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As Filed with the SEC on March 1, 1999
Registration No. 2-28316
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form N-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 53
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 30
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THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
(Exact Name of Registrant)
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
(Name of Insurance Company)
751 Broad Street
Newark, New Jersey 07102-3777
(973) 802-8781
(Address and telephone number of Insurance Company's
principal executive offices)
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CAREN CUNNINGHAM
Assistant General Counsel
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street, 9th Floor
Newark, N.J. 07102
(Name and address of agent for service)
Copy to:
Christopher E. Palmer, Esq.
Shea & Gardner
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
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It is proposed that this filing will become effective (Check appropriate space):
immediately upon filing pursuant to paragraph (b) of Rule 485
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on pursuant to paragraph (b) of Rule 485
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(date)
60 days after filing pursuant to paragraph (a)(i) of Rule 485
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X on May 1, 1999 pursuant to paragraph (a)(i) of the Rule 485
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75 days after filing pursuant (a)(ii) of Rule 485
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on pursuant to paragraph (a)(ii) of Rule 485
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(date)
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
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previously filed post-effective amendment.
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THE PRUDENTIAL
VARIABLE CONTRACT
ACCOUNT - 2 MAY 1, 1999
This prospectus describes a contract (the Contract) offered by The Prudential
Insurance Company of America (Prudential) for use in connection with retirement
arrangements that qualify for federal tax benefits under Section 403(b) of the
Internal Revenue Code of 1986, as amended. Contributions under the Contract may
be invested in The Prudential Variable Contract Account-2 (VCA 2).
[PRUDENTIAL LOGO]
The Prudential Variable Contract Account-2 (VCA 2) invests primarily in equity
securities of major, established corporations. Its investment goal is LONG TERM
GROWTH OF CAPITAL. This means we look for investments whose price we expect will
increase over several years.
Please read this prospectus before investing and keep it for future reference.
To learn more about the Contract, you can get a copy of the VCA 2 Statement of
Additional Information (SAI) dated May 1, 1999. The SAI has been filed with the
Securities and Exchange Commission (SEC) and is legally a part of this
prospectus. The SEC maintains a Web site (http://www.sec.gov) that contains the
SAI, material incorporated by reference and other information regarding
registrants that file electronically with the SEC. For a free copy of the SAI,
call us at: 1-800-458-6333 or write us at:
The Prudential Insurance Company of America
c/o Prudential Investments
30 Scranton Office Park
Scranton, PA 18506-1789
FILING THIS PROSPECTUS WITH THE SEC DOES NOT MEAN THAT THE SEC HAS DETERMINED
THAT THE CONTRACT IS A GOOD INVESTMENT, NOR HAS THE SEC DETERMINED THAT THIS
PROSPECTUS IS COMPLETE OR ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
INVESTMENT IN THE CONTRACT IS SUBJECT TO RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL. AN INVESTMENT IN THE CONTRACT IS NOT A BANK DEPOSIT AND IS NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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TABLE OF CONTENTS
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PAGE
GLOSSARY OF SPECIAL TERMS ................................................
FEE TABLE ................................................................
SUMMARY ..................................................................
PRUDENTIAL ...............................................................
VCA 2 ....................................................................
INVESTMENT PRACTICES .....................................................
DETERMINATION OF NET ASSET VALUE .........................................
MANAGEMENT ...............................................................
CONTRACT CHARGES .........................................................
Sales Charge ......................................................
Administration Fee ................................................
Modification of Sales Charge and Administration Fee ...............
Mortality and Expense Charges .....................................
Investment Management Fee .........................................
THE CONTRACT .............................................................
The Accumulation Period ...........................................
1. Contributions .......................................
2. The Unit Value ......................................
3. Withdrawal of Contributions .........................
4. Systematic Withdrawal Plan ..........................
5. Texas Optional Retirement Program ...................
6. Death Benefits ......................................
7. Discontinuance of Contributions .....................
8. Transfer Payments ...................................
9. Requests by Telephone and Other Electronic Means ....
10. Prudential Mutual Funds .............................
11. Discovery Select(SM) Group Retirement Annuity ......
12. Modified Procedures .................................
The Annuity Period ................................................
1. Variable Annuity Payments ...........................
2. Electing the Annuity Date and Form of Annuity .......
3. Available Forms of Annuity ..........................
4. Purchasing the Annuity ..............................
5. Assumed Investment Result ...........................
6. Schedule of Variable Annuity Purchase Rates .........
7. Deductions for Taxes on Annuity Considerations ......
Assignment ........................................................
Changes in the Contract ...........................................
Reports ...........................................................
Performance Information ...........................................
Participation in Divisible Surplus ................................
FEDERAL TAX STATUS .......................................................
VOTING RIGHTS ............................................................
LEGAL PROCEEDINGS ........................................................
YEAR 2000 ................................................................
ADDITIONAL INFORMATION ...................................................
TABLE OF CONTENTS-STATEMENT OF ADDITIONAL INFORMATION ....................
CONDENSED FINANCIAL INFORMATION ..........................................
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GLOSSARY OF SPECIAL TERMS
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We have tried to make this prospectus as readable and understandable for you as
possible. By the very nature of the Contract, however, certain technical words
or terms are unavoidable. We have identified the following as some of these
words or terms.
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ACCUMULATION PERIOD: The period that begins with the Contract date (see
definition below) and ends when you start receiving income payments or earlier
if the Contract is terminated through a full withdrawal or payment of a death
benefit.
CONTRACT: The group variable annuity contract described in this prospectus.
CONTRACTHOLDER: The employer, association or trust to which Prudential has
issued a Contract.
CONTRIBUTIONS: Payments made under the Contract for the benefit of a
Participant.
INCOME PERIOD: The period that begins when you start receiving income payments
under the Contract.
NASDAQ: A computerized system that provides price quotations for securities
traded over-the-counter as well as many New York Stock Exchange listed
securities.
PARTICIPANT OR YOU: The person for whose benefit contributions are made under a
Contract.
PRUDENTIAL OR WE: The Prudential Insurance Company of America.
PRUDENTIAL'S GROUP TAX-DEFERRED ANNUITY PROGRAM: a Contractholders' program
providing for contributions under the Contract, a companion fixed-dollar annuity
contract or a combination of the two.
SEPARATE ACCOUNT: Contributions allocated to VCA 2 are held by Prudential in a
separate account.
TAX DEFERRAL: A way to increase your assets without being taxed every year.
Taxes are not paid on investment gains until you receive a distribution, such as
a withdrawal or annuity payment.
UNIT AND UNIT VALUE: You are credited with Units in VCA 2. Initially, the number
of Units credited to you is determined by dividing the amount of the
contribution made on your behalf by the applicable Unit Value for that day for
VCA 2. After that, the value of the Units is adjusted each day to reflect the
investment returns and expenses of VCA 2 plus any charges and fees that may
apply to you.
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FEE TABLE
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PARTICIPANT TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases (as a percentage of contributions made) 2.5%
Maximum Deferred Sales Load None
Exchange Fee None
MAXIMUM ANNUAL ADMINISTRATION FEE* $30
ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees .125%
Mortality and Expense Risk Fee .375%
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Total Annual Expenses .500%
</TABLE>
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* While a Participant is receiving annuity payments, we do not charge the
annual administration fee or the mortality and expense risk fee.
EXAMPLE
This example will help you compare the fees and expenses of the Contract with
other variable annuity contracts. It is based on information for VCA 2 for the
fiscal year ended December 31, 1998.** This example should not be considered as
representative of past or future expenses. Actual expenses may be greater or
less than those shown.
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses on
each $1,000 invested assuming a 5% 1 year 3 years 5 years 10 years
annual return. You would pay the same ------ ------- ------- --------
expenses whether you withdraw from
VCA 2, remain as a Participant or
annuitize at the end of each period ...... $ $ $ $
------ ------- ------- --------
</TABLE>
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** The annual administration fee is reflected in the above example on the
assumption that it is deducted from the Contract in the same proportions as
the aggregate annual administration fees are deducted from the fixed dollar
or VCA 2 Contracts. The actual expenses paid by each Participant will vary
depending upon the total amount credited to that Participant and how that
amount is allocated.
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SUMMARY
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THE CONTRACT
The VCA Contract is a GROUP VARIABLE ANNUITY CONTRACT. A group variable annuity
contract is a contract between a Contractholder and Prudential, an insurance
company. The Contracts offer a way to invest on a tax-deferred basis and are
intended for retirement savings or other long-term investment purposes. The
Contracts, like all deferred annuity contracts, have two phases - an
accumulation
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period and an income period. During the accumulation period, earnings accumulate
on a tax-deferred basis. That means you are only taxed on the earnings when you
withdraw them. The second phase - the income period - occurs when you begin
receiving regular payments from the Contract. The amount of money earned during
the accumulation period determines the amount of payments you will receive
during the income period.
The Contract generally is issued to employers who make contributions on behalf
of their employees under Section 403(b) of the Internal Revenue Code. In this
case, the employer is called the "Contractholder" and the person for whom
contributions are being made is called a "Participant" or "you."
PRUDENTIAL'S GROUP TAX DEFERRED ANNUITY PROGRAM
Prudential's Group Tax Deferred Annuity Program consists of the following
contracts:
- the VCA 2 Contract described in this prospectus
- certain fixed dollar annuity contracts that are offered as companion
to the VCA Contract (but are not described in this prospectus) and
- contracts combining the VCA 2 Contract and a fixed dollar annuity
contract.
CHARGES
We deduct a sales charge of 2.5% from each contribution at the time it is made.
This means 97.5% of each contribution is invested in VCA 2. This charge is paid
to Prudential to cover its expenses in marketing and selling the VCA 2 Contract.
The maximum sales charge may be changed by Prudential on 90 days' notice.
In addition, we charge an annual administration fee is for recordkeeping and
other administrative expenses. This charge will not exceed $30 in any calendar
year. We will automatically deduct it from your account. (If you also have a
fixed-dollar annuity contract under Prudential's Group Tax-Deferred Annuity
Program, the fee will be divided between that contract and your VCA 2 account.)
We also charge for investment management services and for mortality and expense
risks we assume. Those charges are deducted daily at annual rates of 0.125% and
0.375% of the value of your VCA 2 account.
WITHDRAWALS & TRANSFERS
All written requests and notices required under the Contracts - other than
withdrawal requests and death benefit claims - should be sent to Prudential at
the address on the cover of this prospectus. You can also use that address for
any written inquiries you may have.
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As explained later, some transactions may be made by telephone and other
electronic means. Permitted telephone transactions can be made by calling
Prudential at 800-458-6333 and permitted electronic transactions may be made
through www.Prudential.com.
Your ability to make withdrawals under your Contract is limited by federal tax
law. Your employer - the Contractholder - may impose additional restrictions. If
you are allowed to make withdrawals, you may submit a written withdrawal request
to us in any of the following ways:
- by U.S. mail to Prudential Investments, P.O. Box 5410, Scranton,
Pennsylvania 18505-5410.
- by other delivery service - for example, Federal Express - to
Prudential Investments, 30 Scranton Office Park, Scranton,
Pennsylvania 18507-1789.
- by fax to Prudential Investments, Attn: Client Payments at (717)
340-4328.
Requests for death benefits must also be submitted in writing by one of the
means listed above.
In order to process a withdrawal request or death benefit claim, it must be
submitted to Prudential in "good order." This is described in more detail at
page __ of this prospectus.
In some cases, the Contractholder or a third-party may provide recordkeeping
services for the Contract instead of Prudential. In that case, withdrawal and
transfer procedures may vary.
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PRUDENTIAL
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Prudential is a mutual life insurance company organized in 1873 under the laws
of New Jersey. Its corporate offices are located at 751 Broad Street, Newark,
New Jersey 07102-3777. It has been investing for pension funds since 1928.
Prudential is the issuer of the VCA 2 Contract. It is also the investment
adviser for VCA 2. It is registered as an investment adviser under the
Investment Advisers Act of 1940. Prudential is responsible for the
administration and recordkeeping activities for VCA 2.
Prudential is in the process of converting from a mutual insurance company to a
stock insurance company. This process is called "demutualization." Legislation
allowing Prudential to demutualize has been enacted by the State of New Jersey.
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However, no plan for demutualization has been adopted by the Board of Directors
of Prudential or approved by policyholders or appropriate state insurance
regulators. Once it has been adopted, this process could take two or more years
to complete and there will be a continuing evaluation by the Prudential Board of
Directors and senior management of the Company of the potential impact of the
process on contractowners.
PIMS, an indirect wholly-owned subsidiary of Prudential, is the principal
underwriter of the Contract. That means it is responsible for certain sales and
distribution functions for the Contract. PIMS is registered as a broker-dealer
under the Securities Exchange Act of 1934. PIMS is a direct wholly-owned
subsidiary of Prudential. Its main offices are located at Gateway Center Three,
9th Floor, Newark, New Jersey 07102-3777.
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VCA 2
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VCA 2 was created on January 9, 1968. It is a separate account under the
securities laws which means its assets are the property of Prudential but are
kept separate from Prudential's general assets and cannot be used to meet
liabilities from Prudential's other businesses.
VCA 2 is registered with the SEC as an open-end, diversified management
investment company.
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INVESTMENT PRACTICES
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Before making your investment decision, you should carefully review VCA 2's
investment objective and policies. There is no guarantee that the investment
objective of VCA 2 will be met.
INVESTMENT OBJECTIVE
VCA 2's investment objective is LONG-TERM GROWTH OF CAPITAL. VCA 2 will seek to
achieve this objective by investing primarily in EQUITY SECURITIES of major,
established corporations. Current income, if any, is incidental to this
objective.
INVESTMENT POLICIES
VCA 2 invests primarily in COMMON STOCKS, PREFERRED STOCKS, WARRANTS,
CONVERTIBLE BONDS or other equity-related securities. Equity securities are
subject to company risk. 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.
Equity securities are also 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 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
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relatively low price. If the overall market is dropping, the values of stock are
likely to drop.
Under normal market conditions, VCA 2 may also invest up to 20% of its total
assets in short, intermediate or long term DEBT INSTRUMENTS that have been rated
"investment grade." (This means major rating services, like Standard & Poor's
Ratings Group or Moody's Investors Service Inc., have rated the securities
within one of their four highest rating groups.) In response to adverse market
conditions, we may invest a higher percentage in debt instruments.
VCA 2 may also invest in foreign securities in the form of AMERICAN DEPOSITARY
RECEIPTS (ADRs). 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. We may purchase ADRs that are traded on a U.S. exchange or in an
over-the-counter market. ADRs are generally thought to be less risky than direct
investment in foreign securities because they can be transferred easily, have
readily available market quotations, and the foreign companies that issue them
are usually subject to the same types of financial and accounting standards as
U.S. companies. Nevertheless, as foreign securities, ADRs involve special risks
that should be considered carefully by investors. These risks include political
and/or economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, and the fact that there may be less
publicly available information about a foreign company than about a U.S.
company.
VCA 2 may also purchase and sell FINANCIAL FUTURES CONTRACTS, including futures
contracts on stock indexes, interest-bearing securities (for example, U.S.
Treasury bonds and notes) or interest rate indexes. In addition, we may purchase
and sell futures contracts on foreign currencies or groups of foreign
currencies. Under a financial futures contract the seller agrees to sell a set
amount of particular financial instrument or currency at a set price and time in
the future. Under a stock index futures contract, the seller of the contract
agrees to pay to the buyer an amount in cash which is equal to a set dollar
amount multiplied by the difference between the set dollar amount and the value
of the index on a specified date. No physical delivery of the stocks making up
the index is made. VCA 2 will use futures contracts only to hedge its positions
with respect to securities, interest rates and foreign securities.
In addition to futures contracts, VCA 2 is permitted to purchase and sell
OPTIONS on equity securities, debt securities, securities indexes, foreign
currencies and financial futures contracts. An option gives the owner the right
to buy (a "call option") or sell (a "put option") securities at a specified
price during a given period of time. VCA 2 will only invest in "covered"
options. An option can be covered in a variety of ways, such as setting aside
certain securities or cash in a segregated account equal in value to the
obligation under the option. The use of options involves special risks. The
skills that are needed to use options are different from those needed to select
individual securities. Additional discussion about the risks and the techniques
VCA 2 uses in connection with options is included in the SAI.
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VCA 2 may invest in SECURITIES BACKED BY REAL ESTATE or shares of real estate
investment trusts - called REITS - that are traded on a stock exchange or
NASDAQ. These types of securities are sensitive to factors that many other
securities are not - such as real estate values, property taxes, overbuilding,
cash flow and the management skill of the issuer. They may also be affected by
tax and regulatory requirements, such as those relating to the environment.
From time to time, VCA 2 may invest in REPURCHASE AGREEMENTS. In a repurchase
agreement, one party agrees to sell a security and also to repurchase it at a
set price and time in the future. The period covered by a repurchase period is
usually very short - possibly overnight or a few days - though it can extend
over a number of months. Because these transactions may be considered loans of
money to the seller of the underlying security, VCA 2 will only enter into
repurchase agreements that are fully collaterized. VCA 2 will not enter into
repurchase agreements with Prudential or its affiliates as seller. However, VCA
2 is seeking regulatory approval to permit it to enter into joint repurchase
transactions with other Prudential investment companies.
VCA 2 may also enter into REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLL
TRANSACTIONS. In a reverse repurchase arrangement, VCA 2 agrees to sell one of
its portfolio securities and at the same time agrees to repurchase the same
security at a set price and time in the future. During the reverse repurchase
period, VCA 2 often continues to receive principal and interest payments on the
security that it "sold." Each reverse repurchase agreement reflects a rate of
interest for use of the money received by VCA 2 and for this reason, has some
characteristics of borrowing. Dollar rolls occur when VCA 2 sells a security for
delivery in the current month and at the same time agrees to repurchase a
substantially similar security from the same party at a specified price and time
in the future. During the roll period, VCA 2 does not receive the principal or
interest earned on the underlying security. Rather, it is compensated by the
difference in the current sales price and the specified future price as well as
by interest earned on the cash proceeds of the original "sale." Reverse
repurchase agreements and dollar rolls involve the risk that the market value of
the securities held by VCA 2 may decline below the price of the securities VCA 2
has sold but is obligated to repurchase.
From time to time, VCA 2 may purchase or sell securities on a WHEN-ISSUED or
DELAYED DELIVERY basis - that is, delivery and payment can take place a month or
more after the date of the transaction. VCA 2 will enter into when-issued or
delayed delivery transactions only when it intends to actually acquire the
securities involved.
VCA 2 may also enter into SHORT SALES AGAINST THE BOX. In a short sale we sell a
security we do not own to take advantage of an anticipated decline in the
stock's price. VCA 2 borrows the stock for delivery and if it can buy the stock
later at a lower price, a profit results. A short sale is "against the box" when
VCA 2 owns securities identical to those sold short.
VCA 2 may also use FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS and INTEREST RATE
SWAPS and LEND its portfolio securities. Up to 15% of VCA 2's net assets may be
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invested in ILLIQUID SECURITIES. Illiquid securities include those with legal or
contractual restrictions, those without a readily available market and
repurchase agreements with maturities of longer than 7 days.
There is risk involved in the investment strategies we may use. Some of our
strategies require us to try to predict whether the price or value of an
underlying investment will go up or down over a certain period of time. There is
always the risk that investments will not perform as we thought they would. Like
any mutual fund, an investment in VCA 2 could lose value, and you could lose
money.
-----------------
Additional information about investment policies and restrictions, including the
risks associated with their use, is provided in the SAI.
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DETERMINATION OF UNIT VALUE
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To keep track of investment results, each Participant is credited with Units in
VCA 2. Initially, the number of Units credited to a Participant is determined by
dividing the amount of the contribution made on his or her behalf by the
applicable Unit Value for that day for VCA 2. After that, the Unit Value is
adjusted each day to reflect the investment returns and expenses of VCA 2 and
certain Contract charges.
The Unit Value 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 Unit Value will be calculated some time
between the closing time and 4:15 p.m. on that day.
EQUITY SECURITIES are generally valued at the last sale price on an exchange or
NASDAQ, or if there is not sale, 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.
All SHORT-TERM DEBT SECURITIES having remaining maturities of 60 days or less
are valued at amortized cost. This valuation method is widely used by mutual
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.
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 an national securities
exchange are valued at the average of the bid and asked prices as of the close
of that 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
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between the most recently quoted bid and asked prices on that exchange or board
of trade.
SECURITIES FOR WHICH NO MARKET QUOTATIONS ARE AVAILABLE will be valued at fair
value by Prudential under the supervision of the VCA 2 Committee.
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MANAGEMENT
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VCA 2 has a Committee - similar to a board of directors - that provides general
supervision. The members of the VCA 2 Committee are elected for indefinite terms
by the Participants of VCA 2. A majority of the members of the Committee are not
"interested persons" of Prudential or its affiliates, as defined by the
Investment Company Act of 1940 (the 1940 Act).
Under an investment management agreement, Prudential serves as the investment
manager of VCA 2. In turn, Prudential has contracted with its wholly owned
subsidiary, Prudential Investment Corporation (PIC), to provide these investment
services. Nevertheless, Prudential continues to have responsibility for all
investment management services. Prudential reimburses PIC for its costs and
expenses incurred in providing these services. PIC is registered as an
investment adviser under the Investment Advisers Act of 1940.
Prudential and PIC may use an affiliated brokers to execute brokerage
transactions on behalf of VCA 2 as long as the commissions are reasonable and
fair compared to the commissions received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time. More information about brokerage transactions is included in the SAI.
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CONTRACT CHARGES
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We list below the current charges under the Contract. On 90 days' notice, we may
change the sales charge, administration fee and the mortality and expense risk
fee. The investment management fee may be changed only with Participant
approval.
SALES CHARGE
We deduct a sales charge of 2.5% from each contribution at the time it is made.
This means 97.5% of each contribution is invested in VCA 2. This sales charge is
designed to pay our sales and marketing expenses for VCA 2.
ADMINISTRATION FEE
We charge an annual administration fee for recordkeeping and other
administrative expenses. This fee will not exceed $30 in any calendar year and
will be automatically deducted from your account. (If you also have a
fixed-dollar annuity contract under Prudential's Group Tax-Deferred Annuity
Program, the fee will be divided between that and your VCA 2 account.)
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We deduct the administration fee on the last business day of each calendar year.
New Participants will only be charged a portion of the annual administration
fee, depending on the number of months remaining in the calendar year after the
first contribution is made.
If you withdraw all of your contributions before the end of a year, we will
deduct the fee on the date of the last withdrawal. After that, you may only make
contributions as a new Participant in which case you will be subject to the
annual administration fee on the same basis as other new Participants. If a New
Participant withdraws all of his or her Units during the first fiscal year of
participation under the Contract, the full annual administration fee will be
charged.
MODIFICATION OF SALES CHARGE AND ADMINISTRATION FEE
Prudential may reduce or waive the sales charge or administrative fee or both
with respect to a particular Contract. We will only do this if we think that our
sales or administrative costs with respect to a Contract will be less than for
other Contracts. This might occur, for example, if Prudential is able to save
money by using mass enrollment procedures or if recordkeeping or sales efforts
are performed by the Contractholder or a third party. You should refer to your
Contract documents which set out the exact amount of fees and charges that apply
to your Contract.
MORTALITY AND EXPENSE RISK FEE
A "mortality risk" charge is paid to Prudential for assuming the risk that a
Participant will live longer than expected based on our life expectancy tables.
When this happens, we pay a greater number of annuity payments. In addition, an
"expense risk" charge is paid to Prudential for assuming that the current
charges will not cover the cost of administering the Contract in the future. We
deduct these charges daily. We compute the charge at an effective annual rate of
0.375% of the current value of your Account (0.125% is for assuming the
mortality risk, and 0.250% is for assuming the expense risk).
INVESTMENT MANAGEMENT FEE
Like many other variable annuity contracts, VCA 2 is subject to a fee for
investment management services. We deduct this charge daily. We compute the
charge at an effective annual rate of 0.125% of the current value of your VCA 2
account.
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THE CONTRACT
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The Contract described in this prospectus is generally issued to an employer who
makes contributions on behalf of its employees. The Contract can also be issued
to
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associations or trusts that represent employers or represent individuals who
themselves become Participants. Once a Participant begins to receive annuity
payments, Prudential will provide to the Contractholder - for delivery to the
Participant - a certificate which describes the variable annuity benefits which
are available to the Participant under the Contract.
THE ACCUMULATION PERIOD
1. Contributions
When you first become a Participant under the Contract, you must indicate if you
want contributions made on your behalf to be allocated between VCA 2 and a
companion fixed dollar annuity contract. You can change this allocation from
time to time. The discussion below applies only to contributions to VCA 2.
When a contribution is made, we invest 97.5% of it in VCA 2. (The remaining 2.5%
is for the sales charge.) You are credited with a certain number of Units, which
are determined by dividing the amount of the contribution (less the sale charge)
by the Unit Value for VCA 2 for that day. Then the value of your Units is
adjusted each business day to reflect the performance and expenses of VCA 2.
Units will be redeemed as necessary to pay your annual administration fee.
The first contribution made on your behalf will be invested within two business
days after it has been received by us if we receive your enrollment form in
"good order" (This means that all requested information must be submitted in a
manner satisfactory to Prudential.) If an initial contribution is made on your
behalf and the enrollment form is not in order, we will place the contribution
into one of two money market options until the paperwork is complete. The two
money market options are:
- If the Contractholder has purchased only VCA 2 Contracts or VCA 2
Contracts together with either a group variable annuity contract
issued through Prudential's MEDLEY Program or unaffiliated mutual
funds, then the initial contribution will be invested in The
Prudential Variable Contract Account-11 within Prudential's MEDLEY
Program.
- If the Contractholder has purchased VCA 2 Contracts as well as shares
of a money market fund, the initial contribution will be invested in
that money market fund.
In this event, the Contractholder will be promptly notified. However, if the
enrollment process is not completed within 105 days, we will redeem the
investment in the money market option. The redemption proceeds plus any earnings
will be paid to the Contractholder. Should this occur, the Contractholder may
incur liability under the Internal Revenue Code or the Employee Retirement
Income Security Act of 1974. The Contractholder can avoid both of these problems
by arranging to have the proceeds paid into a qualified trust or annuity
contract.
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2. The Unit Value
Unit Value is determined each business day by multiplying the previous day's
Unit Value by the "gross change factor" for the current business day and
reducing this amount by the daily equivalent of the investment management and
mortality and expense risk charges. The gross change factor for VCA 2 is
determined by dividing the current day's net assets, ignoring changes resulting
from new purchase payments and withdrawals, by the previous day's net assets.
3. Withdrawal of Contributions
Because the Contract is intended as a part of your retirement arrangements there
are certain restrictions on when you can withdraw contributions. Under Section
403(b) of the Internal Revenue Code, contributions made from a Participant's own
salary (before taxes) cannot be withdrawn unless the Participant is at least 59-
1/2 years old, no longer works for his or her employer, becomes disabled or
dies. (Contributions made from your own salary after December 31, 1988 may
sometimes be withdrawn in the case of hardship, but you need to check your
particular retirement arrangements.) Some retirement arrangements will allow you
to withdraw contributions made by the employer on your behalf or contributions
you have made with after-tax dollars.
If your retirement arrangements permit, you may withdraw at any time the dollar
value of all of your VCA Units as of December 31, 1988.
Retirement Equity Act. Under certain retirement arrangements, the Employee
Retirement Income Security Act of 1974 requires that married Participants must
obtain their spouses' written consent to make a withdrawal request. The spouse's
consent must be notarized or witnessed by an authorized plan representative.
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BECAUSE WITHDRAWALS WILL GENERALLY HAVE FEDERAL TAX IMPLICATIONS, WE URGE YOU TO
CONSULT WITH YOUR TAX ADVISER BEFORE MAKING ANY WITHDRAWALS UNDER THE CONTRACT.
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Payment of Redemption Proceeds. In most cases, once we receive a withdrawal
request in good order, we will pay you the redemption amount within seven days.
The SEC permits us to delay payment of redemption amounts beyond seven days
under certain circumstances - for example, when the New York Stock Exchange is
closed or trading is restricted.
4. Systematic Withdrawal Plan
If you are at least 59-1/2 years old and have Units equal to least $5,000, you
may be able to participate in the Systematic Withdrawal Plan. Participants under
the age of 59-1/2 may also be able to participate in the Plan if they no longer
work for the Contractholder. Regardless of your age, participation in this
program may be restricted by your retirement arrangements. Please consult your
Contract documents.
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RECEIVING PAYMENTS UNDER THE SYSTEMATIC WITHDRAWAL PLAN MAY HAVE SIGNIFICANT TAX
CONSEQUENCES AND PARTICIPANTS SHOULD CONSULT WITH THEIR TAX ADVISER BEFORE
SIGNING UP.
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Generally, amounts you withdraw under the Plan will be taxable at ordinary
income tax rates. In addition, if you have not reached age 59-1/2, the
withdrawals will generally be subject to a 10% premature distribution penalty
tax. Withdrawals you make after the later of (i) age 70-1/2 and (ii) your
retirement, must satisfy certain minimum distribution rules. Withdrawals by
beneficiaries must also meet certain minimum distribution rules.
Plan enrollment. To participate in the Plan, you must make an election on a form
approved by Prudential. (Under some retirement arrangements, if you are married
you may also have to obtain your spouse's written consent in order to
participate in the Plan.) You can choose to have withdrawals made on a monthly,
quarterly, semi-annual or annual basis. On the election form, you will also be
asked to indicate whether you want payments in equal dollar amounts or made over
a specified period of time. If you choose the second option, the amount of the
withdrawal payment will be determined by dividing the total value of your Units
by the number of withdrawals left to be made during the specified time period.
These payments will vary in amount reflecting the investment performance of VCA
2 during the withdrawal period. You may change the frequency of withdrawals, as
well as the amount, once during each calendar year on a form which we will
provide to you on request.
Termination of Plan Participation. You may terminate your participation in the
Plan at any time upon notice to us. If you do so, you cannot participate in the
Plan again until the next calendar year.
Additional Contributions. If you have elected to participate in the Plan,
contributions may still be made on your behalf. These contributions will be
subject to the sales charge, so you should carefully consider the effect of
these charges while making withdrawals at the same time.
Non-Prudential Recordkeepers. If the Contractholder or some other organization
provides recordkeeping services for your Contract, different procedures under
the Plan may apply.
5. Texas Optional Retirement Program
Special rules apply with respect to Contracts covering persons participating in
the Texas Optional Retirement Program in order to comply with the provisions of
Texas law relating to this program. Please refer to your Contract documents if
this applies to you.
6. Death Benefits
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In the event a Participant dies before the accumulation period under a Contract
is completed, a death benefit will be paid to the Participant's designated
beneficiary. The death benefit will equal the value of the Participant's Units
(less the full annual administration charge) on the day we receive the claim in
good order.
Payment Methods. You, the Participant, can elect to have the death benefit paid
to your beneficiary in one cash sum, as systematic withdrawals, as a variable
annuity, or a combination of the three, subject to the minimum distribution
rules of Section 401(a)(9) of the Internal Revenue Code described below. If a
Participant does not make an election, his or her beneficiary must chose from
the four options before the LATER to occur of: the first anniversary of the
Participant's death or two months after Prudential receives due proof of the
Participant's death. For benefits accruing after December 31, 1986, Internal
Revenue regulations requires that a designated beneficiary must begin to receive
payments no later than the EARLIER of (1) December 31 of the calendar year
during which the fifth anniversary of the Participant's death occurs or (2)
December 31 of the calendar year in which annuity payments would be required to
begin to satisfy the minimum distribution requirements described below. As of
such date the election must be irrevocable and must apply to all subsequent
years. However, if the election includes systematic withdrawals, the
beneficiary may terminate them and receive the remaining balance in cash (or
effect an annuity with it) or to change the frequency, size or duration of the
systematic payments.
ERISA. Under certain types of retirement plans, ERISA requires that in the case
of a married Participant, a death benefit be paid to the Participant's spouse in
the form of a "qualified pre-retirement survivor annuity." This is an annuity
for the lifetime of the Participant's spouse in an amount which can be purchased
with no less than 50% of the value of the Participant's Units as of the date of
the Participant's death. In these cases, the spouse may waive the benefit in a
writing which is notarized or witnessed by an authorized plan representative. If
the spouse does not consent, or the consent is not in good order, 50% of the
value of the Participant's Units will be paid to the spouse, even if the
Participant named some one else as the beneficiary. The remaining 50% will be
paid to the designated beneficiary.
Minimum Distribution Rules. Benefits accruing after December 31, 1986 under a
Section 403(b) annuity contract are subject to minimum distribution rules. These
specify the time when payments must begin and the minimum amount that must be
paid annually. Generally, when a Participant dies before we have started to make
benefit payments, we must pay out the death benefit entirely by December 31 of
the calendar year including the fifth anniversary of the Participant's date of
death. Or, the beneficiary may select an annuity under option 1, 2 or 4
described on page , with the payments to begin as of December 31 of the
calendar year immediately following the calendar year in which the Participant
died (or, if the Participant's spouse is the designated beneficiary, December 31
of the calendar year in which the Participant would have become 70-1/2 years
old, if that year is later). Options 3 and 5 described on page may not be
selected under these rules. In addition, the duration of any period certain
annuity may not exceed the beneficiary's life expectancy as determined under IRS
tables. If the amount distributed to a beneficiary for a calendar year is less
than the required minimum amount, a federal excise tax is imposed equal to 50%
of the amount of the underpayment.
Annuity Option. Under many retirement arrangements, a beneficiary who elects a
fixed-dollar annuity death benefit may choose from among the forms of annuity
available. (See page __ of this prospectus.) He or she will be entitled to the
same annuity purchase rate basis that would have applied if you were purchasing
the annuity for yourself. The beneficiary may make this election immediately or
at some time in the future.
Systematic Withdrawal Option. If a beneficiary has chosen to receive the death
benefit in the form of systematic withdrawals, he or she may terminate the
withdrawals and receive the remaining value of the Participant's Units in cash
or to
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purchase an annuity. The beneficiary may also change the frequency or amount of
withdrawals, subject to the minimum distribution rules described below.
Until Pay-out. Until all of your Units are redeemed and paid out in the form of
a death benefit, they will be maintained for the benefit of your beneficiary.
However, a beneficiary will not be allowed to make contributions or take a loan
against the Units. No deferred sales charges will apply on withdrawals by a
beneficiary.
7. Discontinuance of Contributions
A Contractholder can stop contributions on behalf of all Participants under a
Contract by giving notice to Prudential. In addition, any Participant may stop
contributions made on his or her behalf.
We also have the right to refuse new Participants or new contributions on behalf
of existing Participants upon 90 days' notice to the Contractholder.
If contributions on your behalf have been stopped, you may either keep your
Units in VCA 2 or elect any of the options described at page ___ of this
prospectus.
8. Continuing Contributions Under New Employer
If you become employed by a new employer, and that employer is eligible to
provide tax deferred annuities, you may be able to enter into a new agreement
with your new employer which would allow you to continue to participate under
the Contract. Under that agreement, the new employer would continue to make
contributions under the Contract on your behalf.
9. Transfer Payments
Under most of the Contracts, you can transfer all or some of your VCA 2 Units to
a fixed dollar annuity contract issued under Prudential's Group Tax-Deferred
Annuity Program. In order to make a transfer, you need to provide us with a
completed written transfer request form or a properly authorized telephone or
Internet transfer request (see below). There is no minimum transfer amount but
we have the right to limit the number of transfers you make in any given period
of time. Although there is no charge for transfers currently, we may impose one
at any time upon notice to you. Different procedures may apply if your Contract
has a recordkeeper other than Prudential.
You may also make transfers into your VCA 2 account from a fixed dollar annuity
contract issued under Prudential's Group Tax-Deferred Annuity Program or from a
similar group annuity contract issued by Prudential to another employer. When
you make transfers into your VCA 2 account no sales charges are imposed. Because
your retirement arrangements or the contracts available under those arrangements
may contain restrictions on transfers, you should consult those contract
documents. For example, some contracts and retirement plans provide that amounts
transferred to VCA 2 from the fixed dollar annuity may not be transferred within
the following 90 days to an investment option deemed to be "competing" with the
fixed dollar anniuty contract. Prudential reserves the right to limit how many
transfer you may make in any given period of time.
Processing Transfer Requests. On the day we receive your transfer request in
good order, we will redeem the number of Units you have indicated (or the number
of Units necessary to make up the dollar amount you have indicated) and invest
in the fixed-dollar annuity contract. The value of the Units redeemed will be
determined by dividing the amount transferred by the Unit Value for that day for
VCA 2.
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Alternate Funding Agency. Some Contracts provide that if a Contractholder stops
making contributions, it can request Prudential to transfer a Participant's
Units in VCA 2 to a designated alternate funding agency. We will notify each
Participant with Units of the Contractholder's request. A Participant may then
choose to keep his or her Units in VCA 2 or have them transferred to the
alternate funding agency. If we do not hear from a Participant within 30 days,
his or her Units will remain in VCA 2.
If you choose to transfer your VCA 2 Units to the alternate funding agency, your
VCA 2 account will be closed on the "transfer date" which will be the LATER to
occur of:
- a date specified by the Contractholder OR
- 90 days after Prudential receives the Contractholder's request.
At the same time, all of the VCA 2 Units of Participants who have elected to go
into the alternate funding agency will be transferred to a liquidation account
(after deducting the full annual administration charge for each Participant).
Each month, beginning on the transfer date, a transfer will be made from the
liquidation account to the alternate funding agency equal to the GREATER of:
- $2 million OR
- 3% of the value of the liquidation account as of the transfer date.
When this happens, Units in the liquidation account will be canceled until there
are no more Units.
Retirement Equity Act. Under certain types of retirement arrangements, the
Retirement Equity Act of 1984 requires that in the case of a married
Participant, certain requests for transfers must include the written consent of
the Participant's spouse, which must be notarized or witnessed by an authorized
plan representative.
10. Requests by Telephone and other Electronic Means
Depending on your Contract, you may be able to make transfers and other
transactions by telephone, telecopy or other electronic means - like the
Internet. If your Contract provides for these privileges, you will automatically
be able to use them unless you decline them in writing on a form provided by us
or the Contractholder.
For your protection and to prevent unauthorized exchanges, telephone calls and
other communications will be recorded and you will be asked to provide your
personal identification number or other identifying information. Neither
Prudential nor our agents will be liable for any loss, liability or cost which
results from acting upon instructions reasonably believed to be genuine.
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During times of extraordinary economic or market changes, electronic
instructions may be difficult to implement.
Some states may not allow these privileges.
11. Prudential Mutual Funds
We may offer certain Prudential mutual funds as an alternative investment
vehicle for existing VCA 2 Contractholders. These funds are managed by
Prudential Funds Investment Management LLC, a wholly-owned subsidiary of
Prudential. If the Contractholder elects to make one or more of these funds
available, Participants may direct new contributions to the funds.
Exchanges. Prudential may also permit Participants to exchange some or all of
their VCA 2 Units for shares of Prudential mutual funds without imposing any
sales charge or other fee. In addition, Prudential may allow Participants to
exchange some or all of their shares in Prudential mutual funds for Units in VCA
2. No sales charge is imposed on these exchanges or subsequent withdrawals.
Prudential will determine the time periods during which these exchange rights
will be offered.
In Prudential's opinion, there should be no adverse tax consequences if a
Participant in a qualified retirement arrangement elects to exchange amounts in
the Participant's current VCA 2 account(s) for shares of Prudential mutual funds
or vice versa.
If you exchange from VCA 2 to a Prudential mutual fund, your interest will be
transferred from a Section 403(b) annuity contract to a "Section 403(b)(7)
custodial account" so that the transfer will not result in a taxable
distribution. If you exchange from a Prudential mutual fund to VCA 2, your
interest will be transferred from a Section 403(b)(7) custodial account to a
Section 403(b) annuity contract so that the transfer will not result in a
taxable distribution. You should be aware that the Internal Revenue Code may
impose more restrictions on early withdrawals from Section 403(b)(7) custodial
accounts (that is, your shares in the Prudential mutual funds) than under the
VCA 2 Contract.
We may also offer VCA 2 Contractholders certain mutual funds that are not
sponsored or managed by Prudential. The tax consequences of these exchanges are
similar to the ones described above.
------------------------
Before deciding to make any exchanges, you should carefully read the prospectus
for the mutual fund you are considering. The mutual funds are not funding
vehicles for variable annuity contracts and therefore do not have the same
features as the VCA 2 Contract.
12. Discovery Select Group Retirement Annuity
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Certain Participants may be offered an opportunity to exchange their VCA 2 Units
for interests in Discovery Select Group Retirement Annuity ("Discovery Select"),
which offers 22 different investment options. The investment options available
through Discovery Select are described in that annuity's prospectus and include
both Prudential and non-Prudential funds.
For those who are eligible, no charge will be imposed upon transfer into
Discovery Select, however, Participants will become subject to the charges
applicable under that annuity. For purposes of calculating the accumulation
period and any applicable deferred sales charges, years of participation in the
VCA 2 will be counted as years of participation in Discovery Select.
A copy of the Discovery Select prospectus and SAI can be obtained at no cost by
calling 1-800-458-6333.
13. Modified Procedures
Under some Contracts, the Contractholder or a third party provides the
recordkeeping services that would otherwise be provided by Prudential. These
Contracts may have different procedures than those described in this prospectus.
For example, they may require that transfer and withdrawal requests be sent to
the recordkeeper rather than Prudential. For more information, please refer to
your Contract documents.
THE ANNUITY PERIOD
1. Variable Annuity Payments
The annuity payments you receive under the Contract once you reach the income
phase will depend on the following factors:
- the total value of your VCA 2 Units on the date the annuity begins
- the taxes on annuity considerations as of the date the annuity begins
- the schedule of annuity rates in the Contract
- the investment performance of VCA 2 after the annuity has begun
The annuitant will receive the value of a fixed number of Annuity Units each
month. Changes in the value of the Units and thus, the amount of the monthly
payment, will reflect investment performance after the date on which the income
phase begins.
2. Electing the Annuity Date and the Form of Annuity
If permitted under federal tax law and your Contract, you may use all or any
part of your VCA 2 Units to purchase a variable annuity under the Contract. If
you decide
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to purchase an annuity, you can choose from any of the options described below
unless your retirement arrangement otherwise restricts you. You may also be able
to purchase a fixed dollar annuity if you have a companion fixed dollar
contract.
The Retirement Equity Act of 1984 requires that a married Participant under
certain types of retirement arrangements must obtain the consent of his or her
spouse if the Participant wishes to select a payout that is not a qualified
joint and survivor annuity. The spouse's consent must be signed, and notarized
or witnessed by an authorized plan representative.
If the dollar amount of your first monthly annuity payment is less than the
minimum specified in the Contract, we may decide to make a withdrawal payment to
you instead of an annuity payment. If we do so, all of the Units in your VCA 2
account will be withdrawn as of the date the annuity was to begin.
3. Available Forms of Annuity
OPTION 1 - VARIABLE LIFE ANNUITY.
If you purchase this type of an annuity, you will begin receiving monthly
annuity payments immediately. These payments will continue throughout your
lifetime no matter how long you live. However, no payments will be made after
you pass away. It is possible under this type of annuity to receive only one
annuity payment. For this reason, this option is generally best for someone
without dependents who wants higher income during his or her lifetime.
OPTION 2 - VARIABLE LIFE ANNUITY WITH PAYMENTS CERTAIN.
If you purchase this type of an annuity, you will begin receiving monthly
annuity payments immediately. These payments will continue throughout your
lifetime no matter how long you live. You also get to specify a minimum number
of monthly payments that will be made - 120 or 180 - so that if you pass away
before the last payment is received, your beneficiary will continue to receive
payments for the rest of that period.
OPTION 3 - VARIABLE JOINT AND SURVIVOR ANNUITY.
If you purchase this type of annuity, you will begin receiving monthly annuity
payments immediately. These payments will be continued throughout your lifetime
and afterwards, to the person you name as the "contingent annuitant," if living,
for the remainder of her or his lifetime. When you purchase this type of annuity
you will be asked to set the percentage of the monthly payment - for example,
33% or 66% or 100% - you want paid to the contingent annuitant for the remainder
of his or her lifetime.
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OPTION 4 - VARIABLE ANNUITY CERTAIN.
If you purchase this type of annuity, you will begin receiving monthly annuity
payments immediately. However, unlike Options 1, 2 and 3, these payments will
only be paid for 120 months. If you pass away before the last payment is
received, your beneficiary will continue to receive payments for the rest of
that period. If you outlive the specified time period, you will no longer
receive any annuity payments.
Because Prudential does not assume any mortality risk, no mortality risk charges
are made in determining the annuity purchase rates for this option.
OPTION 5 - VARIABLE JOINT AND SURVIVOR ANNUITY WITH 120 PAYMENTS CERTAIN.
If you purchase this type of annuity, you will begin receiving monthly annuity
payments immediately. These payments will be continued throughout your lifetime
and afterwards, to the person you name as the "contingent annuitant," if living,
for the remainder of her or his lifetime. Your contingent annuitant will receive
monthly payments in the same amount as the monthly payments you have received
for a period of 120 months. You also set the percentage of the monthly payment -
for example, 33% or 66% or even 100% - you want paid to the contingent annuitant
for the remainder of his or her lifetime after the 120 month period.
If both you and the contingent annuitant pass away during the 120 month period,
payments will be made to the properly designated beneficiary for the rest of
that period.
--------------------------
If the dollar amount of the first monthly payment to a beneficiary is less that
the minimum set in the Contract or the beneficiary named under Options 2, 4 and
5 is not a natural person receiving payments in his or her own right, Prudential
may elect to pay the commuted values of the unpaid payments certain in one sum.
With respect to benefits accruing after December 31, 1986, the duration of any
period certain payments may not exceed the life expectancy of the Participant
(or if there is a designated beneficiary, the joint life and last survivor
expectancy of the Participant and the designated beneficiary as determined under
Internal Revenue Service life expectancy tables). In addition, regulations have
been proposed by the Internal Revenue Service that would specify a maximum
duration of any period certain payment and the maximum survivor benefit payable
under a joint and survivor annuity.
4. Purchasing the Annuity
Once you have selected a type of annuity, you must submit to Prudential a
written form that we will provide to you on request. Unless you pick a later
date, the annuity will begin on the first day of the second month after we have
received your election form in good order and you will receive your first
annuity payment within one month after that.
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If it is necessary to withdraw all of your contributions in VCA 2 in order to
purchase the annuity, the full annual administration fee will be charged. The
remainder - less any applicable taxes on annuity considerations - will be
applied to provide an annuity under which each monthly payment will be the value
of a specified number of "Annuity Units." The Annuity Unit Value is calculated
as of the end of each month. The value is determined by multiplying the "annuity
unit change factor" for the month by the Annuity Unit Value for the preceding
month. The annuity unit change factor is calculated by:
ADDING to 1.0 the rate of investment income earned, if any, after
applicable taxes and the rate of asset value changes in VCA 2 during the
period from the end of the preceding month to the end of the current month
THEN DEDUCTING the rate of investment management fee for the number of days
in the current month (computed at an effective annual rate of 0.125%) and
DIVIDING by the sum of 1.00 and the rate of interest for 1/12 of a year,
computed at the effective annual rate specified in the Contract as the
"Assumed Investment Result" (see below).
5. Assumed Investment Result
To calculate your initial payment, we use an "annuity purchase rate." This rate
is based on several factors, including an assumed return on your investment in
VCA 2. If VCA 2's actual investment performance is better than the assumed
return, your monthly payment will be higher. On the other hand, if VCA 2's
actual performance is not as good as the assumed return, you monthly payment
will be lower.
Under each Contract, the Contractholder chooses the assumed return rate. This
rate may be 3-1/2%, 4%, 4-1/2%, 5% or 5-1/2%. The return rate selected by the
Contractholder will apply to all Participants receiving annuities under the
Contract.
The higher the assumed return rate, the greater the initial annuity payment will
be. However, in reflecting the actual investment results of VCA 2, annuity
payments with a lower assumed return rate will increase faster - or decrease
slower - than annuity payments with a higher assumed return rate.
6. Schedule of Variable Annuity Purchase Rates
The annuity rate tables contained in the Contract show how much a monthly
payment will be, based on a given amount. Prudential may change annuity purchase
rates. However, no change will be made that would adversely affect the rights of
any one who purchased an annuity prior to the change unless we first receive
their approval or we are required by law to make the change.
7. Deductions for Taxes on Annuity Considerations
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Some states impose a premium tax on annuity contracts. The tax rates in those
jurisdictions generally range from 0.5% to 5%. Please consult your tax adviser
to see if this applies to you.
ASSIGNMENT
The right to any payment under a Contract is neither assignable nor subject to
the claim of a creditor unless state or federal law provides otherwise.
CHANGES IN THE CONTRACT
We have the right under the Contract to change the annual administration fee and
sales charges. In the event we decide to change the sales charge, the new charge
will only apply to contributions made after the change takes place.
The Contract allows us to revise the annuity purchase rates from time to time as
well as the mortality and expense risk fees. A Contract may also be changed at
any time by agreement of the Contractholder and Prudential - however, no change
will be made in this way that would adversely affect the rights of any one who
purchased an annuity prior to that time unless we first receive their approval.
If Prudential does modify any of the Contracts as discussed above, it will give
the Contractholder at least 90 days' prior notice.
REPORTS
At least once a year, you will receive a report from us showing the number of
your Units in VCA 2. You will also receive semi-annual reports showing the
financial condition of VCA 2.
PERFORMANCE INFORMATION
Performance information for VCA 2 may appear in advertisements and reports to
current and prospective Contractholders and Participants. This performance
information is based on actual historical performance and does not indicate or
represent future performance.
Total return data is based on the overall dollar or percentage change in the
value of a hypothetical investment. Total return quotations reflect changes in
Unit Values and the deduction of applicable charges.
A cumulative total return figure reflects performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative total return if
the performance had been constant over the entire period.
Comparative performance information may from time to time be included in reports
or advertising, including but not limited to, data from Morningstar, Inc.,
Lipper
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Analytical Services, Inc., Standard & Poor's 500 Composite Price Index, Lehman
Brothers indexes and other commonly used indexes or industry publications.
See "Performance Information" in the SAI for recent performance information.
PARTICIPATION IN DIVISIBLE SURPLUS
A mutual life insurance company, like Prudential, differs from a stock life
insurance company in that it has no stockholders who are the owners of the
enterprise. Rather, the holders of Prudential contracts participate in the
divisible surplus of Prudential, if any, according to the annual determination
of the Prudential Board of Directors. For the Contract described in this
prospectus, any surplus determined by the Prudential Board of Directors as a
dividend is credited to Participants. NO ASSURANCE CAN BE GIVEN AS TO THE
AMOUNT, IF ANY, THAT WILL BE AVAILABLE FOR DISTRIBUTION UNDER THIS CONTRACT IN
THE FUTURE.
Such payments amounted to $___ during 1998, $78,656 during 1997 and ($235,290)
during 1996.
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FEDERAL TAX STATUS
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This section includes a general discussion about the federal tax rules relevant
to the Contract. We do not intend to provide any tax advice about your
particular situation. In addition, we do not describe any applicable state or
other tax laws. You should consult a qualified tax adviser for complete
information and advice.
SECTION 403(b) ANNUITY PLAN
The Contract may be used in connection with retirement programs for certain
persons known as Section 403(b) annuity plans.
The provisions of the Internal Revenue Code that apply to the retirement
arrangements that may be funded by the Contract are complex. You should consult
a qualified tax adviser. We list below some rules that generally apply. Assuming
that you and your Contractholder follow the requirements and limitations of the
provisions of the Internal Revenue Code applicable to the particular type of
plan, contributions made under a retirement arrangement are deductible (or not
includible in income) up to certain amounts each year. Federal income tax
currently is not imposed upon the investment income and realized gains earned by
the investment option until you receive a distribution or withdrawal. When you
receive a distribution or withdrawal (a lump sum, an annuity or as regular
payments in accordance with a systematic withdrawal arrangement), all or a
portion of that distribution or withdrawal is normally taxable as ordinary
income. The tax on lump sum distributions may, in some cases, be limited by a
special 5-year or 10-year income-averaging rule. The 5-year averaging rule will
not be available for tax years beginning after 1999.
22
<PAGE> 27
Premature distributions or withdrawals may be subject to a penalty tax. If you
are contemplating a withdrawal, you should consult a qualified tax adviser. In
addition, Federal tax laws impose restrictions on withdrawals from Section
403(b) annuities. This limitation is discussed in the "Withdrawal of
Contributions" section on page __.
MINIMUM DISTRIBUTION REQUIREMENTS
You may be subject to certain minimum distribution rules.
For Section 403(b) annuity plans that are attributable to benefits accruing
after December 31, 1986 :
distributions must begin by April 1 of the calendar year following the
later of (i) the calendar year in which the Participant attains age
70-1/2 or (ii) the calendar year in which the Participant retires.
Distributions to your beneficiaries are also subject to minimum distribution
rules.
If you die before the entire interest in your Accumulation Accounts has
been distributed, your remaining interest must be distributed at least as
rapidly as under the method of distribution being used as of the date of
death.
If you die before distributions have begun (or are treated as having begun)
the entire interest in your Accumulation Accounts must be distributed by
December 31 of the calendar year containing the fifth anniversary of your
death. Alternatively, if there is a designated beneficiary, the designated
beneficiary may elect to receive payments beginning no later than December
31 of the calendar year immediately following the year in which you die and
continuing for the beneficiary's life or a period not exceeding the
beneficiary's life expectancy.
Special rules apply to your spouse.
If you or your beneficiary does not meet the minimum distribution requirements,
an excise tax applies.
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<PAGE> 28
agent for a natural person; acquired by an estate by reason of the death of the
decedent; held under a qualified pension or profit sharing plan, a Section
403(b) annuity plan or individual retirement plan or contracts which provide for
immediate annuities.
WITHHOLDING
Certain distributions from qualified plans under Section 403(b) of the Internal
Revenue Code, which are not directly rolled over or transferred to another
eligible qualified plan, are subject to a mandatory 20% withholding for federal
income tax. The 20% withholding requirement does not apply to: (a) distributions
for the life or life expectancy of the participant, or joint and last survivor
expectancy of the participant and a designated beneficiary; or (b) distributions
for a specified period of ten years or more; or (c) distributions which are
required as minimum distributions. Accordingly, you should check your
Contractholder's retirement arrangement and consult with your tax adviser before
making a withdrawal.
DEATH BENEFITS
In general, a death benefit consisting of amounts paid to your beneficiary is
includable in your estate for federal estate tax purposes.
TAXES ON PRUDENTIAL
VCA 2 is not considered a separate taxpayer for purposes of the Internal Revenue
Code. The earnings of this account are taxed as part of the income of
Prudential. We do not currently charge you for federal income taxes paid by
Prudential. We will review periodically the question of a charge for our federal
income taxes attributable to the Contract, and in the future may charge you for
any federal income taxes attributable to the Contract.
- --------------------------------------------------------------------------------
VOTING RIGHTS
- --------------------------------------------------------------------------------
VCA 2 may call meetings of its Participants, just like other mutual funds have
shareholder meetings. Each Participant in VCA 2 has the right to vote at
meetings of VCA 2.
Participant meetings are not necessarily held every year. VCA 2 Participant
meetings may be called to elect Committee Members, vote on amendments to
investment management agreements, and approve changes in fundamental investment
policies. Under the Rules and Regulations of VCA 2, a Participant meeting to
elect Committee Members must be held if less than a majority of the Members of a
Committee have been elected by Participants.
As a VCA 2 Participant, you are entitled to the number of votes that equals the
total dollar amount of your Units. To the extent Prudential has invested it own
money in VCA 2, it will be entitled to vote on the same basis as other
Participants. Prudential's votes will be cast in the same proportion that the
other Participants
24
<PAGE> 29
vote - for example, if 25% of the Participants who vote are in favor of a
proposal, Prudential will cast 25% of its votes in favor of the proposal.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
On October 28, 1996, Prudential entered into a Stipulation of Settlement in a
multidistrict proceeding involving allegations of various claims relating to
Prudential's life insurance sales Prudential practices. (In re Prudential
Insurance Company of America Sales Practices Litigation, D.N.J., MDL No. 1061,
Master Docket No. 95-4704 (AMW)). On March 7, 1997, the United States District
Court for the District of New Jersey approved the Stipulation of Settlement as
fair, reasonable and adequate, and later issued a Final Order and Judgment in
the consolidated class actions before the court, 962 F. Supp. 450 (March 17,
1997, as amended April 14, 1997). The Court's Final Order and Judgment approving
the class Settlement was appealed to the United States Court of Appeals for the
Third Circuit, which upheld the district court's approval of the Stipulation of
Settlement on July 23, 1998. As of now no further appeal has been taken.
Pursuant to the Settlement, Prudential agreed to provide and has begun to
implement an Alternative Dispute Resolution ("ADR") process for class members
who believe they were misled concerning the sale or performance of their life
insurance Contracts. As of December 31, 1997, based on a reasonable estimate of
losses associated with ADR claims, management estimated the cost, before taxes,
of remedying policyholder claims in the ADR process to be approximately $2.05
billion. While management believed these to be reasonable estimates based on
information then available, further estimates are currently being developed in
connection with the availability of more recent data. The ultimate amount of the
total cost of remedied policyholder claims is dependent on complex and varying
factors, including actual claims by eligible policyholders, the relief options
chosen and the dollar value of those options. There are also additional elements
of the ADR process which cannot be fully evaluated at this time (e.g., claims
which may be successfully appealed) which could increase this estimate.
In addition, a number of actions have been filed against Prudential by
policyholders who have excluded themselves from the Settlement; Prudential
anticipates that additional suits may be filed by other policyholders.
Also, on July 9, 1996, a Multi-State Life Insurance Task Force comprised of
insurance regulators from 29 states and the District of Columbia, released a
report on Prudential's activities. As of February 24, 1997, Prudential had
entered into consent orders or agreements with all 50 states and the District of
Columbia to implement a remediation plan, whose terms closely parallel the
Settlement approved in the MDL proceeding, and agreed to a series of payments
allocated to all 50 states and the District of Columbia amounting to a total of
approximately $65 million. These agreements are now being implemented through
Prudential's implementation of the class Settlement.
25
<PAGE> 30
Litigation is subject to many uncertainties, and given the complexity and scope
of these suits, their outcome cannot be predicted. It is also not possible to
predict the likely results of any regulatory inquiries or their effect on
litigation which might be initiated in response to widespread media coverage of
these matters.
Accordingly, management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of all pending
litigation and regulatory inquiries. It is possible that the results of
operations or the cash flow of Prudential, in particular quarterly or annual
periods, could be materially affected by an ultimate unfavorable outcome of
certain pending litigation and regulatory matters. Management believes, however,
that the ultimate outcome of all pending litigation and regulatory matters
referred to above should not have a material adverse effect on Prudential's
financial position, after consideration of applicable reserves.
- --------------------------------------------------------------------------------
YEAR 2000
- --------------------------------------------------------------------------------
The services provided under the Contracts by Prudential depend on the smooth
functioning of its computer systems. The year 2000, however, holds the potential
for significant disruption in the operation of these systems. Many computer
systems are programmed to recognize only the last two digits in a date. As a
result, any computer system that has date-sensitive programming may recognize a
date using "00" as the year 1900 rather than the year 2000. This problem can
affect non-information technology systems that include embedded technology, such
as microprocessors included in "infrastructure" equipment used for
telecommunications and other services as well as computer systems. If this
anomaly is not corrected, the year "00" could cause systems to perform date
comparisons and calculations incorrectly, which could in turn affect the
accuracy and compromise the integrity of business records. Business operations
could be interrupted when companies are unable to process transactions, send
invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major components:
Business Applications, Infrastructure and Business Partners. The CPO also
established quality assurance procedures including a certification process to
monitor and evaluate enterprise-wide progress of each component of Prudential's
program for conversion and upgrading of systems for Year 2000 compliance.
BUSINESS APPLICATIONS
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (that is, renovate, replace
or retire). Rigorous testing standards have been employed for all applications
that will not be retired, including those that are newly developed or purchased.
Application
26
<PAGE> 31
replacement and renovation projects follow a similar path toward Year 2000
compliance. The key project phases include Year 2000 analysis and design,
programming activities, testing, and implementation. Replacement projects are
also tracked until the existing applications are removed from production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000 compliant
systems, and the remaining 17% are being retired from production. Business
application projects are grouped by applications undergoing renovations,
replacements or retirements. As of December 31, 1998, the percentage of business
applications (based on application count) in the implementation phase for Year
2000 compliance for renovation, replacement and retirement were 99.91%, 96.62%
and 99.87%, respectively. The interim target date for completing renovations and
retirements is March 1999, with an overall completion date for Business
Applications of June 1999.
INFRASTRUCTURE
The scope of Prudential's Year 2000 Infrastructure initiatives include mainframe
computer system hardware and operating system software, mid-range systems and
servers, telecommunications equipment, buildings and facilities systems,
personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (for example,
upgrading hardware or software), testing and implementation. The interim target
date for completion of certain Infrastructure components is March 1999 with an
overall completion date for Infrastructure of June 1999.
BUSINESS PARTNERS
Prudential's approach to business partner readiness includes classification of
each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of our business
partners have been identified as highly critical and the remaining 70% as less
critical. Project phases include inventory, risk assessment, and contingency
planning activities. The interim target date for highly critical business
partner readiness was achieved in December 1998. We have with an overall
completion date for less critical business partner readiness of June 1999.
THE COST OF YEAR 2000 PROGRAM
Prudential is funding the Year 2000 program from operating cash flows. Some of
the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including those businesses not engaged in
providing services under the Contracts. Accordingly, while the expense is
substantial in the aggregate, it is not expected to have a material impact on
Prudential's ability to meet its contractual commitments under the Contracts.
YEAR 2000 RISKS AND CONTINGENCY PLANNING
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<PAGE> 32
The major portion of Prudential's transactions are of such volume that they can
only be effectively processed through the use of automated systems. Therefore,
substantially all of Prudential's contingency plans include the ultimate
resolution of any causative technology failures that may be encountered.
Prudential believes that the Business Application, Infrastructure and Business
Partners components of the Year 2000 project are substantially on schedule.
While management expects that a small number of the projects may not meet their
targeted completion date, it is anticipated that these projects will be
completed by the middle of September 1999 so that any delays, if experienced,
would not have a significant impact on the timing of the project as a whole.
During the course of the Year 2000 program, some discretionary technology
projects have been delayed in favor of the completion of Year 2000 projects.
However, this impact has been minimized by Prudential's strategic decision to
outsource most of the Year 2000 renovation work.
While Prudential and its subsidiaries believe that they are well positioned to
mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, Prudential is unable to determine at this time whether
the consequences of Year 2000 failures will have a material adverse effect on
the results of operations, liquidity or financial condition. In the worst case,
it is possible that any technology failure, including an internal or external
Year 2000 failure, could have a material impact on Prudential's results of
operations, liquidity, or financial position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure of
specific business applications or infrastructure components. These responses are
being reviewed and expected to be finalized by June 1999 to ensure that they are
workable under the special conditions of a Year 2000 failure. The plans are also
being updated to reduce the level of uncertainty about the Year 2000 problem
including readiness of Prudential's Business Partners.
This discussion of the Year 2000 issue, and in particular Prudential's plans to
remediate this issue and the estimated costs thereof, are forward-looking in
nature.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Registration statements under the Securities Act of 1933 have been filed with
the commission with respect to the Contracts. This prospectus does not contain
all he information set forth in the registration statements, certain portions of
which have been omitted pursuant to the rules and regulations of the Commission.
The omitted information may be obtained from the Commission's principal office
in Washington, D.C. upon payment of the fees prescribed by the Commission.
For further information, you may also contact Prudential's office at the address
or telephone number on the cover of this prospectus.
28
<PAGE> 33
A copy of the SAI, which provides more detailed information about the Contracts,
may be obtained without charge by calling Prudential at 1-800-458-6333. The
Statement includes.
29
<PAGE> 34
- --------------------------------------------------------------------------------
TABLE OF CONTENTS - STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-2 ...........................
Fundamental investment restrictions adopted by VCA-2 .....................
Non-fundamental investment restrictions adopted by VCA-2 .................
Investment restrictions imposed by state law .............................
Additional information about financial futures contracts .................
Additional information about options .....................................
Forward foreign currency exchange contracts ..............................
Interest rate swap transactions ..........................................
Loans of portfolio securities ............................................
Portfolio turnover rate ..................................................
Portfolio brokerage and related practices ................................
Custody of securities ....................................................
THE VCA-2 COMMITTEE .........................................................
Officers who are not directors ...........................................
Remuneration of members of the Committee and certain affiliated persons ..
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA-DIRECTORS .......................
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA-PRINCIPAL OFFICERS ..............
SALE OF GROUP VARIABLE ANNUITY CONTRACTS ....................................
EXPERTS .....................................................................
FINANCIAL STATEMENTS OF VCA-2 ...............................................
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA AND SUBSIDIARIES .................................................
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<PAGE> 35
CONDENSED FINANCIAL INFORMATION
INCOME AND CAPITAL CHARGES PER VCA2 UNIT
The following condensed financial information for the two-year period ended
December 31, 1998 has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose unqualified report thereon appears in VCA 2's Annual Report
dated December 31, 1998. The condensed financial information for each of the
years prior to and including the period ended December 31, 1995 has been audited
by other independent auditors, whose report thereon was also unqualified. The
information set out below should be read in together with the financial
statements and related notes that also appear in VCA 2's Annual Report which is
included in the SAI.
<TABLE>
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
Investment Income...................................... 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Expenses
For investment management fee.....................
For administrative expenses not covered by the
annual account charge........................
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment income..................................
- ---------------------------------------------------------------------------------------------------------------------------
Capital Changes
Net realized gain (loss) on investments...........
Net unrealized appreciation (depreciation) of
investments..................................
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease in Unit Value)..................
- ---------------------------------------------------------------------------------------------------------------------------
Unit Value
Beginning of year.................................
End of year.......................................
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to average net assets**..............
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets...
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate................................
- ---------------------------------------------------------------------------------------------------------------------------
Number of Units outstanding for Participants at end
of year (000 omitted)........................
- ---------------------------------------------------------------------------------------------------------------------------
Average commission rate paid per share.................
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Calculation by accumulating the actual per Unit amounts daily.
** These calculations exclude Prudential's equity in VCA 2.
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<PAGE> 36
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
GROUP TAX-DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED THROUGH
THE PRUDENTIAL
VARIABLE CONTRACT ACCOUNT-2
These Contracts are designed for use in connection with retirement arrangements
that qualify for federal tax benefits under Section 403(b) of the Internal
Revenue Code of 1986, as amended. Contributions made on behalf of Participants
are invested in The Prudential Variable Contract Account-2, a separate account
primarily invested in common stocks.
---------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus, dated May 1, 1999, which is available
without charge upon written request to The Prudential Insurance Company of
America, c/o Prudential Investments, 30 Scranton Office Park, Scranton,
Pennsylvania 18507-1789, or by telephoning 1-800-458-6333.
TABLE OF CONTENTS
PAGE
INVESTMENT MANAGEMENT AND ADMINISTRATION OF VCA-2.........................
Fundamental investment restrictions adopted by VCA-2....................
Non-fundamental investment restrictions adopted by VCA-2................
Investment restrictions imposed by state law............................
Additional information about financial futures contracts................
Additional information about options....................................
Forward foreign currency exchange contracts.............................
Interest rate swap transactions.........................................
Loans of portfolio securities...........................................
Portfolio turnover rate.................................................
Portfolio brokerage and related practices...............................
Custody of securities...................................................
THE VCA-2 COMMITTEE.......................................................
Officers who are not directors..........................................
Remuneration of members of the Committee and certain affiliated persons.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA -- DIRECTORS..................
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA -- PRINCIPAL OFFICERS.........
SALE OF GROUP VARIABLE ANNUITY CONTRACTS..................................
EXPERTS...................................................................
FINANCIAL STATEMENTS OF VCA-2.............................................
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA AND SUBSIDIARIES.......................................
The Prudential Insurance Company of America
c/o Prudential Investments
30 Scranton Office Park
<PAGE> 37
Scranton, PA 18507-1789
Telephone 1-800-458-6333
LOGO
2
<PAGE> 38
INVESTMENT MANAGEMENT AND
ADMINISTRATION OF
VCA-2
Prudential acts as investment manager for VCA-2 under an Agreement for
Investment Management Services. The Account's assets are invested and reinvested
in accordance with its investment objective and policies, subject to the general
supervision and authorization of the Account's Committee.
Subject to Prudential's supervision, substantially all of the investment
management services provided by Prudential are furnished by its wholly-owned
subsidiary, The Prudential Investment Corporation ("PIC"), pursuant to the
service agreement between Prudential and PIC (the "Service Agreement") which
provides that Prudential will reimburse PIC for its costs and expenses. PIC is
registered as an investment adviser under the Investment Advisers Act of 1940.
Prudential continues to have responsibility for all investment advisory services
under its advisory or subadvisory agreements with respect to its clients.
Prudential's Agreement for Investment Management Services with VCA-2 was
approved initially by the Participants at their meeting on May 29, 1969 and was
most recently renewed by unanimous vote of the Committee on May 28, 1998. The
Service Agreement was approved by participants in VCA-2 on July 25, 1985 and its
annual continuation was most recently approved by unanimous vote of the VCA-2
Committee on May 28, 1998. The Account's Agreement for Investment Management
Services and the Service Agreement will continue in effect as long as approved
at least once a year by a majority of the non-interested members of the
Account's Committee and either by a majority of the entire Committee or by a
majority vote of persons entitled to vote in respect of the Account. The
Account's Agreement for Investment Management Services will terminate
automatically in the event of assignment, and may be terminated without penalty
on 60 days' notice by the Account's Committee or by the majority vote of persons
having voting rights in respect of the Account, or on 90 days' notice by
Prudential.
The Service Agreement will continue in effect as to the Account for a period of
more than two years from its execution only so long as such continuance is
specifically approved at least annually in the same manner as the Agreement for
Investment Management Services between Prudential and the Account. The Service
Agreement may be terminated by either party upon not less than thirty days'
prior written notice to the other party, will terminate automatically in the
event of its assignment and will terminate automatically as to the Account in
the event of the assignment or termination of the Agreement for Investment
Management Services between Prudential and the Account. Prudential is not
relieved of its responsibility for all investment advisory services under the
Agreement for Investment Management Services between Prudential and the Account.
The Service Agreement provides for Prudential to reimburse PIC for its costs and
expenses incurred in furnishing investment advisory services. For the meaning of
a majority vote of persons having voting rights with respect to the Account, see
"Voting Rights," page of the Prospectus.
Prudential is responsible for the administrative and recordkeeping functions of
VCA-2 and pays the expenses associated with them. These functions include
enrolling Participants, receiving and allocating contributions, maintaining
Participants' Accumulation Accounts, preparing and distributing confirmations,
statements, and reports. The administrative and recordkeeping expenses borne by
Prudential include salaries, rent, postage, telephone, travel, legal, actuarial
and accounting fees, office equipment, stationery and maintenance of computer
and other systems.
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<PAGE> 39
A daily charge is made which is equal to an effective annual rate of 0.50% of
the net asset value of VCA-2. One-half (0.25%) of this charge is for assuming
expense risks; 1/4 (0.125%) of this charge is for assuming mortality risks; and
1/4 (0.125%) is for investment management services. During 1998, 1997, and
1996, Prudential received $ , $3,351,395 and $2,694,889, respectively,
from VCA-2 for assuming mortality and expense risks and for providing investment
management services.
There is also an annual administration charge made against each Participant's
accumulation account in an amount which varies with each Contract but which is
not more than $30 for any accounting year. During 1998, 1997, and 1996,
Prudential collected $ , $28,266 and $30,477, respectively, from VCA-2 in
those annual account charges.
A sales charge is also imposed on certain purchase payments made under a
Contract on behalf of a Participant. The sales charges imposed on purchase
payments to VCA-2 during 1998, 1997, and 1996 were $ , $9,628 and $162,008,
respectively.
FUNDAMENTAL INVESTMENT RESTRICTIONS ADOPTED BY VCA-2
In addition to the investment objective described in the Prospectus, the
following investment restrictions are fundamental investment policies of VCA-2
and may not be changed without the approval of a majority vote of persons having
voting rights in respect of the Account.
Concentration in Particular Industries. VCA-2 will not purchase any security
(other than obligations of the U.S. Government, its agencies or
instrumentalities) if as a result: (i) with respect to 75% of VCA-2's total
assets, more than 5% of VCA-2's total assets (determined at the time of
investment) would then be invested in securities of a single issuer, or (ii) 25%
or more of VCA-2's total assets (determined at the time of the investment) would
be invested in a single industry.
Investments in Real Estate-Related Securities. No purchase of or investment in
real estate will be made for the account of VCA-2 except that VCA-2 may buy and
sell securities that are secured by real estate or shares of real estate
investment trusts listed on stock exchanges or reported on the National
Association of Securities Dealers, Inc. automated quotation system ("NASDAQ").
Investments in Financial Futures. No commodities or commodity contracts will be
purchased or sold for the account of VCA-2 except that VCA-2 may purchase and
sell financial futures contracts and related options. Loans. VCA-2 will not lend
money, except that loans of up to 10% of the value of VCA-2's total assets 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 VCA-2 in
accordance with its investment objectives and policies.
Borrowing. VCA-2 will not issue senior securities, borrow money or pledge its
assets, except that VCA-2 may borrow from banks up to 33-1/3 percent of the
value of its total assets (calculated when the loan is made) for temporary,
extraordinary or emergency purposes, for the clearance of transactions or for
investment purposes. VCA-2 may pledge up to 33-1/3 percent of the value of its
total assets to secure such borrowing. For purposes of this restriction, the
purchase or sale of securities on a when-issued or delayed delivery basis,
forward foreign currency exchange contracts and collateral arrangements relating
thereto, and collateral arrangements with respect to interest rate swap
transactions, reverse repurchase
4
<PAGE> 40
agreements, dollar roll transactions, options, futures contracts, and options
thereon are not deemed to be a pledge of assets or the issuance of a senior
security.
Margin. VCA-2 will not purchase securities on margin (but VCA-2 may obtain such
short-term credits as may be necessary for the clearance of transactions);
provided that the deposit or payment by VCA-2 of initial or maintenance margin
in connection with futures or options is not considered the purchase of a
security on margin.
Underwriting of Securities. VCA-2 will not underwrite the securities of other
issuers, except where VCA-2 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 VCA-2 is permitted to make.
Control or Management of Other Companies. No securities of any company will be
acquired for VCA-2 for the purpose of exercising control or management thereof.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS ADOPTED BY VCA-2
The VCA-2 Committee has also adopted the following additional investment
restrictions as non-fundamental operating policies. The Committee can change
these restrictions without the approval of the persons having voting rights in
respect of VCA-2.
Investments in Other Investment Companies. Except as part of a merger,
consolidation, acquisition or reorganization, VCA-2 will not invest in the
securities of other investment companies in excess of the limits stipulated by
the Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
Short Sales. VCA-2 will not make short sales of securities or maintain a short
position, except that VCA-2 may make short sales against the box. Collateral
arrangements entered into with respect to options, futures contracts and forward
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.
Restricted Securities. No more than 15% of the value of the net assets held in
VCA-2 will be invested in securities (including repurchase agreements and
non-negotiable time deposits maturing in more than seven days) that are subject
to legal or contractual restrictions on resale or for which no readily available
market exists.
INVESTMENT RESTRICTIONS IMPOSED BY STATE LAW
In addition to the investment objectives, policies and restrictions that VCA-2
has adopted, the Account must limit its investments to those authorized for
variable contract accounts of life insurance companies by the laws of the State
of New Jersey. In the event of future amendments of the applicable New Jersey
statutes, the Account will comply, without the approval of Participants or
others having voting rights in respect of the Account, with the statutory
requirements as so modified. The pertinent provisions of New Jersey law as they
currently read 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
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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 five years preceding the time of purchase, or (ii) during
the five-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 as to which market quotations are 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 an Account
would be invested in the securities of such corporation.
The currently applicable requirements of New Jersey law impose substantial
limitations on the ability of VCA-2 to invest in the stock of companies whose
securities are not publicly traded or who have not recorded a five-year history
of dividend payments or earnings sufficient to support such payments. This means
that the Account will not generally invest in the stock of newly organized
corporations. Nonetheless, an investment not otherwise eligible under paragraph
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 Account.
Investment limitations may also arise under the insurance laws and regulations
of the other states where the Contracts are sold. 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
of the Account.
ADDITIONAL INFORMATION ABOUT FINANCIAL FUTURES CONTRACTS
As described in the Prospectus, VCA-2 may engage in certain transactions
involving financial futures contracts. This additional information on those
instruments should be read in conjunction with the Prospectus.
VCA-2 will only enter into futures contracts that are standardized and traded on
a U.S. exchange or board of trade. When a financial futures contract is entered
into, each party deposits with a broker or in a segregated custodial account
approximately 5% of the contract amount, called the "initial margin." Subsequent
payments to and from the broker, called the "variation margin," are made on a
daily basis as the underlying security, index, or rate fluctuates, making the
long and short positions in the futures contracts more or less valuable, a
process known as "marking to the market."
There are several risks associated with the use of futures contracts for hedging
purposes. While VCA-2's hedging transactions may protect it against adverse
movements in the general level of interest rates or
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other economic conditions, such transactions could also preclude VCA-2 from the
opportunity to benefit from favorable movements in the level of interest rates
or other economic conditions. There can be no guarantee that there will be
correlation between price movements in the hedging vehicle and in the securities
or other assets being hedged. An incorrect correlation could result in a loss on
both the hedged assets and the hedging vehicle so that VCA-2's return might have
been better if hedging had not been attempted. The degree of imperfection of
correlation depends on circumstances such as variations in speculative market
demand for futures and futures options, including technical influences in
futures trading and futures options, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when, and how to hedge
involves the exercise of skill and judgment and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected market
trends.
There can be no assurance that a liquid market will exist at a time when VCA-2
seeks to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. The daily
limit governs only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to prevent the
liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Lack of a
liquid market for any reason may prevent VCA-2 from liquidating an unfavorable
position and VCA-2 would remain obligated to meet margin requirements and
continue to incur losses until the position is closed.
ADDITIONAL INFORMATION ABOUT OPTIONS
As described in the Prospectus, VCA-2 may engage in certain transactions
involving options. This additional information on those instruments should be
read in conjunction with the Prospectus.
In addition to those described in the Prospectus, options have other risks,
primarily related to liquidity. A position in an exchange-traded option 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 VCA-2
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 VCA-2 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 VCA-2 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
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imposed with respect to 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 at all times be adequate to handle current 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 (or in the class or series of options) 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 over-the-counter ("OTC") options will also be subject
to certain risks. Unlike exchange-traded options, OTC options generally do not
have a continuous liquid market. Consequently, VCA-2 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 VCA-2 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 VCA-2 originally wrote the OTC option. There can be no assurance that
VCA-2 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, VCA-2 may be
unable to liquidate an OTC option.
Options on Equity Securities. VCA-2 may purchase and write (i.e., sell) put and
call options on equity securities that are traded on U.S. securities exchanges,
are listed on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), or that result from privately negotiated transactions with
broker-dealers. A call option is a short-term contract pursuant to which the
purchaser or holder, in return for a premium paid, has the right to buy the
security underlying the option at a specified exercise price at any time during
the term of the option. The writer of the call option, who receives the premium,
has the obligation, upon exercise of the option, to deliver the underlying
security against payment of the exercise price. A put option is a similar
contract which gives the purchaser or holder, in return for a premium, the right
to sell the underlying security at a specified price during the term of the
option. The writer of the put, who receives the premium, has the obligation to
buy the underlying security at the exercise price upon exercise by the holder of
the put.
VCA-2 will write only "covered" options on stocks. A call option is covered if:
(1) VCA-2 owns the security underlying the option; or (2) VCA-2 has an absolute
and immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities it holds; or
(3) VCA-2 holds on a share-for-share basis a call on the same security as the
call written where 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 VCA-2 in cash, U.S. government
securities or other liquid unencumbered assets in a segregated account with its
custodian. A put option is covered if: (1) VCA-2 deposits and maintains with its
custodian in a segregated account cash, U.S. government securities or other
liquid unencumbered assets having a value equal to or greater than the exercise
price of the option; or (2) VCA-2 holds on a share-for-share basis a put on the
same security as the put written where the exercise price of the put held is
equal to or greater than the exercise price of the put written or less than the
exercise price if the difference is maintained by VCA-2 in cash, U.S. government
securities or other liquid unencumbered assets in a segregated account with its
custodian.
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VCA-2 may also purchase "protective puts" (i.e., put options acquired for the
purpose of protecting a VCA-2 security from a decline in market value). The loss
to VCA-2 is limited to the premium paid for, and transaction costs in connection
with, the put plus the initial excess, if any, of the market price of the
underlying security over the exercise price. However, if the market price of the
security underlying the put rises, the profit VCA-2 realizes on the sale of the
security will be reduced by the premium paid for the put option less any amount
(net of transaction costs) for which the put may be sold.
VCA-2 may also purchase putable and callable equity securities, which are
securities coupled with a put or call option provided by the issuer.
VCA-2 may purchase call options for hedging or investment purposes. VCA-2 does
not intend to invest more than 5% of its net assets at any one time in the
purchase of call options on stocks.
If the writer of an exchange-traded option wishes to terminate the obligation,
he or she may effect a "closing purchase transaction" by buying an option of the
same series as the option previously written. Similarly, the holder of an option
may liquidate his or her position by exercise of the option or by effecting a
"closing sale transaction" by selling an option of the same series as the option
previously purchased. There is no guarantee that closing purchase or closing
sale transactions can be effected.
Options on Debt Securities. VCA-2 may purchase and write exchange-traded and OTC
put and call options on debt securities. Options on debt securities are similar
to options on stock, except that the option holder has the right to take or make
delivery of a debt security, rather than stock.
VCA-2 will write only "covered" options. Options on debt securities are covered
in the same manner as options on stocks, discussed above, except that, in the
case of call options on U.S. Treasury Bills, VCA-2 might own U.S. Treasury Bills
of a different series from those underlying the call option, but with a
principal amount and value corresponding to the option contract amount and a
maturity date no later than that of the securities deliverable under the call
option.
VCA-2 may also write straddles (i.e., a combination of a call and a put written
on the same security at the same strike price where the same issue of the
security is considered as the cover for both the put and the call). In such
cases, VCA-2 will also segregate or deposit for the benefit of VCA-2's broker
cash or other liquid unencumbered assets equivalent to the amount, if any, by
which the put is "in the money." It is contemplated that VCA-2's use of
straddles will be limited to 5% of VCA-2's net assets (meaning that the
securities used for cover or segregated as described above will not exceed 5% of
VCA-2's net assets at the time the straddle is written).
VCA-2 may purchase "protective puts" in an effort to protect the value of a
security that it owns against a substantial decline in market value. Protective
puts on debt securities operate in the same manner as protective puts on equity
securities, described above. VCA-2 may wish to protect certain securities
against a decline in market value at a time when put options on those particular
securities are not available for purchase. VCA-2 may therefore purchase a put
option on securities it does not hold. While changes in the value of the put
should generally offset changes in the value of the securities being hedged, the
correlation between the two values may not be as close in these transactions as
in transactions in which VCA-2 purchases a put option on an underlying security
it owns.
VCA-2 may also purchase call options on debt securities for hedging or
investment purposes. VCA-2 does not intend to invest more than 5% of its net
assets at any one time in the purchase of call options on debt securities.
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VCA-2 may also purchase putable and callable debt securities, which are
securities coupled with a put or call option provided by the issuer.
VCA-2 may enter into closing purchase or sale transactions in a manner similar
to that discussed above in connection with options on equity securities.
Options on Stock Indices. VCA-2 may purchase and sell put and call options on
stock indices traded on national securities exchanges, listed on NASDAQ or OTC
options. Options on stock indices are similar to options on stock except that,
rather than the right to take or make delivery of stock at a specified price, an
option on a stock index gives the holder the right to receive, upon exercise of
the option, an amount of cash if the closing level of the stock index upon which
the option is based is greater than in the case of a call, or less than, in the
case of a put, the strike price of the option. This amount of cash is equal to
such difference between the closing price of the index and the strike price of
the option times a specified multiple (the "multiplier"). If the option is
exercised, the writer is obligated, in return for the premium received, to make
delivery of this amount. Unlike stock options, all settlements are in cash, and
gain or loss depends on price movements in the stock market generally (or in a
particular industry or segment of the market) rather than price movements in
individual stocks.
VCA-2 will write only "covered" options on stock indices. A call option is
covered if VCA-2 follows the segregation requirements set forth in this
paragraph. When VCA-2 writes a call option on a broadly based stock market
index, it will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, U.S. government securities or other
liquid unencumbered assets, or "qualified securities" (defined below) with a
market value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts. A
"qualified security" is an equity security which is listed on a national
securities exchange or listed on NASDAQ against which VCA-2 has not written a
stock call option and which has not been hedged by VCA-2 by the sale of stock
index futures. When VCA-2 writes a call option on an industry or market segment
index, it will segregate or put into escrow with its custodian or pledge to a
broker as collateral for the option, cash, U.S. government securities or other
liquid unencumbered assets, or at least five qualified securities, all of which
are stocks of issuers in such industry or market segment, with a market value at
the time the option is written of not less than 100% of the current index value
times the multiplier times the number of contracts. Such stocks 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 VCA-2's holdings in that
industry or market segment. No individual security will represent more than 15%
of the amount so segregated, pledged or escrowed in the case of broadly based
stock market stock options or 25% of such amount in the case of industry or
market segment index options. If at the close of business on any day the market
value of such qualified securities so segregated, escrowed, or pledged falls
below 100% of the current index value times the multiplier times the number of
contracts, VCA-2 will so segregate, escrow, or pledge an amount in cash, U.S.
government securities, or other liquid unencumbered assets equal in value to the
difference. In addition, when VCA-2 writes a call on an index which is
in-the-money at the time the call is written, it will segregate with its
custodian or pledge to the broker as collateral, cash or U.S. government
securities or other liquid unencumbered assets equal in value to the amount by
which the call is in-the-money times the multiplier times the number of
contracts. Any amount segregated pursuant to the foregoing sentence may be
applied to VCA-2's obligation to segregate additional amounts in the event that
the market value of the qualified securities falls below 100% of the current
index value times the multiplier times the number of contracts.
A call option is also covered if VCA-2 holds a call on the same index as the
call written where the strike
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price of the call held is equal to or less than the strike price of the call
written or greater than the strike price of the call written if the difference
is maintained by VCA-2 in cash, U.S. government securities or other liquid
unencumbered assets in a segregated account with its custodian.
A put option is covered if: (1) VCA-2 holds in a segregated account cash, U.S.
government securities or other liquid unencumbered assets of a value equal to
the strike price times the multiplier times the number of contracts; or (2)
VCA-2 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
VCA-2 in cash, U.S. government securities or other liquid unencumbered assets in
a segregated account with its custodian.
VCA-2 may purchase put and call options on stock indices for hedging or
investment purposes. VCA-2 does not intend to invest more than 5% of its net
assets at any one time in the purchase of puts and calls on stock indices. VCA-2
may effect closing sale and purchase transactions involving options on stock
indices, as described above in connection with stock options.
The distinctive characteristics of options on stock indices create certain risks
that are not present with stock options. Index prices may be distorted if
trading of certain stocks included in the index is interrupted. Trading in the
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, VCA-2 would not be able to close out options which it had
purchased or written and, if restrictions on exercise were imposed, might be
unable to exercise an option it holds, which could result in substantial losses
to VCA-2. Price movements in VCA-2's equity security holdings probably will not
correlate precisely with movements in the level of the index and, therefore, in
writing a call on a stock index VCA-2 bears the risk that the price of the
securities held by VCA-2 may not increase as much as the index. In such event,
VCA-2 would bear a loss on the call which is not completely offset by movement
in the price of VCA-2's equity securities. It is also possible that the index
may rise when VCA-2's securities do not rise in value. If this occurred, VCA-2
would experience a loss on the call which is not offset by an increase in the
value of its securities holdings and might also experience a loss in its
securities holdings. In addition, when VCA-2 has written a call, there is also a
risk that the market may decline between the time VCA-2 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 VCA-2 is able to sell stocks in its
portfolio. As with stock options, VCA-2 will not learn that an index option has
been exercised until the day following the exercise date but, unlike a call on
stock where VCA-2 would be able to deliver the underlying securities in
settlement, VCA-2 may have to sell 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 indices than with stock
options.
There are also certain special risks involved in purchasing put and call options
on stock indices. If VCA-2 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 exercise option to fall out of-the-money, VCA-2 will be required to pay the
difference between the closing index value and the strike price of the option
(times the applicable multiplier) to the assigned writer. Although VCA-2 may be
able to minimize the 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.
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Options on Foreign Currencies. VCA-2 may purchase and write put and call options
on foreign currencies traded on U.S. or foreign securities exchanges or boards
of trade. Options on foreign currencies are similar to options on stock, except
that the option holder has the right to take or make delivery of a specified
amount of foreign currency, rather than stock. VCA-2's successful use of options
on foreign currencies depends upon the investment 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. In addition, the correlation between movements in
the price of options and the price of currencies being hedged is imperfect.
Options on Futures Contracts. VCA-2 may enter into certain transactions
involving options on futures contracts. VCA-2 will utilize these types of
options for the same purpose that it uses the underlying futures contract. An
option on a futures contract gives the purchaser or holder the right, but not
the obligation, to assume a position in a futures contract (a long position if
the option is a call and a short position if the option is a put) at a specified
price at any time during the option exercise period. The writer of the option is
required upon exercise to assume an offsetting futures position (a short
position if the option is a call and long position if the option is a put). Upon
exercise of the option, the assumption of offsetting futures positions by the
writer and holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise, exceeds,
in the case of a call, or is less than, in the case of a put, the exercise price
of the option on the futures contract. As an alternative to exercise, the holder
or writer of an option may terminate a position by selling or purchasing an
option of the same series. There is no guarantee that such closing transactions
can be effected. VCA-2 intends to utilize options on futures contracts for the
same purposes that it uses the underlying futures contracts.
Options on futures contracts are subject to risks similar to those described
above with respect to options on securities, options on stock indices, and
futures contracts. These risks include the risk that the investment 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, VCA-2 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 VCA-2 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 VCA-2.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A forward foreign currency exchange contract is a contract obligating one party
to purchase and the other party to sell one currency for another currency at a
future date and price. When investing in foreign securities, VCA-2 may enter
into such contracts in anticipation of or to protect itself against fluctuations
in currency exchange rates.
VCA-2 generally will not enter into a forward contract with a term of greater
than 1 year. At the maturity of a forward contract, VCA-2 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.
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VCA-2's successful use of forward contracts depends upon the investment
manager's ability to predict the direction of currency exchange markets and
political conditions, which requires different skills and techniques than
predicting changes in the securities markets generally.
INTEREST RATE SWAP TRANSACTIONS
VCA-2 may enter into interest rate swap transactions. Interest rate swaps, in
their most basic form, involve the exchange by one party with another party of
their respective commitments to pay or receive interest. For example, VCA-2
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 indices 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 exposure to
long- or short-term interest rates. For example, VCA-2 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 Account anticipates purchasing at a later date. VCA-2 will
maintain appropriate liquid assets in a segregated custodial account to cover
its obligations under swap agreements.
The use of swap agreements is subject to certain risks. As with options and
futures, if the investment manager's prediction of interest rate movements is
incorrect, VCA-2's total return will be less than if the Account 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 VCA-2
could eliminate its exposure under an outstanding swap agreement by entering
into an offsetting swap agreement with the same or another party.
LOANS OF PORTFOLIO SECURITIES
VCA-2 may from time to time lend its portfolio securities to broker-dealers,
qualified banks and certain institutional investors provided that such loans are
made pursuant to written agreements and are continuously secured by collateral
in the form of cash, U.S. Government securities or irrevocable standby letters
of credit in an amount equal to at least the market value at all times of the
loaned securities. During the time portfolio securities are on loan, VCA-2
continues to receive the interest and dividends, or amounts equivalent thereto,
on the loaned securities while receiving a fee from the borrower or earning
interest on the investment of the cash collateral. The right to terminate the
loan is given to either party subject to appropriate notice. Upon termination of
the loan, the borrower returns to the lender securities identical to the loaned
securities. VCA-2 does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment. 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 such event, if the borrower fails to return
the loaned securities, the existing collateral might be insufficient to purchase
back the full amount of stock loaned, and the borrower would be unable to
furnish additional collateral. The borrower would be liable for any shortage but
VCA-2 would be an unsecured creditor as to such shortage and might not be able
to recover all or any of it. However, this risk may be minimized by a careful
selection of borrowers and securities to be lent.
VCA-2 will not lend its portfolio securities to entities affiliated with
Prudential, including Prudential Securities Incorporated. This will not affect
VCA-2's ability to maximize its securities lending opportunities.
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PORTFOLIO TURNOVER RATE
VCA-2 has no fixed policy with respect to portfolio turnover, which is an index
determined by dividing the lesser of the purchases or sales of portfolio
securities during the year by the monthly average of the aggregate value of the
portfolio securities owned during the year. VCA-2 seeks long term growth of
capital rather than short-term trading profits. However, during any period when
changing economic or market conditions are anticipated, successful management
requires an aggressive response to such changes which may result in portfolio
shifts that may significantly increase the rate of portfolio turnover. The rate
of portfolio activity will normally affect the brokerage expenses of VCA-2. The
annual portfolio turnover rate was % in 1998 and 47% in 1997.
PORTFOLIO BROKERAGE AND RELATED PRACTICES
In connection with decisions to buy and sell securities for VCA-2, brokers and
dealers to effect the transactions must be selected and brokerage commissions,
if any, negotiated. Transactions on a stock exchange in equity securities will
be executed primarily through brokers that will receive a commission paid by
VCA-2. Fixed income securities, on the other hand, as well as equity securities
traded in the over-the-counter market, will not normally incur any brokerage
commissions. These securities are generally traded on a "net" basis with dealers
acting as principals 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 that includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. Certain of these securities may also be
purchased directly from an issuer, in which case neither commissions nor
discounts are paid.
In placing orders of securities transactions, primary consideration is given to
obtaining the most favorable price and efficient execution. An attempt is made
to effect each transaction at a price and commission, if any, that provides the
most favorable total cost or proceeds reasonably attainable in the
circumstances. However, a higher commission than would otherwise be necessary
for a particular transaction may be paid when to do so would appear to further
the goal of obtaining the best available execution.
In connection with any securities transaction that involves a commission
payment, the commission is negotiated with the broker on the basis of the
quality and quantity of execution services that the broker provides, in light of
generally prevailing commission rates. Periodically, Prudential and PIC review
the allocation among brokers of orders for equity securities and the commissions
that were paid.
When selecting a broker or dealer in connection with a transaction for VCA-2,
consideration is given to whether the broker or dealer has furnished PIC with
certain services, provided this does not jeopardize the objective of obtaining
the best price and execution. These services, which include statistical and
economic data and research reports on particular companies and industries, are
services that brokerage houses customarily provide to institutional investors.
PIC uses these services in connection with all of its investment activities, and
some of the data or services obtained in connection with the execution of
transactions for VCA-2 may be used in connection with the execution of
transactions for other investment accounts. Conversely, brokers and dealers
furnishing such services may be selected for the execution of transactions of
such other accounts, while the data or service may be used in connection with
investment management for VCA-2. Although Prudential's present policy is not to
permit higher commissions to be paid for transactions for VCA-2 in order to
secure research and statistical services from brokers or dealers, Prudential
might in the future authorize the payment of higher commissions, but
14
<PAGE> 50
only with the prior concurrence of the VCA-2 Committee, if it is determined that
the higher commissions are necessary in order to secure desired research and are
reasonable in relation to all of the services that the broker or dealer
provides.
When investment opportunities arise that may be appropriate for more than one
entity for which Prudential serves as investment manager or adviser, one entity
will not be favored over another and allocations of investments among them will
be made 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 manager or adviser have different investment
objectives and positions, from time to time a particular security may be
purchased for one or more such entities while, at the same time, such security
may be sold for another.
An affiliated broker may be employed to execute brokerage transactions on behalf
of VCA-2 as long as the commissions are 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. During 1998, 1997, and 1996, $ ,
17,671 and $35,806, respectively, was paid to Prudential Securities
Incorporated, an affiliated broker. For 1998, the commissions paid to this
affiliated broker constituted . % of the total commissions paid by VCA-2 for
that year, and the transactions through this affiliated broker accounted for
. % of the aggregate dollar amount of transactions for VCA-2 involving the
payment of commissions. VCA-2 may not engage in any transactions in which
Prudential or its affiliates, including Prudential Securities Incorporated,
acts as principal, including over-the-counter purchases and negotiated trades
in which such a party acts as a principal.
Prudential or PIC may enter into business transactions with brokers or dealers
for purposes other than the execution of portfolio securities transactions for
accounts Prudential manages. These other transactions will not affect the
selection of brokers or dealers in connection with portfolio transactions for
VCA-2.
During the calendar year 1998, $ was paid to various brokers in
connection with securities transactions for VCA-2. Of this amount, approximately
% was allocated to brokers who provided research and statistical services to
Prudential. The equivalent figures for 1997 were $1,102,637 and 62.1%, and for
1996 were $718,2311 and 77.6%.
CUSTODY OF SECURITIES
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City, Missouri
64105, is custodian of VCA-2's assets and maintains certain books and records in
connection therewith.
15
<PAGE> 51
THE VCA-2 COMMITTEE
VCA-2 is managed by The Prudential Variable Contract Account-2 Committee ("VCA-2
Committee"). The members of the Committee are elected by the persons having
voting rights in respect of the VCA-2 Account. The affairs of the Account are
conducted in accordance with the Rules and Regulations of the Account. The
members of the Account's Committee, the Account's Secretary and Treasurer and
the principal occupation of each during the past five years are shown below.
VCA-2 COMMITTEE
MENDEL A. MELZER, CFA*, 38, Chairman of the Board -- Chief Investment Officer of
Prudential Investments since 1998; 1996 to 1998: Chief Investment Officer of
Prudential Mutual Funds; 1995-1996: Chief Financial Officer of the Money
Management Group of Prudential; Prior to 1995: Senior Vice President and Chief
Financial Officer of Prudential Preferred Financial Services. Address: 100
Mulberry Street, Gateway Center Two, Newark, New Jersey 07102.
SAUL K. FENSTER, 66, Director -- President of New Jersey Institute of
Technology. Address: 323 Martin Luther King Boulevard, Newark, New Jersey 07102.
W. SCOTT MCDONALD, JR., 62, Director -- Vice President, Kaludis Consulting Group
since 1997; 1995 to 1996: Principal, Scott McDonald & Associates; Prior to 1995:
Executive Vice President of Fairleigh Dickinson University. Address: 9 Zamrok
Way, Morristown, New Jersey 07960.
JOSEPH WEBER, 75, Director -- Vice President, Interclass (international
corporate learning). Address: 37 Beachmont Terrace, North Caldwell, New Jersey
07006.
* These Members of the VCA-2 Committee are interested persons of Prudential, its
affiliates or the Account, as defined in the Investment Company Act of 1940 (the
"1940 Act"). Certain actions of the Committee, including the annual continuance
of the Agreement for Investment Management Services between the Account and
Prudential, must be approved by a majority of the Members of the Committee who
are not interested persons of Prudential, its affiliates or the Account. Mr.
Melzer, Member of the Committee, is an interested person of Prudential, as that
term is defined in the 1940 Act, because he is an officer of Prudential, the
investment manager of the Account. Messrs. Fenster, McDonald, and Weber are not
interested persons of Prudential, its affiliates, or the Account. 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 and
group health insurance to its employees.
OFFICERS WHO ARE NOT DIRECTORS
CAREN A. CUNNINGHAM, Secretary -- Assistant General Counsel of Prudential
Investments Fund Management, LLC ("PIFM") since 1997; Prior to 1997: Vice
President and Associate General Counsel of Smith Barney Mutual Fund Management
Inc. Address: 100 Mulberry Street, Gateway Center Three, Newark, New Jersey
07102.
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. Address: 100 Mulberry Street, Gateway Center Three,
Newark, New Jersey 07102.
16
<PAGE> 52
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. Address: 100 Mulberry Street, Gateway
Center Three, Newark, New Jersey 07102.
REMUNERATION OF MEMBERS OF THE COMMITTEES AND CERTAIN AFFILIATED PERSONS
No member of the VCA-2 Committee nor any other person (other than Prudential)
receives remuneration from the Account. Prudential pays certain of the expenses
relating to the operation of, including all compensation paid to members of the
Committee, its Chairman, its Secretary and Treasurer. No member of the VCA-2
Committee, its Chairman, its Secretary or Treasurer who is also an officer,
Director or employee of Prudential or an affiliate of Prudential is entitled to
any fee for his services as a member or officer of the Committee.
17
<PAGE> 53
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DIRECTORS
FRANKLIN E. AGNEW -- Director since 1994 (current term expires April, 2000).
Member, Committee on Finance & Dividends; Member Corporate Governance Committee.
Business consultant since 1986. Senior Vice President, H.J. Heinz from 1971 to
1986. Mr. Agnew is also a director of Bausch & Lomb, Inc. and Erie Plastics
Corporation. Age 64. Address: 600 Grant Street, Suite 660, Pittsburgh, PA 15219.
FREDERICK K. BECKER -- Director since 1994 (current term expires April, 1999).
Member, Auditing Committee; Member, Corporate Governance Committee. President,
Wilentz Goldman and Spitzer, P.A. (law firm) since 1989, with firm since 1960.
Age 63. Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
GILBERT F. CASELLAS -- Director since 1998 (current term expires April, 1999).
President, The Swarthmore Group, Inc. since 1999. Partner, McConnell Valdes, LLP
in 1998. Chairman, U.S. Equal Employment Opportunity Commission from 1994 to
1998. General Counsel, Department of Air Force from 1993 to 1994. Age 46.
Address: 1646 West Chester Pike, Suite 3, West Chester, PA 19382.
JAMES G. CULLEN -- Director since 1994 (current term expires April, 2001).
Member, Compensation Committee; Member, Committee on Business Ethics. President
& Chief Operating Officer, Bell Atlantic Corporation, since 1998. President &
Chief Executive Officer, Telecom Group, Bell Atlantic Corporation, from 1997 to
1998. Vice Chairman, Bell Atlantic Corporation from 1995 to 1997. President,
Bell Atlantic Corporation from 1993 to 1995. Mr. Cullen is also a director of
Bell Atlantic Corporation and Johnson & Johnson. Age 56. Address: 1310 North
Court House Road, 11th Floor, Alexandria, VA 22201.
CAROLYNE K. DAVIS -- Director since 1989 (current term expires April, 2001).
Member, Committee on Business Ethics; Member, Compensation Committee.
Independent Health Care Advisor since 1997. National and International Health
Care Advisor, Ernst & Young, LLP from 1985 to 1997. Dr. Davis is also a director
of Beckman Coulter Instruments, Inc., Merck & Co., Inc., Minimed Incorporated,
and Beverley Enterprises. Age 67. Address: 751 Broad Street, 23rd Floor, Newark,
NJ 07102.
ROGER A. ENRICO -- Director since 1994 (current term expires April, 2002).
Member, Committees on Nominations & Corporate Governance; Member, Compensation
Committee. Chairman and Chief Executive Officer, PepsiCo, Inc. since 1996. Mr.
Enrico originally joined PepsiCo, Inc. in 1971. Mr. Enrico is also a director of
A.H. Belo Corporation and Dayton Hudson Corporation. Age 54. Address: 700
Anderson Hill Road, Purchase, NY 10577.
ALLAN D. GILMOUR -- Director since 1995 (current term expires April, 1999).
Member, Investment Committee; Member, Committee on Finance & Dividends. Retired
since 1995. Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour
originally joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool
Corporation, MeidiaOne Group, Inc., AP Automotive Systems, Inc., The Dow
Chemical Company and DTE Energy Company. Age 64. Address: 751 Broad Street, 23rd
Floor, Newark, NJ 07102.
WILLIAM H. GRAY, III -- Director since 1991 (current term expires April, 2000).
Member, Executive Committee; Member, Committee on Business Ethics; Chairman,
Committees on Nominations & Corporate Governance. President and Chief Executive
Officer, The College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979
to 1991. Mr. Gray is also a director of Chase Manhattan Corporation, Municipal
Bond Investors Assurance Corporation, Rockwell International Corporation,
Union-Pacific Corporation, Warner-Lambert Company, CBS Corporation, and
Electronic Data Systems. Age 57. Address: 8260 Willow Oaks Corp. Drive, Fairfax,
VA 22031-4511.
JON F. HANSON -- Director since 1991 (current term expires April, 2003). Member,
Investment Committee; Member, Committee on Business Ethics. Chairman, Hampshire
Management Company since
18
<PAGE> 54
1976. Mr. Hanson is also a director of James E. Hanson Management Company,
Neumann Distributors, Inc., Fleet Trust and Investment Services Company, N.A.,
United Water Resources, Orange & Rockland Utilities, Inc., and Consolidated
Delivery and Logistics. Age 62. Address: 235 Moore Street, Suite 200,
Hackensack, NJ 07601.
GLEN H. HINER, JR. -- Director since 1997 (current term expires April, 2001).
Member, Compensation Committee. Chairman and Chief Executive Officer, Owens
Corning since 1991. Senior Vice President and Group Executive, Plastics Group,
General Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation and Owens Corning. Age 64. Address: One Owens Corning Parkway,
Toledo, OH 43659.
CONSTANCE J. HORNER -- Director since 1994 (current term expires April, 2002).
Member, Auditing Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Company, and
Pfizer, Inc. Age 56. Address: 1775 Massachusetts Ave., N.W. Washington, D.C.
20036-2188.
GAYNOR N. KELLEY -- Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Chairman and Chief Executive
Officer, The Perkin Elmer Corporation from 1990 to 1996. Mr. Kelley is also a
director of Hercules Incorporated, and Alliant Techsystems. Age 67. Address: 751
Broad Street, 23rd Floor, Newark, NJ 07102-3777.
BURTON G. MALKIEL -- Director since 1978 (current term expires April, 2002).
Chairman, Investment Committee; Member, Executive Committee; Member, Committee
on Finance & Dividends. Professor of Economics, Princeton University, since
1988. Dr. Malkiel is also a director of Banco Bilbao Vizcaya, Baker Fentress &
Company, The Jeffrey Company, The Southern New England Telecommunications
Company, and Vanguard Group, Inc. Age 66. Address: Princeton University, 110
Fisher Hall, Prospect Avenue, Princeton, NJ 08544-1021.
ARTHUR F. RYAN -- Chairman of the Board, President and Chief Executive Officer
of Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Bank from 1990 to 1994, with Chase since 1972. Age 56. Address: 751 Broad
Street, Newark, NJ 07102.
IDA F.S. SCHMERTZ -- Director since 1997 (current term expires April, 2004).
Member, Audit Committee. Principal, Investment Strategies International since
1994. Age 64. Address: 751 Broad Street, 23rd Floor, Newark, NJ 07102.
CHARLES R. SITTER -- Director since 1995 (current term expires April, 1999).
Member, Committee on Finance & Dividend; Member, Investment Committee. Retired
since 1996. President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his
career with Exxon in 1957. Age 68. Address: 5959 Las Colinas Boulevard, Irving,
TX 75039-2298.
DONALD L. STAHELI -- Director since 1995 (current term expires April, 1999).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1996.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Mr. Staheli is also director of Bankers Trust Company, Conti-Financial
Corporation and Continental Grain Company. Age 67 Address: 39 Locust Street,
Suite 204, New Canaan, CT 06840.
RICHARD M. THOMSON -- Director since 1976 (current term expires April, 2000).
Chairman, Executive Committee; Chairman, Compensation Committee. Retired since
1998. Chairman of the Board, The Toronto-Dominion Bank from 1997 to 1998.
Chairman and Chief Executive Officer from 1978 to 1997. Mr. Thomson is also a
director of CGC, Inc., INCO, Limited, S.C. Johnson & Son, Inc., The Thomson
Corporation, Canadian Occidental Petroleum, Ltd., The Toronto-Dominion Bank and
Ontario Hydro. Age 64. Address: P.O. Box 1, Toronto-Dominion Centre, Toronto,
Ontario, M5K 1A2, Canada.
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<PAGE> 55
JAMES A. UNRUH -- Director since 1996 (current term expires April, 2000).
Member, Committees on Nominations & Corporate Governance; Member, Investment
Committee. Retired since 1997. Chairman and Chief Executive Officer, Unisys
Corporation, from 1990 to 1997. Mr. Unruh is also a director of Ameritech
Corporation and Moss Micro. Age 57. Address: 751 Broad Street, Newark, NJ
07102-3777
P. ROY VAGELOS, M.D. -- Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman, Advanced Medicines, Inc. since 1997. Chairman, Chief Executive
Officer and President, Merck & Co., Inc. from 1986 to 1995, Dr. Vagelos
originally joined Merck in 1975 Dr. Vagelos is also a director of The Estee
Lauder Companies, Inc. and PepsiCo., Inc. Age 69. Address: One Crossroads Drive,
Building A, 3rd Floor, Bedminster, NJ 07921.
STANLEY C. VAN NESS -- Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Partner, Herbert, Van Ness, Cayci & Goodell (law firm) since
1998. Counselor at Law, Picco Herbert Kennedy (law firm) from 1990 to 1998. Mr.
Van Ness is also a director of Jersey Central Power & Light Company. Age 64.
Address: 22 Chambers Street, Princeton, NJ 08542.
PAUL A. VOLCKER -- Director since 1988 (current term expires April, 2000).
Chairman, Committee on Finance & Dividends; Member, Executive Committee; Member,
Committee on Nominations & Corporate Governance. Consultant since 1997.
Chairman, Wolfensohn & Co., Inc. 1988 to 1996 Chairman, James D. Wolfensohn,
Inc. 1988 to 1996. Chief Executive Officer, James D. Wolfensohn, Inc. from 1995
to 1996. Mr. Volcker is also a director Nestle, S.A., and Bankers Trust New York
Corporation as well as a Director of the Board of Overseers of TIAA-CREF. Age
71, Address: 610 Fifth Avenue, Suite 420, New York, NY 10020.
JOSEPH H. WILLIAMS -- Director since 1994 (current term expires April, 2002).
Member, Committee on Finance & Dividends; Member, Investment Committee.
Director, The Williams Companies since 1979. Chairman & Chief Executive Officer,
The Williams Companies from 1979 to 1993. Mr. Williams is also a director of The
Orvis Company, MTC Investors, LLC., and AEA Investors, Inc. Age 65. Address: One
Williams Center, Tulsa, OK 74102.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
ARTHUR F. RYAN -- Chairman of the Board, President and Chief Executive Officer
since 1994; prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation, New York, NY. Age 56.
E. MICHAEL CAULFIELD -- Executive Vice President, Financial Management since
1998; Chief Executive Officer, Prudential Investments from 1995 to 1998; Chief
Executive Officer, Money Management Group in 1995; prior to 1995, President,
Prudential Preferred Financial Services. Age 52.
MICHELE S. DARLING -- Executive Vice President Human Resources since 1997; prior
to 1997, Executive Vice President, Canadian Imperial Bank of Commerce, Toronto,
Canada. Age 45.
ROBERT C. GOLDEN -- Executive Vice President Operations and Systems since 1997;
prior to 1997, Executive Vice President, Prudential Securities, New York, NY.
Age 53.
MARK B. GRIER -- Executive Vice President, Corporate Governance since 1998;
Executive Vice President, Financial Management from 1997 to 1998; Chief
Financial Officer from 1995 to 1997; prior to 1995, Executive Vice President,
Chase Manhattan Corporation, New York, NY. Age 46.
JEAN D. HAMILTON -- Executive Vice President, Prudential Institutional since
1998; President, Diversified Group since 1995 to 1998; prior to 1995, President,
Prudential Capital Group. Age 52.
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<PAGE> 56
RODGER A. LAWSON -- Executive Vice President, International Investments & Global
Marketing Communications since 1998; Executive Vice President, Marketing and
Planning from 1996 to 1998; President and CEO, Van Eck Global, New York, NY,
from 1994 to 1996; prior to 1994, President and CEO, Global Private Banking,
Bankers Trust Company, New York, NY. Age 52.
KIYOFUMI SAKAGUCHI -- Executive Vice President, International Insurance since
1998; President, International Insurance Group from 1995 to 1998; prior to 1995,
Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age 56.
JOHN V. SCICUTELLA -- Executive Vice President, Individual Financial Services
since 1998; Chief Executive Officer, Individual Insurance Group from 1997 to
1998; Executive Vice President Operations and Systems from 1995 to 1997; prior
to 1995, Executive Vice President, Chase Manhattan Corporation. Age 49.
JOHN R. STRANGFELD -- Executive Vice President, Global Asset Management since
1998; Chief Executive Officer, Private Asset Management Group (PAMG) from 1996
to 1998; President, PAMG, from 1994 to 1996; prior to 1994, Senior Managing
Director. Age 45.
JAMES J. AVERY, JR. -- Senior Vice President & Chief Actuary, Individual
Insurance Group since 1997; President Prudential Select from 1996 to 1997; prior
to 1995, Executive Vice President and Chief Operating Officer, Prudential
Select. Age 47.
MARTIN A. BERKOWITZ -- Senior Vice President, Financial Management since 1998;
Senior Vice President and Comptroller from 1995 to 1998; prior to 1995, Senior
Vice President and CFO, Prudential Investment Corporation. Age 50.
WILLIAM M. BETHKE -- Senior Vice President and Chief Investment Officer since
1997; prior to 1997, President, Capital Management Group. Age 51.
ANNE E. BOSSI -- Senior Vice President, Institutional since 1998; President,
Group Life & Disability 1997 to 1998; President, Group Life Insurance 1995 to
1997; prior to 1995, President, Northeastern Group Operations. Age 47
RICHARD J. CARBONE -- Senior Vice President and Chief Financial Officer since
1997. Controller, Salomon Brothers, New York, NY, from 1995 to 1997; prior to
1995, Controller, Bankers Trust, New York, NY. Age 51.
THOMAS W. CRAWFORD -- Senior Vice President, Individual Financial Services,
since 1998; President and Chief Executive Officer, Prudential Property &
Casualty Company from 1996 to 1998; Vice President, Prudential Property &
Casualty Company in 1996; prior to 1996, President & CEO, Southern Heritage
Insurance Company. Age 55.
MARK R. FETTING -- Senior Vice President, Retirement Services, Institutional
since 1996; President, Prudential Retirement Services from 1992 to 1996; prior
to 1992, Partner, Greenwich Associates. Age 44.
WILLIAM D. FRIEL -- Senior Vice President and Chief Information Officer since
1996; prior to 1996, Chief Executive Officer, Prudential Service Company. Age
60.
MICHAEL J. HINES -- Senior Vice President, Marketing and Communications since
1999; 1996 to 1998 Vice President, Marketing and Communications. Age 47
RONALD P. JOELSON -- Senior Vice President, Guaranteed Products, Global Asset
Management since 1997; Senior Vice President, Guaranteed Products, Guaranteed
Investments from 1996 to 1997; Vice President, Guaranteed Investments,
Guaranteed Products from 1996 to 1996; prior to 1996, Managing Director,
Retirement Services. Age 40.
IRA J. KLEINMAN -- Senior Vice President, International Insurance Group, since
1997; prior to 1997, Chief Marketing & Product Development Officer. Age 51.
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<PAGE> 57
KATHLEEN KRALL -- Senior Vice President, Individual Financial Services since
1999; Vice President, Individual Financial Services from 1996 to 1999; Vice
President, Operations and Systems from 1995 to 1996; prior to 1995 Vice
President, Chase Manhattan Bank. Age 41.
JOYCE R. LEIBOWITZ -- Senior Vice President, Management Internal Controls since
1999; Vice President, Management Internal Controls from 1995 to 1999; prior to
1995 Integrated Control Officer. Age 51.
JOHN M. LIFTIN -- Senior Vice President and General Counsel since 1998;
Self-employed from 1997 to 1998; prior to 1997 Senior Vice President and General
Counsel, Kidder & Peabody Group, Inc. Age 55.
NEIL A. MCGUINNESS -- Senior Vice President, Marketing, Prudential Investments,
since 1996; Director, Putnam Investments, in 1996; prior to 1996, President,
Fidelity Investment Employer Services Company. Age 52.
PRISCILLA A. MYERS -- Senior Vice President and Auditor, Audit, Compliance and
Investigation since 1995; prior to 1995, Vice President and Auditor. Age 48.
I. EDWARD PRICE -- Senior Vice President since 1996; Senior Vice President and
Actuary from 1995 to 1996; prior to 1995, Chief Executive Officer, Prudential
International Insurance. Age 56.
BRIAN M. STORMS -- President, Mutual Funds and Annuities, Prudential Investments
since 1996; prior to 1996, Managing Director, Fidelity Investments, Boston. Age
44.
ROBERT J. SULLIVAN -- Senior Vice President, Mutual Funds Sales, Individual
Financial Services since 1997; prior to 1997, Managing Director, Fidelity
Investments, Boston. Age 60.
SUSAN J. BLOUNT -- Vice President and Secretary since 1995; prior to 1995,
Assistant General Counsel. Age 41.
C. EDWARD CHAPLIN -- Vice President and Treasurer since 1995; prior to 1995,
Managing Director and Assistant Treasurer. Age 41.
ANTHONY S. PISZEL -- Vice President and Controller since 1998; Vice President,
Enterprise Financial Management from 1997 to 1998; prior to 1997, Chief
Financial Officer, Individual Insurance Group. Age 44.
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<PAGE> 58
SALE OF GROUP VARIABLE ANNUITY CONTRACTS
Prudential offers the Contracts on a continuous basis through Corporate Office,
regional home office and group sales office employees in those states in which
the Contracts may be lawfully sold. It may also offer the Contracts through
licensed insurance brokers and agents, or through appropriately registered
direct or indirect subsidiary(ies) of Prudential, provided clearances to do so
are secured in any jurisdiction where such clearances may be necessary or
desirable. During 1998, 1997 and 1996, Prudential received $ , $9,628 and
$162,008, respectively, as sales charges in connection with the sale of these
contracts. Prudential credited $ , $151,753 and $108,192, respectively to
other broker-dealers in connection with such sales.
EXPERTS
The condensed financial information included in the Prospectus and the financial
statements in this Statement of Additional Information for the three year period
ended December 31, 1998 have been audited by PricewaterhouseCoopers LLP,
independent accountants, as stated in their report appearing herein. Such
financial statements and condensed financial information have been included in
reliance upon the reports of PricewaterhouseCoopers LLP given upon their
authority as experts in accounting and auditing. The Committee approves the
accountant's employment annually. PricewaterhouseCoopers LLP's business address
is 1177 Avenue of the Americas, New York, NY 10036.
Financial statements for VCA-2 and Prudential, as of December 31, 1998, are
included in this Statement of Additional Information, beginning at page .
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<PAGE> 59
FINANCIAL STATEMENTS OF VCA-2 AND
CONDENSED FINANCIAL STATEMENTS OF THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA AND SUBSIDIARIES
TO BE PROVIDED BY POST-EFFECTIVE AMENDMENT
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<PAGE> 60
ITEM 28. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS
(1) Financial Statements of The Prudential Variable Contract Account-2
(Registrant) consisting of the Statement of Net Assets, as of December
31, 1998; the Statement of Operations for the period ended December 31,
1998; the Statements of Changes in Net Assets for the periods ended
December 31, 1998 and 1997; and the Notes relating thereto appear in the
statement of additional information (Part B of the Registration
Statement): TO BE FILED BY POST-EFFECTIVE AMENDMENT
(2) Financial Statements of The Prudential Insurance Company of America
(Depositor) consisting of the Statements of Financial Position as of
December 31, 1998 and 1997; the Statements of Operations and Changes in
Surplus and Asset Valuation Reserve (AVR) and the Statements of Cash
Flows for the years ended December 31, 1998 and 1997; and the Notes
relating thereto appear in the statement of additional information (Part
B of the Registration Statement): TO BE FILED BY POST-EFFECTIVE
AMENDMENT
<TABLE>
<CAPTION>
B EXHIBITS
<S> <C>
(1) Resolution of the Board of Directors Incorporated by reference to
of The Prudential Insurance Exhibit 1 to this Registrant's Form
Company of America establishing N-8B-1 Registration Statement, File
The Prudential Variable Contract No.811-1612
Account-2
(2) Rules and Regulations of The Incorporated by reference to
Prudential Variable Contract Exhibit (2) to Post-Effective
Account-2 Amendment No. 41 to this
Registration Statement
(To be filed via EDGAR)
(3) Form of Custodian Agreement Incorporated by reference to Exhibit (3)
with Investors Fiduciary Trust to Post-Effective Amendment No. 52 to this
Company Registration Statement filed via EDGAR on
April 29, 1998
(4) (i) Agreement for Investment Incorporated by reference to
Management Services between Exhibit 5 to Registrant's
Prudential and The Prudential Form N-8B-1 Registration Statement,
Variable Contract Account-2 File No. 811-1612
(To be filed via EDGAR)
(ii) Amendment No. 1 to Agreement Incorporated by reference to
for Investment Management Services Exhibit 1 (5)(b) to Post-Effective
between Prudential and The Amendment No. 8 to this
Prudential Variable Contract Registration Statement
Account-2 (To be filed via EDGAR)
(5) (i) Agreement Relating to the Sale Incorporated by reference to
of Group Variable Annuity Contracts Exhibit 6 to this Registrant's
between Prudential and The Form N-8B-1 Registration Statement,
Prudential Variable Contract File No.811-1612
Account-2 (To be filed via EDGAR)
(ii) Amendment to Agreement Incorporated by reference to
Relating to the Sale of Group Exhibit 6(ii) to Post-Effective
Variable Annuity Contracts between Amendment No. 25 to this
Prudential and The Prudential Registration Statement
Variable Contract Account-2 (To be filed via EDGAR)
(iii) Dealer Agreement between Incorporated by reference to
Prudential, The Prudential Variable Exhibit 6(iii) to Post-Effective
Contract Account-2 and Prudential- Amendment No. 34 to this
Bache Securities Inc. Registration Statement
(To be filed via EDGAR)
(iv) Agreement for the Sale of VCA-2 Incorporated by reference to
Contracts between Prudential, The Exhibit 5(iv) to Post-Effective
</TABLE>
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<PAGE> 61
<TABLE>
<S> <C>
Prudential Variable Contract Amendment No. 46 to this
Account-2 and Prudential Retirement Registration Statement
Services, Inc. (To be filed via EDGAR)
(v) Agreement for the Sale of VCA- Incorporated by reference to
Contracts between Prudential, The Exhibit 5(v) to Post-Effective
Prudential Variable Contract Amendment No. 50 to this
Account-2 and Prudential Investment Registration Statement
Management Services LLC
(6) (i) Specimen copy of group variable Incorporated by reference to
annuity contract Form GVA-120, with Exhibit (4) to Post-Effective
State modifications Amendment No. 32 to this
Registration Statement
(To be filed via EDGAR)
(ii) Specimen copy of Group Annuity Incorporated by reference to
Amendment Form GAA-7764 for Exhibit (6)(ii) to Post-Effective
tax-deferred annuities Amendment No 42 to this
Registration Statement
(To be filed via EDGAR)
(iii) Specimen copy of Group Incorporated by reference to
Annuity Amendment Form GAA-7852 Exhibit (6)(iii) to Post-Effective
for tax-deferred annuities Amendment No. 45 to this
Registration Statement
(To be filed via EDGAR)
(7) Application form Incorporated by reference to
Exhibit (4) of Post-Effective
Amendment No. 32 to this
Registration Statement
(To be filed via EDGAR)
(8) (i) Copy of the Charter of Incorporated by reference to Post Effective Amendment No.9
Prudential as amended to and to Form S-1, Registration No. 33-20083 filed on April 9, 1997
including November 14, 1995 on behalf of The Prudential Variable Contract Real
Property Account
(ii) Copy of the By-Laws of Incorporated by reference to
Prudential, as amended to and Form S-6, Registration No. 333-64957 filed on September 30,
including May 12, 1998 1998 via EDGAR on behalf of The Prudential Variable
Appreciable Account
(11) (i) Service Agreement between Incorporated by reference to
Prudential and The Prudential Exhibit (10)(i) to Post-Effective
Investment Corporation Amendment No. 34 to this
Registration Statement
(To be filed via EDGAR)
(ii) Service Agreement between Incorporated by reference to
Prudential and The Prudential Asset Exhibit (10)(ii) to Post-Effective
Management Company, Inc. Amendment No. 34 to this
Registration Statement
(To be filed via EDGAR)
(13) (i) Consents of independent auditors TO BE FILED BY POST-EFFECTIVE AMENDMENT
(ii) Powers of Attorney
(a) Members of the Registrant's Incorporated by reference to Exhibit (13) (ii)(a)
Committee Messrs. Fenster, McDonald and to Post-Effective Amendment No. 52 to this
Weber Registration Statement filed via EDGAR on April 28,
1998
(b) Directors and Officers of Prudential Incorporated by reference to Post-Effective Amendment No. 10
to Form S-1, Registration No. 33-20083, filed on April 9, 1998
on behalf of The Prudential Variable Contract Real
Property Account
(b)(i) Anthony S. Piszel Incorporated by reference to Post-Effective
Amendment No. 4 for Form N-4, Registration No.
333-23271, filed February 23, 1999, on behalf of
The Prudential Discovery Select Group Variable
Contract Account
</TABLE>
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<PAGE> 62
(17) Financial Data Schedule TO BE FILED BY POST EFFECTIVE AMENDMENT
ITEM 29. DIRECTORS AND OFFICERS OF PRUDENTIAL
Information about Prudential's Directors and Executive Officers appears under
the heading "Directors and Officers of Prudential" in the Statement of
Additional Information (Part B of this Registration Statement).
ITEM 30. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is a separate account of The Prudential Insurance Company of America,
a mutual life insurance company organized under the laws of the State of New
Jersey. The subsidiaries of Prudential, and short descriptions of each are
listed under Item 25 to Post-Effective Amendment No. 34 to the Form N-1A
Registration Statement for The Prudential Series Fund, Inc., Registration No.
2-80896, filed April 24, 1998, the text of which is hereby incorporated.
In addition to the subsidiaries shown on the Organization Chart, Prudential
holds all of the voting securities of Prudential's Gibraltar Fund, Inc., a
Maryland corporation, in three of its separate accounts. Prudential also holds
directly and in three of its other separate accounts, shares of The Prudential
Series Fund, Inc., a Maryland corporation. The balance are held in separate
accounts of Pruco Life Insurance Company and Pruco Life Insurance Company of New
Jersey, wholly-owned subsidiaries of Prudential. All of the separate accounts
referred to above are unit investment trusts registered under the Investment
Company Act of 1940. Prudential's Gibraltar Fund, Inc. and The Prudential Series
Fund, Inc. are registered as open-end, diversified management investment
companies under the Investment Company Act of 1940. The shares of these
investment companies are voted in accordance with the instructions of persons
having interests in the unit investment trusts, and Prudential, Pruco Life
Insurance Company and Pruco Life Insurance Company of New Jersey vote the shares
they hold directly in the same manner that they vote the shares that they hold
in their separate accounts.
Registrant may also be deemed to be under common control with The Prudential
Variable Contract Account-10 and The Prudential Variable Contract Account-11,
separate accounts of Prudential registered as open-end, diversified management
investment companies under the Investment Company Act of 1940, and with The
Prudential Variable Contract Account-24, a separate account of Prudential
registered as a unit investment trust.
The Prudential is a mutual insurance company. Its financial statements have been
prepared in conformity with generally accepted accounting principles, which
include statutory accounting practices prescribed or permitted by state
regulatory authorities for insurance companies.
ITEM 31. NUMBER OF CONTRACTOWNERS
As of March 31, 1998, the number of contractowners of qualified contracts
offered by Registrant was 590. and the number of contractowners of non-qualified
contracts offered by Registrant was 0.
ITEM 32. INDEMNIFICATION
The Registrant, in conjunction with certain affiliates, maintains insurance on
behalf of any person who is or was a trustee, director, officer, employee, or
agent of the Registrant, or who is or was serving at the request of the
Registrant as a trustee, director, officer, employee or agent of such other
affiliated trust or corporation, against any liability asserted against and
incurred by him or her arising out of his or her position with such trust or
corporation.
New Jersey, being the state of organization of The Prudential Insurance Company
of America ("Prudential"), permits entities organized under its jurisdiction to
indemnify directors and officers with certain limitations. The relevant
provisions of New Jersey law permitting indemnification can be found in Section
14A:3-5 of the New Jersey Statutes Annotated. The text of Prudential's By-law
27, which relates to indemnification of officers and directors, is incorporated
by reference to Exhibit (8)(ii) of Post-Effective Amendment No. 26 to Form N-3,
Registration No. 2-76580, filed May 1, 1995, on behalf of The Prudential
Variable Contract Account-10.
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<PAGE> 63
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 33. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Prudential does have other business of a substantial nature besides activities
relating to the assets of the registrant. Prudential is involved in insurance,
securities, pension services, real estate and banking.
The Prudential Investment Corporation (PIC) is an investment unit of Prudential
and is actively engaged 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 other business,
profession, vocation, or employment of a substantial nature, and have not had
such other connections during the past two years.
The business and other connections, including principal business address, of
Prudential's Directors are listed under "Directors and Officers of Prudential"
in the Statement of Additional Information (Part B of this Registration
Statement).
ITEM 34. PRINCIPAL UNDERWRITER
(a) PIMS, a direct wholly-owned subsidiary of Prudential, acts as the principal
underwriter for The Prudential Variable Contract Account-10, The Prudential
Variable Contract Account-11 and for the Registrant, all registered as
open-end management investment companies under the Investment Company Act of
1940.
(b) Information regarding the Officers and Directors of PIMS is set forth below.
*Unless otherwise noted, Principal Business Address will be: 751 Broad Street,
Newark, New Jersey 07102.
<TABLE>
<CAPTION>
Name and Principal Position and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ---------------- ---------------- ---------------
<S> <C> <C>
Mark R. Fetting Executive Vice President None
100 Mulberry St.
Gateway Center Three
Newark, NJ 07102
Mendel A. Melzer, CFA Executive Vice President Chairman and Committee
100 Mulberry Street Member
Gateway Center Two
Newark, NJ 07102
Jean D. Hamilton Executive Vice President None
Ronald P. Joelson Executive Vice President None
Brian M. Storms Executive Vice President None
100 Mulberry St.
Gateway Center Three
Newark, NJ 07102
John R. Strangfeld, Jr. Executive Vice President None
Brian Henderson Senior Vice President and None
100 Mulberry Street Chief Operating Officer
Gateway Center Three
Newark, NJ 07102
</TABLE>
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<PAGE> 64
<TABLE>
<S> <C> <C>
William V. Healey Senior Vice President, Secretary and None
100 Mulberry Street Chief Legal Officer
Gateway Center Three
Newark, NJ 07102
Margaret M. Deverell Vice President, Comptroller and None
100 Mulberry Street Chief Financial Officer
Gateway Center Three
Newark, NJ 07102
C. Edward Chaplin Treasurer None
Kevin B. Frawley Senior Vice President and None
213 Washington Street Compliance Officer
Newark, NJ, 07102
</TABLE>
(c) Reference is made to the Section entitled "Description of Prudential and
VCA-2" on page of the prospectus and "Charges" on page of the
prospectus (Part A of this Registration Statement) and "Investment
Management and Administration of VCA-2" on page of the Statement of
Additional Information (Part B of this Registration Statement).
ITEM 35. LOCATION OF ACCOUNTS AND RECORDS
The names and addresses of the persons who maintain physical possession of the
accounts, books and documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder are:
The Prudential Insurance Company of America and The Prudential Investment
Corporation 751 Broad Street Newark, New Jersey 07102-3777
The Prudential Insurance Company of America and The Prudential Investment
Corporation 56 North Livingston Avenue Roseland, New Jersey 07068
The Prudential Insurance Company of America c/o Prudential Defined
Contribution Services 30 Scranton Office Park Scranton, Pennsylvania
18507-1789
Prudential Investments Fund Management LLC 100 Mulberry Street, Gateway
Center Three, Newark, New Jersey 07102 Investors Fiduciary Trust Company
127 West 10th Street Kansas City, Missouri 64105
ITEM 36. MANAGEMENT SERVICES
NOT APPLICABLE
ITEM 37. UNDERTAKINGS
The Prudential Insurance Company of America ("Prudential") represents that the
fees and charges deducted under the Contract in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Prudential.
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section. Registrant also undertakes (1) to file a post-effective
amendment to this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement are never
more than 16 months old as long as payment under the contracts may be accepted;
(2) to affix to the prospectus a postcard that the applicant can remove to send
for a Statement of Additional Information or to include as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information; and (3) to
deliver any Statement of Additional Information promptly upon written or oral
request.
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<PAGE> 65
Restrictions on withdrawal under Section 403(b) Contracts are imposed in
reliance upon, and in compliance with, a no-action letter issued by the Chief of
the Office of Insurance Products and Legal Compliance of the Securities and
Exchange Commission to the American Council of Life Insurance on November 28,
1988.
REPRESENTATION PURSUANT TO RULE 6c-7
Registrant represents that it is relying upon Rule 6c-7 under the Investment
Company Act of 1940 in connection with the sale of its group variable contracts
to participants in the Texas Optional Retirement Program. Registrant also
represents that it has complied with the provisions of paragraphs (a) - (d) of
the Rule.
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<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed on
behalf of the Registrant in the City of Newark and State of New Jersey, on the
26th day of February, 1999.
THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
By: /s/ MENDEL A. MELZER
--------------------------------
Mendel A. Melzer
Chairman
SIGNATURES
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------ ------------------------------- -------------------
<S> <C> <C>
/s/MENDEL A. MELZER Member and Chairman, The
- ----------------------- Prudential Variable Contract
Mendel A. Melzer Account-2 Committee
/s/GRACE C.TORRES Treasurer and Principal
- ----------------------- Financial and Accounting Officer
Grace Torres February 26, 1999
*SAUL K. FENSTER Member, The Prudential Variable
- ----------------------- Contract Account-2 Committee
Saul K. Fenster
*W. SCOTT McDONALD, JR. Member, The Prudential Variable
- ----------------------- Contract Account 2 Committee
W. Scott McDonald, Jr.
*JOSEPH WEBER Member, The Prudential Variable
- ----------------------- Contract Account-2 Committee
Joseph Weber
*By: /s/ CAREN CUNNINGHAM
---------------------------------
Caren Cunningham
(Attorney-in-Fact)
</TABLE>
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<PAGE> 67
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, The Prudential Insurance Company of America has caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, and State of New Jersey, on
the 26th day of February, 1999.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
By: /s/ MENDEL A. MELZER
---------------------------------
Mendel A. Melzer
Vice President
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following Directors and
Officers of The Prudential Insurance Company of America in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
*ARTHUR F. RYAN Chairman of the Board, )
Arthur F. Ryan Chief Executive Officer)
and President )
*FRANKLIN E. AGNEW )
Franklin E. Agnew Director)
)
*FREDERIC K. BECKER )
Frederic K. Becker Director)
)
*MARTIN A. BERKOWITZ )
Martin A. Berkowitz Senior Vice President)
)
*RICHARD J. CARBONE )
Richard J. Carbone Chief Financial Officer)
) February 26, 1999
*JAMES G. CULLEN )
James G. Cullen Director)
)
*CAROLYNE K. DAVIS )
Carolyne K. Davis Director)
)
*ROGER A. ENRICO )
Roger A. Enrico Director)
)
*ALLAN D. GILMOUR )
Allan D. Gilmour Director)
)
*WILLIAM H. GRAY, III )
William H. Gray, III Director)
)
*JON F. HANSON )
Jon F. Hanson Director)
)
*GLEN H. HINER, JR. )
Glen H. Hiner, Jr. Director)
)
*CONSTANCE J. HORNER )
Constance J. Horner Director)
)
*GAYNOR KELLEY )
Gaynor Kelley Director)
)
*BURTON G. MALKIEL )
Burton G. Malkiel Director)
</TABLE>
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<PAGE> 68
<TABLE>
<S> <C> <C>
*IDA F.S. SCHMERTZ )
Ida F.S. Schmertz Director)
)
*CHARLES R. SITTER )
Charles R. Sitter Director)
)
*DONALD L. STAHELI )
Donald L. Staheli Director)
)
*RICHARD M. THOMSON )
Richard M. Thomson Director)
)
*JAMES A. UNRUH )
James A. Unruh Director)
February 26, 1999
)
*P. ROY VAGELOS, M.D. )
P. Roy Vagelos, M.D. Director)
)
*STANLEY C. VAN NESS )
Stanley C. Van Ness Director)
)
*PAUL A. VOLCKER )
Paul A. Volcker Director)
)
*JOSEPH H. WILLIAMS )
Joseph H. Williams Director)
)
*ANTHONY S. PISZEL )
Anthony S. Piszel Vice President)
and Controller)
</TABLE>
*By: /s/ CAREN CUNNINGHAM
--------------------------
Caren Cunningham
(Attorney-in-Fact)
C-9
