Currency and the Contract
Currency.
In determining whether Collateral is sufficient to satisfy Initial
Margin requirements of any Exchange, the Value of securities
denominated in a currency shall be determined by Broker.
4. Bank at no time shall have any responsibility for determining
eligibility, value or adequacy of Collateral held in the Pledge
Account. Collateral held in any Pledge Account:
(i) will be held by Bank as agent of Broker subject to the terms and
conditions of the Custody Agreement, as modified by this
Agreement. This Agreement shall be controlling with respect to
each Pledge Account in the event of conflicting provisions;
(ii) may be released, transferred or sold only in accordance with the
terms of this Agreement; and
(iii) except as provided herein, shall not be made available to Broker
or to any person claiming through Broker, including creditors of
Broker.
In accordance with the Customer Agreement, Customer hereby grants to
Broker a continuing security interest in the Collateral and the
proceeds thereof (but not such portion of the Collateral which
constitutes Excess Collateral) subject to the terms and conditions of
this Agreement. Such security interest will terminate at the earlier
of (1) release of such Collateral by Broker as provided herein, or (2)
such time as such Collateral becomes Excess Collateral. The Collateral
shall at all times remain the property of Customer subject only to the
interest and rights therein of Broker as secured party thereof as
provided in this Agreement.
5. Other than pursuant to paragraph 10, Collateral shall only be
transferred or released from any Pledge Account upon Instructions from
Broker. Customer and Bank represent to Broker that Bank is not an
affiliate of Customer.
6. At Brokers discretion, Customer may substitute as Collateral, cash,
U.S. Government securities (or any combination thereof) of equal or
greater Value, or, if applicable, cash or securities (or any
combination thereof) denominated in a foreign currency (collectively
"Assets") of equal or greater Value. Upon request from Customer
identifying the Collateral to be substituted, Broker agrees to
promptly give Instructions to Bank to release from the Pledge Account
Assets of an equal Value, or such lesser amount as may be directed by
Customer, upon receipt of substitute Collateral.
4
<PAGE>
7. Broker shall promptly notify Customer of the amount of any Excess
Funds in a Pledge Account. Upon request of Customer, Broker shall
promptly give Instructions to Bank to release Assets, the Value of
which in the aggregate does not exceed the amount of such Excess
Collateral.
8. Interest on U.S. Government securities held in any Pledge Account will
be automatically credited by Bank in immediately available funds to an
account designated in writing by Customer the date that such funds
become due and payable. Amounts received on U.S. Government securities
which mature or are redeemed will be credited to the Pledge Account or
an account designated by Customer in immediately available funds on
the date funds are received by Bank.
9. Bank shall promptly give Notice by Bank to Customer, and Broker of,
and transmit to both, written confirmation of each transfer into or
out of any Pledge Account. In addition, Bank shall provide Broker with
monthly statements showing transactions and all cash, securities and
other property held in the Pledge Account.
10. Broker shall have access to the Collateral only in accordance with the
following:
(A) If Variation Margin is required, then Broker shall give
Instructions from Broker to Customer and such Variation
Margin shall first be satisfied by reducing the balance, if
any, of the Trading Account with Broker. If the balance of
such Trading Account is insufficient, then Broker shall
include in such Instructions the amount of the Variation
Margin.
Unless a shorter notice period is required by the Exchange
on which the futures positions are carried, or, a longer
notice period is agreed upon by Broker and Customer,
(i) if Notice by Broker to Customer is given that additional
margin is required due to variation in the value of one or
more outstanding Futures Contracts purchased or sold for
Customer or assigned to Customer as a result of exercise of
Options written by Customer ("Variation Margin") prior to
11:30 a.m. New York time on a day on which the exchange is
open for business, which Variation Margin shall first have
been satisfied from any amounts currently credited to
Customers Trading Account with Broker in connection with
which the Variation Margin is required, Customer shall
transfer to Broker such Variation Margin not later than 4:30
PM on the same day on
5
<PAGE>
which such notice was given. Unless a shorter period of time
is required or specified as referenced above.
(ii) if Notice by Broker to Customers is given of the need for
Variation Margin subsequent to 11:30 a.m. but prior to 4:30
p.m. New York time, then, Customer shall cause such
Variation Margin to be transferred to Broker not later than
11:30 a.m. New York time on the next succeeding day or if
not in US Dollars, then the transfer is to be completed in
accordance with market standards. (Any Notice by Broker to
Customer after 4:30 p.m. New York time but before the end of
the business day shall be deemed to have been given prior to
11:30 a.m. New York time on the next succeeding day.)
In either case, Broker shall immediately notify Customer in
writing of the receipt of Variation Margin.
(B) If Broker has not received the requested Variation Margin
within the applicable time period as provided in paragraph
(A) above, or has not timely made any other payment, deposit
or delivery ("Payment") required under this Agreement, the
Customer Agreement in respect of the Trading Account or the
rules and regulation of the applicable Exchange or the
Commodity Futures Trading Commission (other than a failure
to pay brokerage commissions, then Notice by Broker to
Customer of such failure shall be given immediately.
(C) If Broker does not receive the Variation Margin within the
time periods required in paragraph (A) and (B) above, then
Broker may give
(i) Notice by Broker to Bank of Customer's failure to provide
Payments; Variation Margin and the amount of Variation
Margin required, and
(ii) Notice by Broker to Customer that such Notice has been given
to Bank. Immediately upon receipt of Notice by Broker to
Bank, Bank shall give Notice by Bank to Customer of its
receipt of such Notice by Broker.
(D) If Customer has failed to transfer the required Variation
Margin and/or Payments to Broker during the period specified
in paragraph (A) above or any event of default with respect
to Customer under the Customer Agreement shall have occurred
then
6
<PAGE>
(i) Broker may take such action contemplated by the Customer
Agreement, including the following: Broker may give
Instructions from Broker to Bank to (a) transfer eligible
securities from such Pledge Account to Broker, (b) to sell
at the prevailing market price such of the Collateral in the
Pledge Account as necessary to provide for payment to Broker
of the amount of Variation Margin that Broker shall have
specified in the Notice and transfer the proceeds of such
sale to Broker, or
(ii) with respect to Collateral in the form of cash, Broker
may give Instructions from Broker to Bank immediately to
transfer cash in the amount of the Variation Margin that
Broker shall have specified in such Notice from such Pledge
Account to the account of Broker.
Bank shall contemporaneously therewith give Notice by Bank
to Customer of its receipt of such Instructions from Broker
to Bank and, upon taking any action pursuant to such
Instructions, shall contemporaneously therewith give Notice
by Bank to Customer of such actions.
(E) Bank shall retain in such Pledge Account any Collateral in
excess of the amount specified in Instructions by Broker to
Bank, including any proceeds from the sale of securities in
excess of such amount. Bank shall give consideration to any
timely requests by Customer with respect to particular
securities to be transferred or sold, and shall sell any
securities in the principal market for such securities, or
in the event such principal market is closed, to sell them
in a commercially reasonable manner.
11. Neither Broker nor any person claiming through Broker shall have access to
Collateral in any Pledge Account established and maintained by Customer
other than the applicable Pledge Account established and maintained
pursuant to this Agreement and only in accordance with the provisions of
this Agreement.
12. Any and all expenses of establishing, maintaining, or terminating the
Pledge Account, including without limitation any and all expenses incurred
by Bank in connection with the Pledge Account, shall be borne by Customer.
13. No amendment of this Agreement shall be effective unless in writing and
signed by a duly authorized officer of each of Broker, Customer and Bank.
7
<PAGE>
14. All notices, instructions, notification and other communications hereunder
(each a "Notice") shall be, unless otherwise stated herein, hand-delivered
or transmitted by a facsimile sending device (except that notice of
termination shall be sent by certified mail) addressed as set forth below
(or as set forth in a subsequent Notice). Each of Broker, Customer and Bank
may act upon any such Notice reasonably believed by such party to be
authorized to be given in accordance with this Agreement and to be genuine.
(a) if to Bank, to:
Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
(b) if to Customer, to:
The Prudential Series Fund, Inc.
751 Broad Street, 5th Floor
Newark, New Jersey 07102
Attention: Lisa Phelan
AND
The Prudential Series Fund, Inc.
Two Gateway Center, 7th Floor
Newark, New Jersey 07102
Attention: Debra Mullin
AND
The Prudential Series Fund, Inc.
c/o Quantitative Investment Management
51 JFK Parkway, 1st Floor
Short Hills, New Jersey 07078
Attention: Associate Manager - Operations
(C) if to Broker, to:
J.P. Morgan Futures Inc.
60 Wall Street
New York, New York 10260
Attention: Morgan Futures' Manager-Operations
15. Except as specifically provided herein, this Agreement does not affect
any other agreement entered into among the parties hereto.
8
<PAGE>
16. Any of the parties may terminate this Agreement upon 30 days' written
Notice to the other parties hereto; provided, however, that Collateral
which has not been released by Broker at or prior to the time of
termination shall be transferred to a substitute custodian designated
by Customer and reasonably acceptable to Broker.
17. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by the laws of the
State of New York. This Agreement shall be binding on Broker, Bank and
Customer and their respective successors and assigns.
18. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement. If any provision
or condition of this Agreement shall be held to be invalid or
unenforceable by any court, regulatory or self-regulatory agency or
body, such invalidity or unenforceability shall attach only to that
provision or condition, to the extent permitted by applicable law.
19. Bank's duties and responsibilities are as set forth in this Agreement
and no implied duties, covenants or obligations shall be read into
this Agreement against Bank. Bank shall not be liable or responsible
for anything done, or omitted to be done by it in good faith and in
the absence of negligence or willful misconduct.
As between Customer and Bank, the terms of the Custody Agreement shall
apply with respect to any Bank losses or liabilities arising out of
matters covered by this Agreement.
As between Bank and Broker, Broker agrees to reimburse and hold Bank
harmless against any claims, costs, damages, taxes, actions, expenses,
(including reasonable counsel fees) or other liabilities whatsoever
which may be imposed upon Bank or incurred by Bank (other than as a
result of Bank's or Customers negligence or willful misconduct) in
connection with Brokers negligence or willful misconduct.
Under no circumstances shall Bank be liable to Customer or Broker for
consequential damages. However, while this is not a complete list of
recoverable damages, Bank acknowledges liability for the following:
(a) interest losses for the period until misdelivered securities or
funds are correctly delivered (and receipt acknowledged); (b) direct
expenses from any necessary alternative means of delivery of
securities or funds; (C) fines;
9
<PAGE>
(d) penalties; and (e) reasonably attorney's fees are not
consequential damages.
20. Notwithstanding anything to the contrary in this or any other
Agreement, it is hereby agreed that
(a) Liabilities or other obligations relating to a particular Pledge
Account shall be liabilities or obligations of that Pledge Account
only and not of any other Pledge Account and shall be paid or
performed only from the assets in that Pledge Account or the proceeds
thereof without access to any other assets of Customer.
(b) Property held in a particular Pledge Account shall not be
commingled with the property of any other Pledge Account.
(c) Broker shall not have access to Collateral in any Pledge Account
established and maintained by Customer other than the applicable
Pledge Account established and maintained pursuant to this Agreement.
Such access shall be governed by, and shall only be in accordance
with, this Agreement.
(d) In the event of a conflict between the terms of the Customer
Agreement and this Pledge Agreement, the Customer Agreement shall be
controlling.
10
<PAGE>
20. Paragraphs 19 and 20 shall survive the termination of this
Agreement.
DATE: PRUDENTIAL IN VESTMENT CORPORATION,
ON BEHALF OF THE PRUDENTIAL
SERIES FUND, INC.
By: BARBARA L. KENWORTHY
---------------------------
Barbara L. Kenworthy
TITLE: Vice President
DATE: J.P. MORGAN FUTURES INC.
By: EMILY PORTNEY
---------------------------
Emily Portney
TITLE: Associate
DATE: INVESTORS FIDUCIARY TRUST COMPANY
BY: JEAN MEYER
---------------------------
TITLE: Vice President
11
<PAGE>
SCHEDULE A
- - Conservative Balanced Portfolio
- - Diversified Bond Portfolio
- - Flexible Managed Portfolio
- - Government Income Portfolio
-12-
PLEDGE AGREEMENT
Agreement dated as of September 25, 1997 between Paine Webber Incorporated
("Broker") The Prudential Series Fund, Inc., ("Customer" or the "Fund") "), a
registered investment company pursuant to the Investment Company Act of 1940, on
behalf of each of the individuals portfolios set forth on Schedule A annexed
hereto, and Investors Fiduciary Trust Company ("IFTCM) ("Bank") (Customer,
Broker and Bank are hereinafter collectively known as the "Parties").
WHEREAS, by a Customer Agreement (the "Customer Agreement") dated as of
September 25, 1997, Customer has opened a trading account ("Trading Account")
with Broker, a registered Futures Commission Merchant, for the purpose of
trading futures contracts ("Futures Contracts") and options on Futures Contracts
("Options") traded on domestic and foreign exchanges (such Options and Futures
Contracts being referred to individually as a "Contract" and collectively as
"Contracts"), to take positions for the Fund; and
WHEREAS, the rules and regulations of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Commodity Futures Trading Commission and such other
domestic and foreign exchanges on which Broker may effect, or cause to be
effected, Contract transactions for Customer (each an "Exchange"; together the
"Exchanges"), may require Customer to deposit with Broker certain collateral;
and
WHEREAS, Prudential Mutual Fund Management, LLC ("PMF"), an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"), the investment manager of the Fund pursuant to the Management
Agreement between the Fund and PMF, has entered into a Sub-Advisory Agreement
with The Prudential Investment Corporation ("PlC"), a wholly-owned subsidiary of
Prudential, pursuant to which PlC furnishes investment advisory services to the
Fund; and
WHEREAS, Bank is a portfolio securities custodian for Customer pursuant to
the Custodian Agreement between Customer and Bank ("Custodian Agreement"); and
WHEREAS, Broker understands that Customer and Bank hereby agree that Bank
will open and maintain such custody account on behalf of the portfolios of
Customer set forth on Schedule A or accounts as Customer in writing may direct,
such accounts to be subject to the terms of this Pledge Agreement among the
Parties ("Pledge Account").
NOW, THEREFORE, it is agreed as follows:
1. As used herein the following terms shall have the following meanings:
"Initial Margin" means the minimum margin required by Broker, in its
sole discretion to enter into a Futures Contract or to sell Options as
required by
<PAGE>
any Exchange on which transactions are effected by Broker as broker
for Customer or by Broker, in its sole discretion.
"Instructions from Broker" means a request, direction or certification
in writing signed in the name of Broker by a person authorized to sign
for Broker as certified in writing to Bank by an officer of Broker.
Such instructions shall be delivered by hand or transmitted via
facsimile machine.
"Instructions from Customer" means a request, direction or
certification in writing signed in the name of Customer by a person
authorized to sign for Customer and hand-delivered to Bank or
transmitted to it by a facsimile sending device except that
instructions to transfer cash or U.S. Government securities to or from
each Pledge Account may be given by telephone and thereafter confirmed
in writing.
"Notice by Bank to Broker" means notice by Bank via telephone or by a
facsimile sending device, to any person designated by Broker in
writing as eligible to receive such notice.
"Notice by Broker to Customer" or "Notice by Bank to Customer" means
notice via telephone or in writing delivered to Customer or
transmitted to it by a facsimile sending device by Broker or by Bank,
respectively, to any person designated by Customer in writing as
eligible to receive such notice. When notice is given pursuant to
paragraphs 10 (B), (C) and (D) hereof, telephone notice must be
followed by a hand-delivered notice or facsimile notice on the same
day that telephone notice is given.
"Notice by Broker to Bank" means notice by Broker via telephone or in
writing delivered to Bank or transmitted to it by a facsimile sending
device, to the individual designated by Bank in Section 15 hereof or
such other officer of Bank as shall be communicated to the other
parties in writing.
"One Business Day" means a period commencing at the time the required
notice has been given on a day on which Customer, Bank and Broker are
open for business and concluding at the same time on the next
following day that Customer, Broker and Bank are open for business.
2. Customer will give Instructions from Customer to open and maintain
Pledge Accounts, as the same may be amended from time to time, for
Broker as pledgee of Customer with respect to the Trading Account. The
Pledge Account shall be entitled "Paine Webber Incorporated Customer
Segregated Account ________ for the benefit of The Prudential Series
Fund, Inc. with respect to Contracts traded on domestic exchanges, and
"Paine Webber Incorporated Customer 30.7 Secured Account, for the
benefit of the Prudential Series Fund, Inc." with respect to Contracts
traded on foreign
-2-
<PAGE>
exchanges. In connection with such Contracts traded on any foreign
board of trade, Customer acknowledges that it has received,
understands and agrees to the terms of the CFTC Subordination
Agreement separately furnished by Broker to Customer.
Each Pledge Account is a segregated account or a secured amount
account, as applicable, within the meaning of the Commodity Exchange
Act, as amended, and regulations promulgated by the Commodity Futures
Trading Commission pursuant thereto ("Regulations"), and securities
and other property deposited therein will be held by Bank in
accordance therewith. For purposes of Section 1.20 and Section 30.7 of
the Regulations, as applicable Bank acknowledges that the funds and
securities deposited in each Pledge Account are those of "a commodity
or options" Customer of Broker. In connection with trading Contracts
on any foreign board of trade, Customer acknowledges that it has
received, understands and agrees to the terms of the Subordination
Agreement pursuant to the Regulations separately furnished by Broker
to Customer.
3. Customer shall deposit in each Pledge Account cash, U.S. Government
securities, any combination thereof, or with the consent of Broker
(not to be unreasonably withheld), other securities which are
acceptable under the rules of the relevant Exchange (collectively,
"Collateral") in the amount of Initial Margin required with respect to
any Contract for the Trading Account for which the Pledge Account is
maintained. In the case of Initial Margin in connection with Options
written by Customer, such margin shall be increased or reduced daily
in accordance with the requirements of the Exchange on which the
Options were sold. Such Collateral shall be maintained in the Pledge
Account until termination or satisfaction of the related Futures
Contract or Option. Customer may deposit, or maintain on deposit,
Collateral in the Pledge Account in excess of Initial Margin or
Variation Margin requirements ("Excess Funds"). Customer shall bear
all risk and cost in respect of the conversion of currencies incident
to transactions effected in a foreign currency on behalf of Customer,
including any loss arising as result of a fluctuation in the relevant
exchange rate. In determining whether Collateral is sufficient to
satisfy Initial Margin requirements, U.S. Government securities will
be valued at market value ("Value") less any applicable regulatory
haircuts.
4. Collateral held in the Pledge Account:
(I) will be held by Bank subject to the terms and conditions of the
Custodian Agreement and this Agreement. This Agreement shall be
controlling with respect to the Pledge Account in the event of
conflicting provisions;
-3-
<PAGE>
(ii) may be released, transferred or sold only in accordance with the
terms of this Agreement; and
(iii) except as otherwise provided herein, shall not be made available
to Broker or to any person claiming through Broker, including
creditors of Broker.
Customer hereby grants to Broker a continuing security interest in the
Collateral and the proceeds thereof subject to the terms and
conditions of this Agreement, which security interest will terminate
at the release of the Collateral by Broker as provided herein. The
Collateral shall at all times remain the property of Customer subject
only to the interest and rights therein of Broker as pledgee and
secured party thereof as provided in this Agreement.
5. Other than pursuant to paragraph 10 hereof, Collateral shall only be
transferred or released from any Pledge Account upon both (x)
Instructions from Broker and (y) Instructions from Customer.
6. Customer may substitute as Collateral U.S. Government securities or
cash of equal or greater Value. Upon request from Customer identifying
Collateral to be substituted and consent thereto by Broker, Broker
agrees to give Instructions from Broker to Bank to release from a
Pledge Account cash or U.S. Government securities of an equal Value,
or such lesser amount as may be directed by Customer, only upon and
after receipt of substitute Collateral.
7. Broker shall promptly notify Customer of the amount of any Excess
Funds in a Pledge Account. Upon request of Customer and with the
consent of Broker, Broker shall give Instructions from Broker to Bank
to release cash or U.S. Government securities selected by Customer,
the Value of which in the aggregate does not exceed the amount of any
such Excess Funds.
8. Interest on U.S. Government securities held in any Pledge Account will
be credited by Bank in Federal funds to the Fund's custody account
(but not to the Pledge Account) on the date that such funds are
received. Amounts due on U.S. Government securities which mature or
are redeemed will be credited to the Pledge Account in Federal funds
on the date funds are received.
9. Bank shall promptly give Notice by Bank to Customer, and Notice by
Bank to Broker, via facsimile sending device, of each transfer into or
out of a Pledge Account and shall mail to both written confirmation
thereof.
10. Broker shall have access to the Collateral only in accordance with the
following:
-4-
<PAGE>
(A) Unless a shorter notice period is required by the Exchange on
which the futures positions are carried, or Broker specifies a
shorter period in the event Broker considers it necessary, in its
sole and absolute discretion, for its protection, if Notice by
Broker to Customer is given that additional margin is required
due to variation in the value of one or more outstanding Futures
Contracts purchased or sold for Customer or assigned to Customer
as a result of exercise of Options written by Customer
("Variation Margin") prior to 11:30 a.m. New York time on a day
on which Customer is open for business, which Variation Margin
shall first have been satisfied from any amounts currently
credited to Customer's Trading Account with Broker in connection
with which the Variation Margin is required, Customer shall
transfer to Broker such Variation Margin not later than the end
of the Business Day on which such notice was given. Unless a
shorter period of time is required or specified as referenced
above, if Notice by Broker to Customers is given of the
requirement for Variation Margin subsequent to 11:30 a.m. but
prior to 4:00 p.m. New York time, Customer shall cause such
Variation Margin to be transferred to Broker not later than 11:30
a.m. New York time the next succeeding Business Day. Notice by
Broker to Customer of the receipt of Variation Margin shall be
given promptly in writing.
(B) If Broker receives an intra-day Variation Margin call from any
Exchange on which transactions were effected by Broker as Broker
for Customer, Broker will immediately make the determination set
forth in paragraph (A) above, and will promptly notify Customer
of the need for additional Variation Margin. In such event,
Customer shall immediately provide such additional Variation
Margin to Broker.
(C) If Broker has not received the requested Variation Margin within
the time period specified in paragraph (A) above, then Notice by
Broker to Customer of the failure to receive the Variation Margin
shall be given immediately.
(D) If Broker does not receive the Variation Margin within the time
period specified in paragraph (A) above, then Broker may give (i)
Notice by Broker to Bank of Customer's failure to provide
Variation Margin and the amount of Variation Margin required, and
(ii) Notice by Broker to Customer that such Notice has been given
to Bank. Immediately upon receipt of Notice by Broker to
-5-
<PAGE>
Bank, Bank shall give Notice by Bank to Customer of its receipt
of such Notice by Broker.
(E) If Customer has failed to transfer the required Variation Margin
to Broker within the time period specified in paragraph (A)
above, Broker may give Instructions from Broker to Bank to
transfer the Collateral to Broker and Broker may sell such
Collateral from the Pledge Account relating to the Trading
Account in which the Variation Margin is required as necessary to
provide for payment to Broker of the amount of Variation Margin
that Broker shall have specified in the Notice in accordance with
the provisions of the Customer Agreement With respect to
Collateral in the form of cash, Broker may give Instructions from
Broker to Bank to transfer cash immediately in the amount of the
Variation Margin that Broker shall have specified in such Notice
from such Pledge Account to the account of Broker. Bank shall
immediately give Notice by Bank to Customer of its receipt of
such Instruction from Broker to Bank and, upon taking any action
pursuant to such Instructions, shall immediately give Notice by
Bank to Customer of such actions.
(F) Broker shall transmit any proceeds from the sale of securities in
excess of the amount specified in the Notice by Broker to Bank
for deposit to the Customer's Custody Account with Bank. Broker
shall give consideration to any timely request by Customer with
respect to particular securities to be transferred or sold.
11. Neither Broker nor any person claiming through Broker shall have
access to Collateral in any Pledge Accounts established and maintained
by Customer other than the Pledge Accounts established and maintained
pursuant to this Agreement and only in accordance with the provisions
of this Agreement subject to Commodity Exchange Act and the
Regulations.
12. Bank's duties and responsibilities are as set forth in this Agreement.
Bank shall act only upon receipt of Instructions from Broker regarding
release of Collateral. Bank shall not be liable or responsible for
anything done, or omitted to be done by it in good faith and in the
absence of negligence or willful misconduct and may rely and shall be
protected in acting upon any notice, instruction or other
communication received in accordance with the terms of this Agreement
which it reasonably believes to be genuine and authorized. As between
Customer and Bank, the terms of the Custodian Agreement shall apply
with respect to any reasonable losses or liabilities of such parties
arising out of matters covered by this Agreement. As between
-6-
<PAGE>
Bank and Broker, Broker shall indemnify and hold Bank harmless with
regard to any reasonable losses or liabilities of Bank (including
counsel fees) imposed on or incurred by Bank (other than as a result
of Bank's or Customer's negligence or willful misconduct) arising out
of any action or omission of Bank solely in accordance with any notice
or instruction of Broker under this Agreement. Bank may hold the
securities in the Pledge Accounts in bearer, nominee, book entry, or
other form and in any depository or clearing corporation, with or
without indicating that the securities are held hereunder~ provided,
however, that all securities held in the Pledge Accounts shall be
identified on Bank records as subject to this Agreement and shall be
in a form that permits transfer without additional authorization or
consent of the Customer.
13. Any and all reasonable expenses of establishing, maintaining1 or
terminating the Pledge Account, including without limitation any and
all reasonable expenses incurred by Bank in connection with the Pledge
Account, shall be borne by Broker, provided, however, that such
expenses do not exceed the sum of one thousand dollars per annum. Any
amounts in excess of one thousand dollars per annum shall be borne by
Customer.
14. No amendment of this Agreement shall be effective unless in writing
and signed by an officer of Broker, either the Treasurer or an
Assistant Treasurer of Customer and a Vice President of Bank.
15. Written communications hereunder shall be transmitted by a facsimile
sending device, except as otherwise required hereunder, or
hand-delivered or mailed first class, postage prepaid, except that
written notice of termination shall be sent by certified mail,
addressed:
(a) if to Bank, to:
Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
(b) if to Customer, to:
The Prudential Series Fund, Inc.
51 JFK Parkway, 1St Floor
Short Hills, NJ 07078
Attention: Associate Manager Operations
-7-
<PAGE>
(c) if to Broker, to:
Paine Webber Incorporated
181 West Madison, Suite 40100
Chicago, IL 60602
Attention: Donna Frieri
16. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto.
17. My of the parties hereto may terminate this Agreement upon 30 days'
written Notice to the other parties hereto; provided, however, that
all obligations to Broker arising from this Agreement have been
satisfied and that Collateral which has not been released by Broker at
or prior to the time of termination shall be transferred to a
substitute custodian designated by Customer and acceptable to Broker,
subject to any obligation owed by Customer to Broker.
18. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by the laws of the
State of New York and shall be binding on Broker, Bank and Customer
and their respective successors and assigns.
19. It is understood that Bank has no responsibility (i) requiring any
cash or securities to be delivered to it or (ii) for determining
whether the value of Collateral is sufficient to satisfy any margin
requirements of any Exchange.
-8-
<PAGE>
20. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when
so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement.
DATE: PRUDENTIAL INVESTMENT CORPORATION, on
behalf of THE PRUDENTIAL SERIES FUND, INC.
By: MARK STUMPP
---------------------------------
TITLE: Senior Managing Director
DATE: PAINE WEBBER INCORPORATED
By: ILLEGIBLE
---------------------------------
TITLE: Senior Vice President
DATE: INVESTORS FIDUCIARY TRUST COMPANY
By: JEAN MEYER
---------------------------------
TITLE: Vice President
-9-
<PAGE>
SCHEDULE A
- - Conservative Balanced Portfolio
- - Flexible Managed Portfolio
- - Stock Index Portfolio
- - Small Capitalization Stock Portfolio
-10-
PLEDGE AGREEMENT
Agreement dated as of November 11, 1997 between Credit Suisse First Boston
Corporation ("Broker") The Prudential Series Fund, Inc., ("Customer" or the
"Fund"), an investment company registered under the Investment Company Act of
1940, on behalf of each of the individual portfolios set forth on Schedule A
annexed hereto, and Investors Fiduciary Trust Company ("IFTC") ("Bank")
(Customer, Broker and Bank are hereinafter collectively known as the "Parties").
WHEREAS, by a Customer Agreement (the "Customer Agreement") dated November
11, 1997, Customer has opened one or more trading accounts (each a "Trading
Account") with Broker, a registered Futures Commission Merchant, for the purpose
of trading financial futures contracts ("Futures Contracts") and options on
Futures Contracts ("Options") (Options and Futures Contracts are referred to
individually as a "Contract" and collectively as "Contracts"); and
WHEREAS, the rules and regulations of the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Commodity Futures Trading Commission and such other
exchanges or boards of trade on which Broker may effect, or cause to be
effected, Contract transactions for Customer (each an "Exchange"; together the
"Exchanges") may require Customer to deposit with Broker certain collateral; and
WHEREAS, Prudential Mutual Fund Management, LLC ("PMF"), an indirect,
wholly-owned subsidiary of The Prudential Insurance Company of America
("Prudential"), the investment manager of the Fund pursuant to the Management
Agreement between the Fund and PMF, has entered into a Sub-Advisory Agreement
with The Prudential Investment Corporation ("PlC"), a wholly-owned subsidiary of
Prudential, pursuant to which PlC furnishes investment advisory services to the
Fund; and
WHEREAS, Bank is a portfolio securities custodian for Customer pursuant to
the Custodian Agreement between Customer and Bank ("Custodian Agreement"); and
WHEREAS, Customer, Broker and Bank have agreed that Bank will open and
maintain such third party custody accounts as Customer may direct (each a
"Pledge Account"), such accounts to be subject to the terms of this Agreement
and the Custody Agreement between Customer and Bank (the "Custody Agreement");
AND
NOW, THEREFORE, it is agreed as follows:
1. As used herein the following terms shall have the following meanings
(such meaning to be equally applicable to both the singular and plural
forms of the terms defined):
<PAGE>
"Initial Margin" means the minimum margin required by an Exchange on
which a transaction is effected in order to purchase or sell a Futures
Contract or to sell an Option on such Exchange.
"Instructions from Broker" means a request, direction or certification
in writing signed in the name of Broker by a person authorized to sign
for Broker as certified in writing to Bank by an officer of Broker.
"Instructions from Customer" means a request, direction or
certification in writing signed in the name of Customer by a person
authorized to sign for Customer and hand-delivered to Bank or
transmitted to it by a facsimile sending device except that
instructions to transfer to or from each Pledge account cash or
Government securities, or cash or securities denominated in a currency
other than US dollars will be given by telephone and thereafter
confirmed in writing.
"Notice by Broker to Customer" or "Notice by Bank to Customer" means
notice by Broker or by Bank, respectively, to any person designated by
Customer in writing as eligible to receive such notice. When notice is
given pursuant to paragraphs 10 (B), (C) and (D), telephone notice
must be followed by a hand-delivered notice or facsimile notice.
"Notice by Broker to Bank" means notice by Broker to any person
designated by Bank in writing as eligible to receive such notice, or,
in the event no such person is available, to any officer in the
Custody Administration Department of Bank.
"Business Day" means a day on which and at a time at which Customer,
Bank and Broker are all open for business.
"Variation Margin" means any additional margin required by any
Exchange on which any Contract transaction is effected by Broker for
Customer due to the variation in value of one or more outstanding
Futures Contracts purchased or sold or Options sold for Customer.
2. With respect to Contracts traded on any contract market designated by
the CFTC pursuant to Section 5 of the Commodity Exchange Act, as
amended ("CEA"), Customer hereby requests Bank to open and maintain,
and Bank hereby agrees to open and maintain a Pledge Account for
Broker as pledgee of Customer with respect to each Trading Account.
Each such Pledge Account shall be entitled "Credit Suisse First Boston
Corporation, Commodity Customer Funds for the benefit of The
Prudential Series Fund, Inc. (Customer Segregated Account)". With
respect to Contracts traded on any foreign board of trade or exchange,
Customer hereby requests Bank to open and maintain, and Bank hereby
agrees to open and maintain, a Pledge
2
<PAGE>
Account for Broker as pledgee of Customer with respect to each Trading
Account. Each such Pledge Account shall be entitled "Credit Suisse
First Boston Corporation, Commodity Customer Funds for the benefit of
The Prudential Series Fund, Inc. (Customer Secured Account)".
Each Pledge Account is a segregated or secured (as applicable) account
within the meaning of the CEA, and regulations promulgated by the CFTC
pursuant thereto and all cash, securities and other property deposited
therein will be held by Bank in accordance therewith. Bank hereby
acknowledges that: (1) in the case of any property deposited in the
Customer Segregated Account, such property is that of a commodity or
options customer of Broker and is being held in accordance with the
CEA and the regulations of the CFTC thereunder; and (2) in the case of
any property deposited in the Customer Secured Account, such property
is being held for or on behalf of a foreign futures and foreign
options customer of Broker and is being held in accordance with the
regulations of the CFTC under the CEA.
3. Customer shall give instructions from Customer to Bank to hold in the
Pledge Account cash, U.S. Government securities, cash or securities
denominated in a foreign currency or any combination thereof
(collectively, "Collateral), in the amount of Initial Margin required
with respect to any Contract for the Trading Account. In the case of
Initial Margin in connection with Options written by Customer, such
margin shall be increased or reduced daily in accordance with the
requirements of the Exchange on which the Options were sold. Such
Collateral shall be maintained in the Pledge Account until termination
or satisfaction of the related Futures Contract or Option. Customer
may give Instructions from Customer to Bank to hold Collateral in the
Pledge Account in excess of such requirements ("Excess Collateral").
In determining whether Collateral is sufficient to satisfy Initial
Margin requirements of any Exchange, U.S. Government securities will
be valued at 90% of current market value ("Value").
Customer may enter into a transaction in a contract that is
denominated in a currency (the "Contract Currency") other than the
currency of Customer's jurisdiction. At Customer's discretion,
Customer may deposit in a Pledge Account Collateral in the form of
cash or securities denominated in a currency other than the Contract
Currency (the "Base Currency"). In that event, Broker shall determine
Customer's margin requirements in the Base Currency on any day in a
commercially reasonable manner based on current exchange rates between
the Base Currency and the Contract Currency. Furthermore, Customer
shall pay Broker's fee as in effect from the time of Broker's deposit
of margin in the Contract Currency with applicable Exchange.
3
<PAGE>
In determining whether Collateral is sufficient to satisfy Initial
Margin requirements of any Exchange, the Value of securities
denominated in a currency other than the currency of Customer's
jurisdiction shall be determined by Broker.
4. Bank at no time shall have any responsibility for determining
eligibility, value or adequacy of Collateral held in the Pledge
Account. Collateral held in any Pledge Account:
(i) will be held by Bank as agent of Broker subject to the terms and
conditions of the Custody Agreement, as modified by this
Agreement. This Agreement shall be controlling with respect to
each Pledge Account in the event of conflicting provisions;
(ii) may be released, transferred or sold only in accordance with the
terms of this Agreement; and
(iii) except as provided herein, shall not be made available to Broker
or to any person claiming through Broker, including creditors of
Broker.
Customer hereby grants to Broker a continuing security interest in the
Collateral and the proceeds thereof (but not such portion of the
Collateral which constitutes Excess Collateral) subject to the terms
and conditions of this Agreement. Such security interest will
terminate at the earlier of (1) release of such Collateral by Broker
as provided herein, or (2) such time as such Collateral becomes Excess
Collateral. The Collateral shall at all times remain the property of
Customer subject only to the interest and rights therein of Broker as
secured party thereof as provided in this Agreement.
5. Other than pursuant to paragraph 10, Collateral shall only be
transferred or released from any Pledge Account upon both (x)
Instructions from Broker and (y) Instructions from Customer. Customer
and Bank represent to Broker that Bank is not an affiliate of
Customer.
6. Customer may substitute as Collateral, cash, U.S. Government
securities (or any combination thereof) of equal or greater Value, or,
if permitted by the applicable Exchange, cash or securities (or any
combination thereof) denominated in a foreign currency (collectively
"Assets"), of equal or greater Value. Upon request from Customer
identifying the Collateral to be substituted, Broker agrees to
promptly give Instructions to Bank to release from the Pledge Account
Assets of an equal Value, or such lesser amount as may be directed by
Customer, upon receipt of substitute Collateral.
7. Broker shall promptly notify Customer of the amount of any Excess
Funds in a Pledge Account. Upon request of Customer, Broker shall
promptly give
4
<PAGE>
Instructions to Bank to release Assets, the Value of which in the
aggregate does not exceed the amount of such Excess Collateral.
8. Interest on U.S. Government securities held in any Pledge Account will
be automatically credited by Bank in immediately available funds to an
account designated in writing by Customer the date that such funds
become due and payable. Amounts due on U.S. Government securities
which mature or are redeemed will be credited to the Pledge Account or
an account designated by Customer in immediately available funds on
the date funds are received by Bank.
9. Bank shall promptly give Notice by Bank to Customer, and Broker of,
and transmit to both, written confirmation of each transfer into or
out of any Pledge Account.
10. Broker shall have access to the Collateral only in accordance with the
following:
(A) If Variation Margin is required, then Broker shall give
Instructions from Broker to Customer and such Variation Margin
shall first be satisfied by reducing the balance, if any, of the
Trading Account with Broker. If the balance of such Trading
Account is insufficient, then Broker shall include in such
Instructions the amount of the Variation Margin.
Unless a shorter notice period is required by the Exchange on
which the futures positions are carried, or, a longer notice
period is agreed upon by Broker and Customer, (i) if Notice by
Broker to Customer is given that additional margin is required
due to variation in the value of one or more outstanding Futures
Contracts purchased or sold for Customer or assigned to Customer
as a result of exercise of Options written by Customer
("Variation Margin") prior to 11:30 a.m. New York time on a day
on which Customer is open for business, which Variation Margin
shall first have been satisfied from any amounts currently
credited to Customer's Trading Account with Broker in connection
with which the Variation Margin is required, Customer shall
transfer to Broker such Variation Margin not later than the end
of the Business Day on which such notice was given. Unless a
shorter period of time is required or specified as referenced
above. (ii) if Notice by Broker to Customers is given of the need
for Variation Margin subsequent to 11:30 a.m. but prior to 4:00
p.m. New York time on a Business Day, then, Customer shall cause
such Variation Margin to be transferred to Broker not later than
5
<PAGE>
11:30 a.m. New York time on the next succeeding Business Day or
if not in US Dollars, then the transfer is to be completed in
accordance with market standards. (Any Notice by Broker to
Customer after 4:00 p.m. New York time but before the end of a
Business Day shall be deemed to have been given prior to 11:30
a.m. New York time on the next succeeding Business Day.)
In either case, Broker shall immediately notify Customer in
writing of the receipt of Variation Margin.
(B) If Broker has not received the requested Variation Margin within
the applicable time period as provided in paragraph (A) above,
then Notice by Broker to Customer of such failure shall be given
immediately.
(C) If Broker does not receive the Variation Margin within the time
periods required in paragraph (A) above, then Broker may give
(i) Notice by Broker to Bank of Customer's failure to provide
Variation Margin and the amount of Variation Margin required, and
(ii) Notice by Broker to Customer that such Notice has been given
to Bank. Immediately upon receipt of Notice by Broker to Bank,
Bank shall give Notice by Bank to Customer of its receipt of such
Notice by Broker.
(D) If Customer has failed to transfer the required Variation Margin
to Broker during the period specified in paragraph (A) above,
then
(i) Broker may give Instructions from Broker to Bank to (a)
transfer eligible securities from such Pledge Account to Broker,
(b) to sell at the prevailing market price such of the Collateral
in the Pledge Account as necessary to provide for payment to
Broker of the amount of Variation Margin that Broker shall have
specified in the Notice and transfer the proceeds of such sale to
Broker, or
(ii) with respect to Collateral in the form of cash, Broker may
give Instructions from Broker to Bank immediately to transfer
cash in the amount of the Variation Margin that Broker shall have
specified in such Notice from such Pledge Account to the account
of Broker.
6
<PAGE>
Bank shall contemporaneously therewith give Notice by Bank to
Customer of its receipt of such Instructions from Broker to Bank
and, upon taking any action pursuant to such Instructions, shall
contemporaneously therewith give Notice by Bank to Customer of
such actions.
(E) Bank shall retain in such Pledge Account any Collateral in excess
of the amount specified in Instructions by Broker to Bank,
including any proceeds from the sale of securities in excess of
such amount. Bank shall give consideration to any timely requests
by Customer with respect to particular securities to be
transferred or sold, and shall sell any securities in the
principal market for such securities, or in the event such
principal market is closed, to sell them in a commercially
reasonable manner.
11. Neither Broker nor any person claiming through Broker shall have
access to Collateral in any Pledge Account established and maintained
by Customer other than the applicable Pledge Account established and
maintained pursuant to this Agreement and only in accordance with the
provisions of this Agreement.
12. Any and all expenses of establishing, maintaining, or terminating the
Pledge Account, including without limitation any and all expenses
incurred by Bank in connection with the Pledge Account, shall be borne
by Customer.
13. No amendment of this Agreement shall be effective unless in writing
and signed by a duly authorized officer of each of Broker, Customer
and Bank.
14. All notices, instructions, notification and other communications
hereunder (each a "Notice") shall be, unless otherwise stated herein,
hand-delivered or transmitted by a facsimile sending device (except
that notice of termination shall be sent by certified mail) addressed
as set forth below (or as set forth in a subsequent Notice). Each of
Broker, Customer and Bank may act upon any such Notice reasonably
believed by such party to be authorized to be given in accordance with
this Agreement and to be genuine.
7
<PAGE>
(a) if to Bank, to:
Investors Fiduciary Trust Company
127 West 10th Street, 11th Floor South
Kansas City, Missouri 64105-1716
Attention: Craig Both
(b) if to Customer, to:
The Prudential Series Fund, Inc.
751 Broad Street, 5th Floor
Newark, New Jersey 07102
Attention: Lisa Phelan
AND
The Prudential Series Fund, Inc.
Two Gateway Center, 7th Floor
Newark, New Jersey 07102
Attention: Debra Mullin
AND
The Prudential Series Fund, Inc.
c/o Quantitative Investment Management
51 JFK Parkway, 1st Floor
Short Hills, New Jersey 07078
Attention: Associate Manager - Operations
(c) if to Broker, to:
Credit Suisse First Boston Corporation
5 World Trade Center, 7th Floor
New York, New York 10048
Attention: John Krulewski
15. Except as specifically provided herein, this Agreement does not affect
any other agreement entered into among the parties.
16. Any of the parties may terminate this Agreement upon 30 days' written
Notice to the other parties hereto; provided, however, that Collateral
which has not been released by Broker at or prior to the time of
termination shall be transferred to a substitute custodian designated
by Customer and reasonably acceptable to Broker.
8
<PAGE>
17. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by the laws of the
State of New York. This Agreement shall be binding on Broker, Bank and
Customer and their respective successors and assigns.
18. This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of Which when
so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Agreement. If any provision
or condition of this Agreement shall be held to be invalid or
unenforceable by any court, regulatory or self-regulatory agency or
body, such invalidity or unenforceability shall attach only to that
provision or condition, to the extent permitted by applicable law.
19. Bank's duties and responsibilities are as set forth in this Agreement
and no implied duties, covenants or obligations shall be read into
this Agreement against Bank. Bank shall not be liable or responsible
for anything done, or omitted to be done by it in good faith and in
the absence of negligence or willful misconduct.
As between Customer and Bank, the terms of the Custody Agreement shall
apply with respect to any Bank losses or liabilities arising out of
matters covered by this Agreement.
As between Bank and Broker, Broker agrees to reimburse and hold Bank
harmless against any claims, costs, damages, taxes, actions, expenses,
(including reasonable counsel fees) or other liabilities whatsoever
which may be imposed upon Bank or incurred by Bank (other than as a
result of Bank's or Customer's negligence or willful misconduct) in
connection with actions taken or not taken by Bank solely at the
request or order of Broker in accordance with the terms hereof.
Under no circumstances shall Bank be liable to Customer or Broker for
consequential damages.
20. Notwithstanding anything to the contrary in this or any other
Agreement, it is hereby agreed that:
(a) Liabilities or other obligations relating to a particular Pledge
Account shall be liabilities or obligations of that Pledge Account
only and not of any other Pledge Account and shall be paid or
performed only from the assets in that Pledge Account or the proceeds
thereof without access to any other assets of Customer.
9
<PAGE>
(b) Property held in a particular Pledge Account shall not be
commingled with the property of any other Pledge Account.
(c) Broker shall not have access to Collateral in any Pledge Account
established and maintained by Customer other than the applicable
Pledge Account established and maintained pursuant to this Agreement.
Such access shall be governed by, and shall only be in accordance
with, this Agreement.
21. Paragraphs 19 and 20 shall survive the termination of this Agreement.
DATE: PRUDENTIAL INVESTMENT CORPORATION, on
behalf of THE PRUDENTIAL SERIES FUND, INC.
By: JULIA D. HOLLAND
---------------------------------
Title: Managing Director
DATE: CREDIT SUISSE FIRST BOSTON CORPORATION
By:
---------------------------------
Title: Director
DATE: INVESTORS FIDUCIARY TRUST COMPANY
By: JEAN MEYER
---------------------------------
Title: Vice President
10
<PAGE>
SCHEDULE A
- - Conservative Balanced Portfolio
- - Flexible Managed Portfolio
- - Equity Income Portfolio
- - Equity Portfolio
- - Natural Resources Portfolio
- - Government Income Portfolio
11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form N-1A of our
report dated February 23, 2000, relating to the financial statements and
financial highlights of The Prudential Series Fund, Inc., which appears in such
Registration Statement. We also consent to the references to us under the
headings "Experts" and "Financial Highlights" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, New York
April 27, 2000
POWER OF ATTORNEY
THE PRUDENTIAL SERIES FUND, INC.
PRUDENTIAL'S GIBRALTAR FUND, INC.
THE PRUDENTIAL VARIABLE CONTRACT
ACCOUNT - 2, 10 & 11
Know all men by these presents:
That I, John R. Strangfeld, Director/Member of the Funds/Committees of the
above referenced Funds/Accounts, do hereby make, constitute and appoint as my
true and lawful attorneys in fact Lee Ausburger and Grace Torres, together or
separately for me and in my name, place and stead to sign registration
statements on the appropriate forms prescribed by the Securities and Exchange
Commission for the registration under the Investment Company Act of 1940 and the
Securities Act of 1933, as applicable, and any and all amendments thereto that
may be filed with the Securities and Exchange Commission.
IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of August,
1999.
/s/ JOHN R. STRANGFELD
----------------------
John R. Strangfeld
State of New Jersey )
)SS
County of Essex )
On this 26th day of August, 1999, before me personally appeared John R.
Strangfeld, to be know and known to me to be the person mentioned and described
in and who executed the foregoing instrument and duly acknowledged to me that he
executed same.
/s/ FLOYD HOELSCHER
---------------------------------------
Floyd Hoelscher, Notrary Public
FLOYD L. HOELSCHER
NOTARY PUBLIC OF NEW JERSEY
MY COMMISSION EXPIRES OCT 23, 2002
