SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-2
The Prudential Variable Contract Account-2
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of Each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
751 Broad Street
Newark, NJ 07102-3777
Dear Contractholder/Participant:
You are hereby notified that The Prudential Variable Contract Account-2
("VCA-2") will hold a special meeting of persons having a right to vote with
respect to VCA-2 in the offices of The Prudential Insurance Company of America,
Gateway Center 3, 100 Mulberry Street , 14th Floor, Newark, New Jersey on
January 10, 2001 at 9:00 a.m. Eastern time for the following purposes:
1. To approve a new "managers-of-managers" structure for VCA-2 under
which the VCA-2 Committee may enter into and make changes to
subadvisory agreements without approval of persons having voting
rights.
2. To approve a new management agreement with Prudential Investments Fund
Management LLC.
3. To approve a new subadvisory agreement with Jennison Associates LLC,
an affiliate of The Prudential Insurance Company of America.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The VCA-2 Committee has fixed the close of business on November 10, 2000 as the
record date for the determination of persons entitled to notice of, and to vote
at, this meeting and any adjournments thereof.
By order of the Committee
Christopher Sprague,
Secretary
December ____, 2000
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THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
SPECIAL MEETING OF PERSONS HAVING VOTING RIGHTS
JANUARY 10, 2001
PROXY STATEMENT
The Committee of The Prudential Variable Contract Account-2 ("VCA-2" or the
"Account") solicits your voting instructions for the special meeting of persons
having voting rights in VCA-2 scheduled for January 10, 2001, and any and all
adjournments thereof. This proxy statement and the voting instruction form will
be first mailed to persons having voting rights on or about December 1, 2000.
This proxy statement provides information about the three proposals on
which we seek your vote. The proposals seek your approval to adopt a
"manager-of-managers" structure to govern VCA-2, to enter into a new management
agreement, and to enter a new subadvisory agreement. ADVISORY FEES PAID BY VCA-2
WILL NOT CHANGE AS A RESULT OF THESE PROPOSALS.
THE VCA-2 COMMITTEE HAS CONSIDERED EACH OF THE PROPOSALS AND DETERMINED
THAT APPROVAL IS IN THE BEST INTEREST OF VCA-2 PARTICIPANTS. We provide more
detail about these proposals below.
THE PROPOSALS
Three proposals are being considered at the Special Meeting:
o To approve a manager-of-managers structure for VCA-2 under which the
VCA-2 Committee may enter into and make changes to subadvisory
agreements without approval of persons having voting rights ("Proposal
1").
o To approve a new management agreement with Prudential Investments Fund
Management LLC ("PIFM") ("Proposal 2").
o To approve a new subadvisory agreement with Jennison Associates LLC
("Jennison"), an affiliate of The Prudential Insurance Company of
America ("Prudential") ("Proposal 3").
WHO VOTES?
Under most Section 403(b) plans, participants have voting rights in VCA-2
and this proxy statement will be sent to them. Under some qualified plans, the
contractholder will have the voting rights. In general, for qualified plans with
a trustee, we will send the proxy statement to the contractholder so it can
determine whether the plan provides for voting by the contractholder or the
participants.
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Voting rights are determined as of the close of business on the record date
of November 10, 2000. The person having voting rights is entitled to the number
of votes and fractions thereof equal to the number of dollars and fractions
thereof in the individual accumulation account(s) in VCA-2, or for annuitants,
the number of dollars and fractions thereof equal in value to portion of the
assets in VCA-2 to meet the annuity obligations. As of the record date of
November 10, 2000, there were ___________ VCA-2 units outstanding and eligible
for voting rights. Prudential is entitled to vote the number of votes and
fractions thereof equal to $__________ of its own funds invested in VCA-2 as of
the record date of November 10, 2000, which represents ____% of the Account.
Prudential will cast its votes in the same proportions as all other persons
having voting rights represented at the meeting in person or by proxy. For
example, if 90% of the persons having voting rights who vote are in favor of a
proposal, Prudential will cast 90% of its votes in favor of the proposal.
VCA-2 units are voted in accordance with voting instructions received from
persons having voting rights in VCA-2 as of the record date of November 10,
2000. When we refer to "you" in this proxy statement, we are referring to
persons having voting rights in VCA-2. If you abstain, your vote will
effectively be a vote against the proposal. If you submit a properly executed
voting instruction form but omit instructions with respect to any proposal, we
will vote the appropriate number of VCA-2 units as if you had given instructions
to vote for approval of the proposal.
REQUIRED VOTE
We will adopt each proposal if it is approved by the vote of a majority of
units in VCA-2. The federal securities law defines a majority of units as the
lesser of (a) a vote of 67% or more of VCA-2 units whose holders are present or
represented by a proxy at the meeting if the holders of more than 50% of all
units are present in person or represented at the meeting, or (b) a vote of more
than 50% of all VCA-2 units. If only Proposals 2 and 3 are approved, we will
implement the new agreements without the manager-of-managers authority. If less
than all three proposals are approved, the VCA-2 Committee will meet and may
determine not to implement some or both of the Proposals that were approved.
HOW CAN I VOTE?
o BY MAIL: By signing, dating, voting, and returning the proxy card in
the enclosed postage paid envelope.
o BY PHONE: With a toll-free call to 1-888-221-0697 between 9:00 a.m.
and 10:00 p.m. (Eastern Time).
o BY INTERNET: By signing onto the Internet site listed on your proxy
card and entering the proper information, including the control number
also listed on your proxy card.
o IN PERSON: By attending the meeting and voting your units.
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If you have questions regarding this proxy statement, please call (877)
778-5008, from 8 a.m. to 6 p.m. Eastern Time, Monday through Friday.
For your voting instructions to be effective, we must receive them prior to
the close of business on January 3, 2001. You may revoke your instructions by
notifying in writing VCA-2, at 751 Broad Street, Newark, NJ 07102-3777, prior to
the close of business on January 3, 2001. Alternatively, you may attend the
meeting and vote in person, in which case any prior instructions you provided
will be revoked.
OTHER INFORMATION
As of November 10, 2000, the members of the Committee and the officers of
VCA-2 owned less than 5% of VCA-2 units. To the knowledge of VCA-2, no owner of
record owned beneficially more than 5% of outstanding VCA-2 units as of November
10, 2000. None of VCA-2's executive officers has any substantial economic
interest in any matter to be acted upon at the meeting.
This solicitation is being made by mail, but it may also be made by
telephone, facsimile, or personal interview. As explained below, Prudential or
one of its affiliates, not VCA-2, will bear the cost of the solicitation.
For a proposal to be presented at a special meeting of persons having
voting rights, we must receive the proposal a reasonable time before the
solicitation of proxies is made. Usually, the proposal must arrive 90 days
before the mailing. We do not ordinarily hold annual meetings, so proposals are
presented only when special meetings are held. Therefore, we will retain all
proposals received from persons with voting rights. Those proposals will then be
eligible to be considered for distribution with the proxy materials for the next
special meeting.
OBTAINING A COPY OF THE ANNUAL OR SEMI-ANNUAL REPORT
VCA-2'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS MAY BE OBTAINED WITHOUT
CHARGE BY WRITING TO THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, c/o PRUDENTIAL
RETIREMENT SERVICES, 30 SCRANTON OFFICE PARK, SCRANTON, PA 18507-1789 OR BY
CALLING (800) 458-6333 (TOLL FREE).
PROPOSAL 1
TO APPROVE A MANAGER-OF-MANAGERS STRUCTURE FOR VCA-2
The VCA-2 Committeee, including all of the independent members, has
approved, and recommends that persons having voting rights in VCA-2 approve, a
proposal to adopt a manager-of-managers structure to govern VCA-2. THIS NEW
STRUCTURE WILL NOT CHANGE ADVISORY FEES PAID BY VCA-2.
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Under a manager-of-managers structure, VCA-2's investment manager will be
authorized to select (with approval of the Committee's independent members) one
or more subadvisers to handle the actual day-to-day investment management of
VCA-2. (The investment manager, not VCA-2, pays the fee of any subadviser, so
VCA-2 expenses do not increase when a subadviser is hired.) Under this
structure, the investment manager will monitor each subadviser's performance
through quantitative and qualitative analysis and periodically report to the
VCA-2 Committee as to whether each subadviser's agreement should be renewed,
terminated or modified. The investment manager is also responsible for
allocating assets among the subadvisers if VCA-2 has more than one subadviser.
In those circumstances, the allocation for each subadviser can range from 0% to
100% of VCA-2's assets, and the investment manager can change the allocations
without approval of the VCA-2 Committee or persons having voting rights.
Currently, VCA-2 must prepare a proxy statement and obtain approval from
persons having voting rights for any subadvisory agreement. Under the proposed
manager-of-managers structure, approval of persons having voting rights would
not be required. Instead, the investment manager (with approval of the
Committee's independent members) could hire new subadvisers and amend their
agreements without incurring the expense and delay of a proxy statement and a
meeting of persons having voting rights. Nevertheless, even though approval of
persons having voting rights would not be required, VCA-2 would send persons
having voting rights an information statement containing substantially all of
the information about the new subadviser and the new or amended subadvisory
agreement that would otherwise have been included in a proxy statement.
Prudential and the VCA-2 Committee believe that this structure allows advisory
changes, if any, to be made more quickly and efficiently, without sacrificing
the quality of service to investors.
The manager-of-managers structure requires an order issued by the
Securities and Exchange Commission ("SEC"). Any such order requires that we seek
your approval of the structure before we implement it. It is that approval that
we seek with Proposal 1. Currently, VCA-2 is seeking confirmation from the staff
of the Division of Investment Management of the SEC that VCA-2 can operate under
an order already issued to another Prudential mutual fund (the "Original
Order"). The Original Order permits us to hire or amend subadvisory agreements,
without approval of persons having voting rights, only with subadvisers that are
not affiliated with Prudential. If the Original Order is not applicable to
VCA-2, VCA-2 will seek an amendment to the Original Order or its own order.
In addition, VCA-2 intends to seek an amendment to the Original Order or a
new order from the SEC permitting us to (1) hire one or more new affiliated
subadvisers without approval of persons having voting rights; (2) amend existing
agreements with affiliated subadvisers without approval of persons having voting
rights; and (3) disclose only the aggregate fees (both as a dollar amount and as
a percentage of VCA-2's net assets) paid to each unaffiliated subadviser
("Aggregate Fee Disclosure") by the investment manager, not VCA-2. With Proposal
1, we seek your approval to extend the manager-of-managers structure to
affiliated subadvisers and to permit Aggregate Fee Disclosure if and when we
obtain such an order from the SEC.
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We will, of course, comply with any condition imposed by the SEC under any new
or amended order.
If persons having voting rights approve all three Proposals described in
this Proxy Statement, the initial investment manager will be PIFM, the
Prudential subsidiary primarily responsible for mutual fund management, and the
initial subadviser will be Jennison, the Prudential subsidiary primarily
responsible for day-to-day management of equity funds. (Proposals 2 and 3 below
provide more information about PIFM and Jennison.) Initially 100% of VCA-2's
assets will be managed by Jennison. PIFM does not currently intend to recommend
that any additional subadvisers be added because of Jennison's strong
performance record. PIFM, however, will continue to monitor Jennison's
performance and may determine to recommend additional subadvisers. If one or
more subadvisers are added to VCA-2, PIFM will be responsible for determining
the allocation of assets among the subadvisers and will have the flexibility to
increase the allocation to any one subadviser to as much as 100% and decrease
the allocation to any one subadviser to as little as 0%. It is possible that
PIFM will continue to be satisfied with the performance record of Jennison and
not recommend any additional subadvisers. The manager-of-managers structure we
are asking persons having voting rights to approve will give VCA-2 the
flexibility to efficiently retain additional subadvisers, but it is possible
that no subadvisers will be added.
MATTERS CONSIDERED BY THE COMMITTEE
On August 22, 2000, the VCA-2 Committee, including all of the independent
members, approved the proposal to present the manager-of-managers structure to
persons having voting rights. The VCA-2 Committee received materials discussing
this type of management structure in advance of the meeting and had the
opportunity to ask questions and request further information in connection with
such consideration. The VCA-2 Committee considered that the fee would not change
as a result of the proposal and that the new manager-of-managers structure will
provide an opportunity to hire subadvisers and amend their subadvisory
agreements more efficiently and with less expense. The VCA-2 Committee also
considered that PIFM has substantial experience in evaluating investment
advisers and that PIFM will bring that experience to the task of evaluating the
current subadviser for VCA-2 and any potential new subadviser. The VCA-2
Committee concluded that adopting the manager-of-managers structure was in the
best interest of VCA-2 and persons having voting rights in VCA-2.
THE COMMITTEE OF VCA-2 RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 2
TO APPROVE A NEW MANAGEMENT AGREEMENT FOR VCA-2
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The VCA-2 Committee, including all of the independent members, has
approved, and recommends that persons having voting rights approve, a proposal
to adopt a new management agreement with PIFM (the "New Agreement") (attached as
Exhibit A). ADVISORY FEES PAID BY VCA-2 WILL NOT CHANGE UNDER THE NEW AGREEMENT.
The New Agreement includes two primary changes. First, a Prudential
subsidiary, rather than Prudential itself, will serve as the investment manager.
Second, the New Agreement reflects the manager-of-managers structure, described
in Proposal 1.
Under the New Agreement, PIFM, an indirect wholly-owned subsidiary of
Prudential, will serve as the investment manager. Under the previous agreement,
Prudential was the investment manager. PIFM already serves as investment manager
to most funds in the Prudential mutual fund family, and the VCA-2 Committee and
management determined that it was appropriate to centralize responsibility for
overall mutual fund investment management in one Prudential subsidiary to the
extent possible. This change does not affect the personnel providing the actual
day-to-day investment management of VCA-2. In fact, effective September 29,
2000, PIFM began serving as the investment manager to VCA-2 under an interim
agreement described in more detail below.
Set forth below is additional information about the previous management
agreement, the interim agreement, the New Agreement and the new investment
manager, PIFM.
PREVIOUS AGREEMENT
Until September 29, 2000, Prudential served as the investment manager of
VCA-2 under an investment management agreement dated January 9, 1968 (the
"Previous Agreement"). The Previous Agreement was last submitted to persons
having voting rights in VCA-2 for approval on May 29, 1969. It was last renewed
by unanimous vote of the VCA-2 Committee on May 23, 2000.
Prudential is a mutual insurance company founded in 1875 under the laws of
the State of New Jersey. Prudential is currently considering reorganizing itself
into a publicly-traded stock company through a process known as
"demutualization." Prudential is working toward completing the demutualization
process in 2001, although there is no certainty that the demutualization will be
completed by that time or that the necessary approvals will be obtained. Also,
it is possible that after careful review, Prudential could decide not to
demutualize or could delay its plans.
Under the Previous Agreement, Prudential was responsible for the day-to-day
investment management of VCA-2, including selecting its investments. Prudential
(or a subadviser, under Prudential's supervision) was responsible for the
selection of brokers and dealers to effect all transactions. Under the Previous
Agreement, Prudential bore the expenses for investment advisory services
incurred in connection with the purchase and sale of securities (but not the
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brokers' commissions and transfer taxes and other charges and fees attributable
to investment transactions), the salaries and expenses of all VCA-2 Committee
members, officers, and employees reasonably necessary for VCA-2's operations,
and the expenses for the facilities of VCA-2. Prudential also was responsible
for the administrative and record keeping functions of VCA-2 and paid the
expenses associated with them.
For its investment advisory services, VCA-2 paid Prudential an advisory fee
equal to 0.125% per year of the average daily net assets of VCA-2. In 1999,
VCA-2 paid Prudential $732,745 for providing investment management services.
AFFILIATED BROKER
Under the Previous Agreement, Prudential or a subadviser placed all orders
for the purchase or sale of securities on behalf of VCA-2. Prudential and any
subadviser were authorized to place agency transactions with Prudential
Securities Incorporated ("PSI"), an indirect wholly-owned subsidiary of
Prudential, if the commissions were fair, reasonable, and comparable to
commissions charged by non-affiliated, qualified brokerage firms for similar
services.
In 1999, PSI earned brokerage commissions of $23,040 from VCA-2 for
executing portfolio transactions on behalf of VCA-2. During 1999, 1.2% of the
total VCA-2 brokerage commissions were paid to PSI, and PSI effected 1.7% of
VCA-2's transactions involving the payment of commission (calculated based on
the dollar amount of those transactions).
OTHER FEES PAID TO PRUDENTIAL OR PRUDENTIAL AFFILIATES
Prudential charges VCA-2 a daily charge of 0.25% of the net asset value of
VCA-2 for assuming expense risks and 0.125% for assuming mortality risks. In
1999 VCA-2 paid Prudential $1,465,489 for assuming expense risks and $732,745
for assuming mortality risks. Prudential also receives an annual administration
fee charged against the accumulation account of each participant. This charge
varies with each contract but is not more than $30 for any accounting year.
During 1999, Prudential collected $23,655 in these charges. Also, certain
purchase payments made under a contract on behalf of a participant have a sales
charge. The sales charges imposed on purchase payments to VCA-2 during 1999 were
$6,721. These fees will not change as a result of this proposal.
OTHER PRUDENTIAL SERVICE PROVIDERS
Prudential Investment Management Services LLC ("PIMS"), an indirect
wholly-owned subsidiary of Prudential, acts as the principal underwriter for
VCA-2. PIMS is located at Gateway Center 3, 100 Mulberry Street, Newark, NJ
07102. Under the terms of the distribution agreement Prudential, not VCA-2, is
responsible for compensating PIMS. VCA-2 does not pay any fee to PIMS.
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INTERIM AGREEMENT
On September 29, 2000, the Committee of VCA-2 approved an interim
management agreement under which PIFM became the investment manager for VCA-2
(the "Interim Agreement"). The Interim Agreement superseded the Previous
Agreement as of that date. The federal securities laws permit VCA-2 to operate
under this interim agreement for up to 150 days until persons having voting
rights approve an agreement with the new manager, PIFM. The terms of the Interim
Agreement are substantially similar to the Previous Agreement, except that PIFM,
not Prudential, is the investment manager. Advisory fees are the same, and the
fees are put in escrow until the meeting of persons having voting rights set for
January 10, 2001.
NEW AGREEMENT
Under the New Agreement, VCA-2 would receive investment advisory services
from PIFM. PIFM is a wholly-owned subsidiary of PIFM Holdco, Inc. ("PPHCo"),
which is a wholly-owned subsidiary of Prudential Asset Management Holding
Company ("PAMHCo"), which a wholly-owned subsidiary of Prudential. The address
for PIFM, PPHCo and PAMHCo is Gateway Center 3, 100 Mulberry Street, Newark, NJ
07102.
PIFM serves as manager to almost all the other investment companies that
comprise the Prudential mutual fund complex. As of June 30, 2000, PIFM managed
and /or administered open-end and closed-end management investment companies
with assets of approximately $76 billion.
The New Agreement is attached as Exhibit A. In brief, the New Agreement
provides that:
o PIFM will administer VCA-2's business affairs and supervise VCA-2's
investments and PIFM may engage one or more subadvisers for VCA-2,
which will have primary responsibility for determining what
investments VCA-2 will purchase, retain, and sell;
o PIFM (or the subadviser, acting under PIFM's supervision) will select
brokers to effect trades for VCA-2, and may pay a higher commission to
a broker that provides research services;
o PIFM will pay the salaries and expenses of any Committee member,
employee, or officer of VCA-2 and all expenses incurred by PIFM in
connection with managing VCA-2's business, except brokers'
commissions, transfer taxes, and other charges and fees attributable
to investment transactions, any other local, state or federal taxes,
fidelity bond and insurance, litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course
of VCA-2's business, and any expenses assumed by VCA-2 under any
distribution plan;
o PIFM will pay any subadvisory fee;
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o PIFM will charge the same advisory fee as Prudential charged VCA-2
under the Previous Agreement;
o PIFM may replace VCA-2's subadviser or amend a subadvisory agreement;
and
o If VCA-2 has more than one subadviser, PIFM will determine the
allocation of assets among VCA-2 's subadvisers.
The table below lists the name and principal occupation of PIFM's principal
executive officers. (PIFM has no directors.) The address of each person is
Gateway Center 3, 100 Mulberry Street, Newark, NJ 07102-4077.
<TABLE>
<CAPTION>
NAME POSITION WITH PIFM PRINCIPAL OCCUPATIONS
---------------------------------- --------------------------------------- -----------------------------------------
<S> <C> <C>
David R. Odenath, Jr. President, Chief Executive Officer President, Chief Executive Officer and
and Chief Operating Officer Chief Operating Officer, PIFM; Senior
Vice President, Prudential
---------------------------------- --------------------------------------- -----------------------------------------
Robert F. Gunia Executive Vice President and Chief Executive Vice President and Chief
Administrative Officer Administrative Officer, PIFM; Vice
President, Prudential; President,
Prudential Investment Management
Services LLC ("PIMS")
---------------------------------- --------------------------------------- -----------------------------------------
William V. Healey Executive Vice President, Chief Legal Executive Vice President, Chief Legal
Officer and Secretary Officer and Secretary, PIFM; Vice
President and Associate General
Counsel, Prudential; Senior Vice
President, Chief Legal Officer and
Secretary, PIMS
---------------------------------- --------------------------------------- -----------------------------------------
Theodore F. Kilkuskie Executive Vice President Executive Vice President, PIFM
---------------------------------- --------------------------------------- -----------------------------------------
Ajay Sawhney Executive Vice President Executive Vice President, PIFM
---------------------------------- --------------------------------------- -----------------------------------------
Judy A. Rice Executive Vice President Executive Vice President, PIFM
---------------------------------- --------------------------------------- -----------------------------------------
Lynn M. Waldvogel Executive Vice President Executive Vice President, PIFM
---------------------------------- --------------------------------------- -----------------------------------------
</TABLE>
There are several officers of VCA-2 who are also officers of the proposed
investment adviser, PIFM. The table below lists people who are officers of both
VCA-2 and PIFM.
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<TABLE>
<CAPTION>
NAME POSITION WITH VCA-2 POSITION WITH PIFM
---------------------------------- --------------------------------------- -----------------------------------------
<S> <C> <C>
David R. Odenath, Jr. President President, Chief Executive Officer and
Chief Operating Officer
---------------------------------- --------------------------------------- -----------------------------------------
Robert F. Gunia Vice President Executive Vice President and Chief
Administrative Officer
---------------------------------- --------------------------------------- -----------------------------------------
William V. Healey Assistant Secretary Executive Vice President, Chief Legal
Officer and Secretary
---------------------------------- --------------------------------------- -----------------------------------------
Grace C. Torres Treasurer, Principal Financial & Senior Vice President and Assistant
Accounting Officer Treasurer
---------------------------------- --------------------------------------- -----------------------------------------
</TABLE>
MATTERS CONSIDERED BY THE COMMITTEE
On August 22, 2000, the VCA-2 Committee, including all of the independent
Committee members, approved the proposal to present the New Agreement to persons
having voting rights. The VCA-2 Committee received materials relating to the New
Agreement in advance of the meeting and had the opportunity to ask questions and
request further information in connection with such consideration. The VCA-2
Committee considered that the fee would not change as a result of this proposal.
The VCA-2 Committee also considered that it was appropriate that PIFM, as the
Prudential subsidiary specializing in mutual fund management, serve as manager
for VCA-2, and that the change from Prudential to PIFM will not have an effect
on the actual personnel who manage VCA-2. The VCA-2 Committee also considered
that the other provisions of the New Agreement are substantially similar to the
Previous Agreement. The VCA-2 Committee concluded that approving the New
Agreement was in the best interest of VCA-2 and the persons having voting rights
in VCA-2.
THE COMMITTEE OF VCA-2 RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
PROPOSAL 3
TO APPROVE A NEW SUBADVISORY AGREEMENT FOR VCA-2
The VCA-2 Committee, including all of the independent members, has
approved, and recommends that persons having voting rights approve, a proposal
to adopt a new subadvisory agreement between PIFM and Jennison (the "New
Subadvisory Agreement") (attached as Exhibit B). ADVISORY FEES PAID BY VCA-2
WILL NOT CHANGE AS A RESULT OF THIS PROPOSAL.
Until September 18, 2000, Prudential Investment Corporation ("PIC") served
as subadviser to VCA-2, providing day-to-day investment management of VCA-2's
portfolio, under an agreement dated December 31, 1984 (the "Previous Subadvisory
Agreement"). On September
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18, 2000, subadvisory responsibilities were transferred to another Prudential
subsidiary, Jennison. The transfer was part of a broader organizational
transition, under which Prudential is transferring the equity management of its
mutual funds from PIC to Jennison. Jennison is currently serving as subadviser
under the interim subadvisory agreement, which is described below. Other than
the change from PIC to Jennison and a change in the fee arrangement between
VCA-2's investment manager and its subadviser, there are no material differences
between the Previous Subadvisory Agreement and the New Subadvisory Agreement.
Set forth below is additional information about the agreements and the new
subadviser, Jennison.
PREVIOUS SUBADVISORY AGREEMENT
The Previous Subadvisory Agreement dated December 31, 1984 was last
submitted to persons having voting rights for approval on July 25, 1985 and was
last renewed by the VCA-2 Committee on May 23, 2000. Subject to Prudential's
supervision, substantially all of the investment management services provided by
Prudential were furnished by its wholly-owned subsidiary, PIC. PIC is located at
Gateway Center 3, 100 Mulberry Street, Newark, NJ 07102. Under the Previous
Subadvisory Agreement, Prudential reimbursed PIC for its costs in providing
services to VCA-2.
INTERIM SUBADVISORY AGREEMENT
On August 22, 2000, the VCA-2 Committee approved an interim subadvisory
agreement under which on September 18, 2000 Jennison became the subadviser for
VCA-2. This interim agreement superseded the Previous Subadvisory Agreement as
of that date. The federal securities laws permit VCA-2 to operate under an
interim agreement for up to 150 days until persons having voting rights approve
an agreement with Jennison. On September 29, 2000, the VCA-2 Committee approved
an amended interim subadvisory agreement to reflect the fact that the investment
manager changed on that date from Prudential to PIFM. The fees are put in escrow
until the meeting of persons having voting rights set for January 10, 2001.
NEW SUBADVISORY AGREEMENT
Under the New Subadvisory Agreement, VCA-2 would continue to receive
subadvisory services from Jennison. Jennison, 466 Lexington Avenue, New York, NY
10017, is a wholly-owned subsidiary of PIC. PIC is a wholly-owned subsidiary of
Prudential Asset Management Holding Company ("PAMHCo"), which is a wholly-owned
subsidiary of Prudential. The address for PAMHCo is Gateway Center 3, 100
Mulberry Street, Newark, NJ 07102. Jennison has provided investment advice to a
number of SEC-registered investment companies and other pooled investment
vehicles since 1990. As of June 30, 2000, Jennison had assets under management
of $63.5 billion.
12
<PAGE>
The New Subadvisory Agreement provides that PIFM will pay Jennison 0.125%
of the average daily net assets for the portion of VCA-2 managed by Jennison.
This proposal will not change VCA-2's fees since PIFM is responsible for
compensating subadvisers from its investment advisory fee. In 1999, Prudential
paid PIC $753,093 with respect to VCA-2. Had the proposed subadvisory fee been
in place during 1999, Prudential would have paid PIC $732,745, which would have
been a 2.7 % decrease.
The New Subadvisory Agreement is attached as Exhibit B. In brief, the New
Subadvisory Agreement provides that:
o Jennison will provide day-to-day management of the portion of VCA-2's
portfolio allocated to it (initially 100%);
o Jennison will select brokers to effect trades for VCA-2 and may pay a
higher commission to a broker that provides research services;
o Jennison will maintain certain books and records on behalf of VCA-2;
and
o PIFM will be responsible for compensating Jennison for its services
out of the investment advisory fee PIFM receives from VCA-2.
The table below lists the name and principal occupation of the principal
executive officer and each director of Jennison. The address of each person is
466 Lexington Avenue, New York, NY 10017.
<TABLE>
<CAPTION>
NAME POSITION AND PRINCIPAL OCCUPATION
------------------------------------ -------------------------------------------------------------------------------
<S> <C>
Michael A. Del Balso Director; Executive Vice President
------------------------------------ -------------------------------------------------------------------------------
Mary-Jane Flaherty Director
------------------------------------ -------------------------------------------------------------------------------
John H. Hobbs Chairman; Chief Executive Officer
------------------------------------ -------------------------------------------------------------------------------
Karen E. Kohler Director; Senior Vice President; Chief Compliance Officer; Treasurer and
Secretary
------------------------------------ -------------------------------------------------------------------------------
Kathleen A. McCarragher Director; Executive Vice President
------------------------------------ -------------------------------------------------------------------------------
Spiros Segalas Director; President and Chief Investment Officer
------------------------------------ -------------------------------------------------------------------------------
Victor Sim Director
------------------------------------ -------------------------------------------------------------------------------
Kevin C. Uebelein Director
------------------------------------ -------------------------------------------------------------------------------
Bernard B. Winograd Director
------------------------------------ -------------------------------------------------------------------------------
Philip N. Russo Director
------------------------------------ -------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
------------------------------------ -------------------------------------------------------------------------------
John R. Strangfeld Director; Chief Executive Officer Prudential Global Asset Management and
Chief Executive Officer of Prudential Securities Incorporated
------------------------------------ -------------------------------------------------------------------------------
</TABLE>
MATTERS CONSIDERED BY THE COMMITTEE
On August 22, 2000, the VCA-2 Committee, including all of the independent
members, approved the proposal to present the New Subadvisory Agreement with
Jennison to persons having voting rights. The VCA-2 Committee received materials
relating to the New Subadvisory Agreement in advance of the meeting and had the
opportunity to ask questions and request further information in connection with
such consideration. The VCA-2 Committee considered that the New Subadvisory
Agreement is substantially the same as the Previous Subadvisory Agreement. The
only significant differences are that under the New Subadvisory Agreement PIFM
will pay Jennison rather than PIC the subadvisory fee and the subadvisory fee
will be 0.125% of the average daily net assets for the portion of VCA-2 managed
by Jennison, rather than a reimbursement of costs and expenses. The VCA-2
Committee also considered that it is appropriate to switch subadvisory
agreements for VCA-2 in light of the transition of all equity management from
PIC to Jennison. The VCA-2 Committee concluded that approving the New
Subadvisory Agreement was in the best interest of VCA-2 and the persons having
voting rights in VCA-2.
THE COMMITTEE OF VCA-2 RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
14
<PAGE>
Exhibit A
PRUDENTIAL VARIABLE CONTRACT ACCOUNT - 2
MANAGEMENT AGREEMENT
Agreement made this ___ day of _______, _____, between Prudential Variable
Contract Account - 2, a separate account of The Prudential Insurance Company of
America (the Fund), and Prudential Investments Fund Management LLC, a New York
limited liability company (the Manager).
W I T N E S S E T H
WHEREAS, the Fund is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the 1940 Act);
and
WHEREAS, the Fund desires to retain the Manager to render or contract to
obtain as hereinafter provided investment advisory services to the Fund and the
Fund also desires to avail itself of the facilities available to the Manager
with respect to the administration of its day to day business affairs, and the
Manager is willing to render such investment advisory and administrative
services;
NOW, THEREFORE, the parties agree as follows:
1. The Fund hereby appoints the Manager to act as manager of the Fund and
as administrator of its business affairs for the period and on the terms set
forth in this Agreement. The Manager accepts such appointment and agrees to
render the services herein described, for the compensation herein provided. The
Manager is authorized to enter into a subadvisory agreement with Jennison
Associates LLC, or any other sub-adviser, whether or not affiliated with
Prudential (each, a Subadviser) pursuant to which such Subadviser shall furnish
to the Fund the investment advisory services in connection with the management
of the Fund (each, a Subadvisory Agreement). The Manager is authorized to retain
more than one Subadviser, and if there is more than one Subadviser, the Manager
is authorized to allocate the Fund's assets among the Subadvisers. The Manager
will continue to have responsibility for all investment advisory services
furnished pursuant to any Subadvisory Agreement. The Fund and Manager understand
and agree that Manager will manage the Fund in a "manager-of-managers" style,
which contemplates that Manager will, among other things, (i) continually
evaluate the performance of each Subadviser through quantitative and qualitative
analysis and consultations with such Subadviser (ii) periodically make
recommendations to the Fund's Committee as to whether the contract with one or
more Subadvisers should be renewed, modified, or terminated and (iii)
periodically report to the Fund's Committee regarding the results of its
evaluation and monitoring functions.
A-1
<PAGE>
The Fund recognizes that a Subadviser's services may be terminated or modified
pursuant to this process, and that the Manager may appoint a new Subadviser for
a Subadviser that is so removed.
2. Subject to the supervision of the Committee of the Fund, the Manager
shall administer the Fund's business affairs and, in connection therewith, shall
furnish the Fund with office facilities and with clerical, bookkeeping and
recordkeeping services at such office facilities and, subject to Section 1
hereof and any Subadvisory Agreement, the Manager shall manage the investment
operations of the Fund and the composition of the Fund's portfolio investments,
including the purchase, retention and disposition thereof, in accordance with
the Fund's investment objectives, policies and restrictions as stated in the
Fund's SEC registration statement, and subject to the following understandings:
(a) The Manager (or a Subadviser under the Manager's supervision)
shall provide supervision of the Fund's investments, and shall determine
from time to time what investments or securities will be purchased,
retained, sold or loaned by the Fund, and what portion of the assets will
be invested or held uninvested as cash.
(b) The Manager, in the performance of its duties and obligations
under this Agreement, shall act in conformity with the Plan of Operations,
Rules and Regulations of the Fund, the Fund's SEC registration statement,
and the instructions and directions of the Committee of the Fund, and will
conform to and comply with the requirements of the 1940 Act and all other
applicable federal and state laws and regulations. In connection therewith,
the Manager shall, among other things, prepare and file (or cause to be
prepared and filed) such reports as are, or may in the future be, required
by the Securities and Exchange Commission.
(c) The Manager (or the Subadviser under the Manager's supervision)
shall determine the securities and futures contracts to be purchased or
sold by the Fund and will place orders pursuant to its determinations with
or through such persons, brokers, dealers or futures commission merchants
(including but not limited to Prudential Securities Incorporated) in
conformity with the policy with respect to brokerage as set forth in the
Fund's SEC Registration Statement or as the Committee may direct from time
to time. In providing the Fund with investment supervision, it is
recognized that the Manager (or the Subadviser under the Manager's
supervision) will give primary consideration to securing the most favorable
price and efficient execution. Consistent with this policy, the Manager (or
Subadviser under the Manager's supervision) may consider the financial
responsibility, research and investment information and other services
provided by brokers, dealers or futures commission merchants who may effect
or
A-2
<PAGE>
be a party to any such transaction or other transactions to which other
clients of the Manager (or Subadviser) may be a party. It is understood
that Prudential Securities Incorporated (or a broker-dealer affiliated with
a Subadviser) may be used as principal broker for securities transactions,
but that no formula has been adopted for allocation of the Fund's
investment transaction business. It is also understood that it is desirable
for the Fund that the Manager (or Subadviser) have access to supplemental
investment and market research and security and economic analysis provided
by brokers or futures commission merchants, and that such brokers or FCMs
may execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers or futures commission
merchants on the basis of seeking the most favorable price and efficient
execution. Therefore, the Manager (or the Subadviser under the Manager's
supervision) is authorized to pay higher brokerage commissions for the
purchase and sale of securities and futures contracts for the Fund to
brokers or futures commission merchants who provide such research and
analysis, subject to review by the Fund's Committee from time to time with
respect to the extent and continuation of this practice. It is understood
that the services provided by such broker or futures commission merchant
may be useful to the Manager (or the Subadviser) in connection with its
services to other clients.
On occasions when the Manager (or a Subadviser under the Manager's
supervision) deems the purchase or sale of a security or a futures contract
to be in the best interest of the Fund as well as other clients of the
Manager (or the Subadviser) the Manager (or Subadviser), to the extent
permitted by applicable laws and regulations, may, but shall be under no
obligation to, aggregate the securities or futures contracts to be so sold
or purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the
securities or futures contracts so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager (or the
Subadviser) in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such other
clients.
(d) The Manager (or the Subadviser under the Manager's supervision)
shall maintain all books and records with respect to the Fund's portfolio
transactions and shall render to the Fund's Committee such periodic and
special reports as the Committee may reasonably request.
(e) The Manager (or the Subadviser under the Manager's supervision)
shall be responsible for the financial and accounting records to be
maintained by the Fund (including those being maintained by the Fund's
Custodian).
A-3
<PAGE>
(f) The Manager (or the Subadviser under the Manager's supervision)
shall provide the Fund's Custodian on each business day information
relating to all transactions concerning the Fund's assets.
(g) The investment management services of the Manager to the Fund
under this Agreement are not to be deemed exclusive, and the Manager shall
be free to render similar services to others.
(h) The Manager shall make reasonably available its employees and
officers for consultation with any of the Committee members, officers, or
employees of the Fund with respect to any matter discussed herein,
including, without limitation, the valuation of the Fund's securities.
3. The Fund has delivered to the Manager copies of each of the following
documents and will deliver to it all future amendments and supplements, if any:
(a) Rules and Regulations of the Fund (such Rules and Regulations, as
in effect on the date hereof and as amended from time to time, are herein
called the "Rules and Regulations");
(b) Certified resolutions of the Committee members of the Fund
authorizing the appointment of the Manager and approving the form of this
agreement;
(c) Registration Statement under the 1940 Act and the Securities Act
of 1933, as amended, on Form N-3 (the Registration Statement), as filed
with the Securities and Exchange Commission (the Commission) relating to
the Fund and its shares of beneficial interest and all amendments thereto;
and
(d) Prospectus and Statement of Additional Information of the Fund.
4. The Manager shall authorize and permit any of its officers and employees
who may be elected as Committee members or officers of the Fund to serve in the
capacities in which they are elected. All services to be furnished by the
Manager under this Agreement may be furnished through the medium of any such
officers or employees of the Manager.
5. The Manager shall keep the Fund's books and records required to be
maintained by it pursuant to paragraph 2 hereof. The Manager agrees that all
records which it maintains for the Fund are the property of the Fund, and it
will surrender promptly to the Fund any such records upon the Fund's request,
provided however that the Manager may retain a copy of such records. The Manager
further agrees to
A-4
<PAGE>
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such
records as are required to be maintained by the Manager pursuant to Paragraph 2
hereof.
6. During the term of this Agreement, the Manager shall pay the following
expenses:
(a) the salaries and expenses of all Committee members, officers, and
employees of the Fund and the Manager,
(b) all expenses incurred by the Manager in connection with managing
the ordinary course of the Fund's business, other than those assumed by the
Fund herein,
(c) the costs and expenses payable to a Subadviser pursuant to a
Subadvisory Agreement,
(d) the registration of the Fund and its shares of capital stock for
the offer or sale under federal and state securities laws,
(e) the preparation, printing and distribution of prospectuses for the
Fund, and advertising and sales literature referring to the Fund for use
and offering any security to the public,
(f) the preparation and distribution of reports and acts of the Fund
required by and under federal and state securities laws,
(g) the legal and auditing services that may be required by the Fund,
(h) the conduct of annual and special meetings of persons having
voting rights, and
(i) the custodial and safekeeping services that may be required by the
Fund.
7. The Fund assumes and will pay the expenses described below:
(a) brokers' commissions, issue or transfer taxes and other charges
and fees directly attributable to the Fund in connection with its
securities and futures transactions,
(b) all taxes and corporate fees payable by the Fund to federal, state
or other governmental agencies,
A-5
<PAGE>
(c) the cost of fidelity, Committee members' and officers' and errors
and omissions insurance,
(d) litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
(e) any expenses assumed by the Fund pursuant to a Distribution and
Service Plan adopted in a manner that is consistent with Rule 12b-1 under
the 1940 Act.
8. For the services provided and the expenses assumed pursuant to this
Agreement, the Fund will pay to the Manager as full compensation therefor a fee
at the annual rate of 0.125% of the Fund's average daily net assets.
9. The Manager shall not be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this Agreement
relates, except a loss resulting from a breach of fiduciary duty with respect to
the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this Agreement.
10. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Committee of the Fund or by
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Fund, or by the Manager at any time, without the payment of any
penalty, on not more than 60 days' written notice to the other party. This
Agreement shall terminate automatically in the event of its assignment (as
defined in the 1940 Act).
11. Nothing in this Agreement shall limit or restrict the right of any
officer or employee of the Manager who may also be a Committee member, officer
or employee of the Fund to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any business,
whether of a similar or dissimilar nature, nor limit or restrict the right of
the Manager to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
12. Except as otherwise provided herein or authorized by the Committee of
the Fund from time to time, the Manager shall for all purposes herein be deemed
to be
A-6
<PAGE>
an independent contractor, and shall have no authority to act for or represent
the Fund in any way or otherwise be deemed an agent of the Fund.
13. During the term of this Agreement, the Fund agrees to furnish the
Manager at its principal office all prospectuses, proxy statements, reports to
participants, sales literature, or other material prepared for distribution to
participants in the Fund or the public, which refer in any way to the Manager,
prior to use thereof and not to use such material if the Manager reasonably
objects in writing within five business days (or such other time as may be
mutually agreed) after receipt thereof. In the event of termination of this
Agreement, the Fund will continue to furnish to the Manager copies of any of the
above- mentioned materials which refer in any way to the Manager. Sales
literature may be furnished to the Manager hereunder by first-class or overnight
mail, facsimile transmission equipment or hand delivery. The Fund shall furnish
or otherwise make available to the Manager such other information relating to
the business affairs of the Fund as the Manager at any time, or from time to
time, reasonably requests in order to discharge its obligations hereunder.
14. This Agreement may be amended by mutual consent, but the consent of the
Fund must be obtained in conformity with the requirements of the 1940 Act.
15. Any notice or other communication required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid, (1) to Prudential Investments Fund Management LLC at Gateway
Center Three, 100 Mulberry Street, Newark, NJ 07102-4077, Attention: Secretary;
or (2) to Prudential Variable Contract Account-2 at Gateway Center Three, 100
Mulberry Street, Newark, NJ 07102-4077, Attention: President.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL VARIABLE CONTRACT ACCOUNT - 2
By:
-----------------------------------------
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
By:
-----------------------------------------
A-7
<PAGE>
Exhibit B
PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
SUBADVISORY AGREEMENT
Agreement made as of this ___ day of _______, ______ between Prudential
Investments Fund Management LLC (PIFM or the Manager) and Jennison Associates
LLC (the Subadviser or Jennison).
WHEREAS, the Manager has entered into a Management Agreement, dated _____,
_____ (the Management Agreement), with Prudential Variable Contract Account-2
(the Fund), a diversified open-end management investment company registered
under the Investment Company Act of 1940 (the 1940 Act), pursuant to which PIFM
will act as Manager of the Fund; and
WHEREAS, PIFM desires to retain the Subadviser to provide investment
advisory services to the Fund, and the Subadviser is willing to render such
investment advisory services; and
NOW, THEREFORE, the Parties agree as follows:
1. (a) Subject to the supervision of the Manager and the Committee of the
Fund, the Subadviser shall manage the investment operations of the Fund and the
composition of the Fund's portfolio, including the purchase, retention and
disposition thereof, in accordance with the Fund's investment objectives,
policies and restrictions as stated in the Prospectus (such Prospectus and
Statement of Additional Information as currently in effect and as amended or
supplemented from time to time, being herein called the "Prospectus"), and
subject to the following understandings:
(i) The Subadviser shall provide supervision of the Fund's
investments and determine from time to time what investments and
securities will be purchased, retained, sold or loaned by the Fund,
and what portion of the assets will be invested or held uninvested as
cash.
(ii) In the performance of its duties and obligations under this
Agreement, the Subadviser shall act in conformity with the Plan of
Operations, Rules and Regulations, Prospectus of the Fund, and the
instructions and directions of the Manager and of the Committee of the
Fund, and will conform to and comply with the requirements of the 1940
Act, the Internal Revenue Code of 1986 and all other applicable
federal and state laws and regulations. In connection therewith, the
Subadviser shall, among other things, prepare and file such reports as
are, or may in the future be, required by the Securities and Exchange
Commission.
B-1
<PAGE>
(iii) The Subadviser shall determine the securities and futures
contracts to be purchased or sold by the Fund, and will place orders
with or through such persons, brokers, dealers or futures commission
merchants (including but not limited to Prudential Securities
Incorporated) to carry out the policy with respect to brokerage as set
forth in the Fund's Prospectus or as the Committee of the Fund may
direct from time to time. In providing the Fund with investment
supervision, it is recognized that the Subadviser will give primary
consideration to securing the most favorable price and efficient
execution. Within the framework of this policy, the Subadviser may
consider the financial responsibility, research and investment
information and other services provided by brokers, dealers or futures
commission merchants who may effect or be a party to any such
transaction or other transactions to which the Subadviser's other
clients may be a party. It is understood that Prudential Securities
Incorporated may be used as principal broker for securities
transactions, but that no formula has been adopted for allocation of
the Fund's investment transaction business. It is also understood that
it is desirable for the Fund that the Subadviser have access to
supplemental investment and market research and security and economic
analysis provided by brokers or futures commission merchants who may
execute brokerage transactions at a higher cost to the Fund than may
result when allocating brokerage to other brokers on the basis of
seeking the most favorable price and efficient execution. Therefore,
the Subadviser is authorized to place orders for the purchase and sale
of securities and futures contracts for the Fund with such brokers or
futures commission merchants, subject to review by the Fund's
Committee from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers or futures commission merchants may be useful
to the Subadviser in connection with the Subadviser's services to
other clients.
On occasions when the Subadviser deems the purchase or sale of a
security or futures contract to be in the best interest of the Fund as
well as other clients of the Subadviser, the Subadviser, to the extent
permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities or futures contracts to be
sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event,
allocation of the securities or futures contracts so purchased or
sold, as well as the expenses incurred in the transaction, will be
made by the Subadviser in the manner the Subadviser considers to be
the most equitable and consistent with its fiduciary obligations to
the Fund and to such other clients.
B-2
<PAGE>
(iv) The Subadviser shall maintain all books and records with
respect to the Fund's portfolio transactions required by subparagraphs
(b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1
under the 1940 Act, and shall render to the Fund's Committee such
periodic and special reports as the Committee may reasonably request.
The Subadviser shall make reasonably available its employees and
officers for consultation with any of the Committee members, officers,
or employees of the Fund with respect to any matter discussed herein,
including, without limitation, the valuation of the Fund's securities.
(v) The Subadviser shall provide the Fund's Custodian on each
business day with information relating to all transactions concerning
the Fund's assets, and shall provide the Manager with such information
upon request of the Manager.
(vi) The investment management services provided by the
Subadviser hereunder are not to be deemed exclusive, and the
Subadviser shall be free to render similar services to others.
Conversely, Subadviser and Manager understand and agree that Manager
manages the Fund in a "manager-of-managers" style, which contemplates
that Manager will, among other things, (i) continually evaluate the
performance of the subadviser through quantitative and qualitative
analysis and consultations with such subadviser (ii) periodically make
recommendations to the Fund's Committee as to whether the contract
with one or more subadvisers should be renewed, modified, or
terminated and (iii) periodically report to the Fund's Committee
regarding the results of its evaluation and monitoring functions.
Subadviser recognizes that its services may be terminated or modified
pursuant to this process.
(b) The Subadviser shall authorize and permit any of its directors,
officers and employees who may be elected as Committee members or officers
of the Fund to serve in the capacities in which they are elected. Services
to be furnished by the Subadviser under this Agreement may be furnished
through the medium of any of such directors, officers or employees.
(c) The Subadviser shall keep the Fund's books and records required to
be maintained by the Subadviser pursuant to paragraph 1(a) hereof and shall
timely furnish to the Manager all information relating to the Subadviser's
services hereunder needed by the Manager to keep the other books and
records of the Fund required by Rule 31a-1 under the 1940 Act. The
Subadviser agrees that all records which it maintains for the Fund are the
property of the Fund, and the Subadviser will surrender promptly to the
Fund any of such records upon the Fund's request, provided, however, that
the Subadviser may retain a copy of
B-3
<PAGE>
such records. The Subadviser further agrees to preserve for the periods
prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by it pursuant to paragraph 1(a)
hereof.
2. The Manager shall continue to have responsibility for all services to be
provided to the Fund pursuant to the Management Agreement and, as more
particularly discussed above, shall oversee and review the Subadviser's
performance of its duties under this Agreement.
3. The Subadviser shall not be liable for any error of judgment or for any
loss suffered by the Fund or the Manager in connection with the matters to which
this Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on the Subadviser's part in the performance of its
duties or from its reckless disregard of its obligations and duties under this
Agreement.
4. For the services provided pursuant to this Agreement, the Manager shall
pay the Subadviser as full compensation therefor, an annual fee (payable
quarterly) equal to 0.125% of the Fund's average daily net assets under the
management of the Subadviser.
5. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Fund at any
time, without the payment of any penalty, by the Committee of the Fund or by
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Fund, or by the Manager or the Subadviser at any time, without the
payment of any penalty, on not more than 60 days' written notice to the other
party. This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement.
6. Nothing in this Agreement shall limit or restrict the right of any of
the Subadviser's directors, officers, or employees who may also be a Committee
member, officer, or employee of the Fund to engage in any other business or to
devote his or her time and attention in part to the management or other aspects
of any business, whether of a similar or a dissimilar nature, nor limit or
restrict the Subadviser's right to engage in any other business or to render
services of any kind to any other corporation, firm, individual or association.
7. During the term of this Agreement, the Manager agrees to furnish the
Subadviser at its principal office all prospectuses, proxy statements, reports
to participants, sales literature or other material prepared for distribution to
participants in the Fund or the public, which refer to the Subadviser in any
way, prior to use thereof
B-4
<PAGE>
and not to use material if the Subadviser reasonably objects in writing five
business days (or such other time as may be mutually agreed) after receipt
thereof. Sales literature may be furnished to the Subadviser hereunder by
first-class or overnight mail, facsimile transmission equipment or hand
delivery.
8. This Agreement may be amended by mutual consent.
9. This Agreement shall be governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC
BY:
-----------------------------------------
JENNISON ASSOCIATES LLC
BY:
-----------------------------------------
B-5
<PAGE>
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VOTING INSTRUCTION FORM
THE COMMITTEE OF THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2 ("VCA-2") HEREBY
SOLICITS YOUR VOTING INSTRUCTIONS IN CONNECTION WITH THE SPECIAL MEETING OF
PERSONS HAVING VOTING RIGHTS IN VCA-2 SCHEDULED FOR JANUARY 10, 2001, AT THE
OFFICES OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, GATEWAY CENTER 3, 100
MULBERRY STREET, 14TH FLOOR, NEWARK, NEW JERSEY AT 9:00 A.M.
I (we), the undersigned, hereby instruct VCA-2 to vote the VCA-2 units to which
I (we), the undersigned, am (are) entitled to give instructions as indicated on
the reverse side of this form or as indicated below.
I (we) wish to instruct VCA-2 to vote "FOR" all of the proposals. [ ]
Date________________, 2000
Each person having voting
rights should sign as
his/her name appears on
this form; if a contract is
owned jointly, each owner
should sign; if a contract
is held in a fiduciary
capacity, the fiduciary
should sign and indicate
his/her fiduciary capacity.
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Signature(s)/Fiduciary
Capacity, if applicable
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NOTE: YOUR VOTING INSTRUCTION FORM IS NOT VALID UNLESS IT IS SIGNED.
PLEASE BE SURE TO SIGN YOUR VOTING INSTRUCTION FORM ON THE REVERSE SIDE.
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VOTING INSTRUCTION FORM
THE COMMITTEE OF VCA-2 RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE PROPOSALS
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOXES BELOW
FOR AGAINST ABSTAIN
(1) To approve a "manager-of-managers" structure for
VCA-2 under which the VCA-2 Committee may enter
into and make changes to subadvisory agreements
without approval of persons having voting rights. [ ] [ ] [ ]
(2) To approve a new management agreement with
Prudential Investments Fund Management LLC. [ ] [ ] [ ]
(3) To approve a new subadvisory agreement with
Jennison Associates LLC, an affiliate of The
Prudential Insurance Company of America. [ ] [ ] [ ]
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THE PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
SPECIAL MEETING OF PERSONS HAVING VOTING RIGHTS
JANUARY 10, 2001
As a person having voting rights in the Prudential Variable Contract Account-2
("VCA-2") on the record date of November 10, 2000, you are entitled to give
VCA-2 voting instructions on the enclosed Voting Instruction Form for the three
proposals described in the accompanying proxy statement and expected to be voted
upon at the special meeting of persons having voting rights in VCA-2 scheduled
for January 10, 2001.
We will vote the appropriate number of VCA-2 units pursuant to the instructions
given. IF NO CHOICE IS MADE AS TO ANY OR ALL OF PROPOSALS 1 THROUGH 3, WE WILL
VOTE "FOR" ANY SUCH PROPOSAL. WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY
PROPERLY COME BEFORE THE MEETING, WE WILL VOTE IN ACCORDANCE WITH OUR BEST
JUDGMENT.
To execute your voting instructions:
o Sign and date the Voting Instruction Form.
o Mark your instructions on the reverse side of the form. NOTE: If you
wish to vote "FOR" all proposals, as the Committee recommends, simply
fill in the box on the front side of the form.
o Return the form in the enclosed postage-paid envelope.
o If you wish to vote via the Internet, log on to www.proxyweb.com,
enter the control number shown on the Voting Instruction Form and
follow the instructions.
o If you wish to vote by touch-tone telephone, dial 1-888-221-0697,
enter the control number shown on the Voting Instruction Form and
follow the voice prompts.
NOTE: IF YOU VOTE BY INTERNET OR TELEPHONE, PLEASE DO NOT RETURN YOUR
VOTING INSTRUCTION FORM.
YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY TO SAVE VCA-2 THE COST OF ADDITIONAL
SOLICITATION.
